U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-KSB/A (Amendment No. 1)
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1997
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to
Commission File Number: 1-10361
Tanknology-NDE International, Inc.
(Name of small business issuer in its charter)
Delaware 95-3634420
State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization:
8900 Shoal Creek Boulevard, Building 200
Austin, Texas 78757
Address of principal executive offices
Issuer's telephone number, including area code: (512) 451-6334
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: None
Name of each exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act: None
Checkwhether the Issuer (1) filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The Issuer's revenues for the fiscal year ended December 31, 1997 were
$38,683,146.
The aggregate market value of voting stock held by non-affiliates of the Issuer
as of March 25, 1998 was approximately $1,956,493.
As of March 30, 1998, there were 16,145,166 outstanding shares of Common Stock,
$0.0001 par value, of the Issuer.
DOCUMENTS OMITTED
Exhibit Numbers 10.45 through 10.65
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
The Registrant hereby amends its Annual Report on Form 10-KSB originally filed
with the Securities and Exchange Comission on March 31, 1998, pursuant to
instruction E(3) to Form 10-KSB, by completing Item 13 appearing in Part III
thereof. In addition to the item 13 information, the Annual Report on Form
10-KSB/A (Amendment No. 1) includes all information required by Part I, Part II
and Part III of Form 10-KSB that the Registrant included in its original Form
10-KSB filing on March 31, 1998.
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
Table of Contents
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PART I
Item 1. Description of Business......................................................3
Item 2. Description of Property.....................................................12
Item 3. Legal Proceedings...........................................................12
Item 4. Submission of Matters to a Vote of Security Holders.........................12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters....................13
Item 6. Management's Discussion and Analysis or Plan of Operation...................14
Item 7. Financial Statements .......................................................21
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................21
PART III
Item 9. Directors, Executive Officers, Promoters, and Control Persons; Compliance
with Section 16(a) of the Exchange Act...............................22
Item 10. Executive Compensation......................................................23
Item 11. Security Ownership of Certain Beneficial Owners and Management..............27
Item 12. Certain Relationships and Related Transactions..............................28
Item 13. Exhibits and Reports on Form 8-K............................................30
SIGNATURES......................................................................................35
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Tanknology-NDE International, Inc (the "Company" or "TNDE") was
incorporated in Delaware in 1988. The Company is a holding company that conducts
business through its wholly-owned subsidiaries. At December 31, 1997, the
Company's subsidiaries included Tanknology/NDE Corporation, 2368692 Canada, Inc.
(formerly known as Tanknology Canada (1988) Inc.) ("Tanknology Canada"), NDE
Environmental Canada Corporation ("NDE Canada"), ProEco, Inc. ("ProEco"), EcoAm,
Inc., Tanknology-NDE Construction Services, Inc. and ProEco, Ltd. The Company
provides environmental compliance services, equipment installation, construction
project management and consulting to owners and operators of aboveground and
underground storage tanks ("USTs") in the United States and internationally
through licensees. Customers purchase the Company's services primarily to remain
in compliance with laws pertaining to environmental protection and to conduct
their operations in a manner that limits their exposure to liability for
incidental environmental damage.
Forward-Looking Statements
This Annual Report on Form 10-KSB/A includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act. The words "anticipate," "believe," "expect,"
"plan," "intend," "estimate," "project," "will," "could," "may," and similar
expressions are intended to identify forward-looking statements. No assurance
can be given that actual results may not differ materially from those in the
forward-looking statements herein for reasons including the effect of
competition, changes in Environmental Protection Agency ("EPA") and other
regulations affecting the Company or its customers, the outcome of litigation,
the loss of a significant customer or group of customers, disruptions or the
failure of the Company's information management system, or technological
obsolescence.
Mergers and Acquisitions
The Company's business has historically grown through a series of
acquisitions beginning in March 1990. The Company has acquired testing
technology, licenses, testing vehicles and other assets. The Company expects
that it will continue to make strategic acquisitions in the future.
Tanknology UST Acquisition
On October 25, 1996, the Company acquired substantially all of the
operating assets and liabilities of the Tanknology UST Group ("UST Group") of
Tanknology Environmental, Inc. ("TEI"), (the "Acquisition"). The Tanknology UST
Group's operations were principally conducted through three subsidiaries of TEI:
Tanknology Corporation International ("TCI"), Tanknology Canada, and USTMAN
Industries, Inc. ("USTMAN"). The Acquisition was accomplished by means of the
Company's purchase of all of the issued and outstanding capital stock of these
subsidiaries.
TCI was engaged in substantially the same business and in the same market
as the Company and was the Company's largest direct domestic competitor.
Additionally, TCI was a provider of UST corrosion protection services, a service
not formerly offered by TNDE. Immediately following the Acquisition, the Company
merged its primary operating subsidiary, NDE Testing & Equipment, Inc., into
TCI, and changed its name to Tanknology/NDE Corporation. The combined entity
comprises the largest component of the Company's domestic operations, field
services. As a result of this transaction, the Company believes that the
resulting entity is the largest and only nationwide provider of UST services.
Management believes that the combination has resulted in a significant increase
in market share and the elimination of duplicate administrative costs.
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
USTMAN Disposition
USTMAN provided statistical inventory reconciliation ("SIR") services. SIR
meets the post-1998 Environmental Protection Agency ("EPA") precision
requirement for leak detection. SIR may also identify other conditions of
concern to tank operators such as pilferage or flaws in record keeping. On May
22, 1997, USTMAN was sold to Watson General Corporation (since renamed USTMAN
Technologies, Inc.). The Company did not realize any gain or loss on this sale
as the net proceeds from the sale approximated the carrying value of the
tangible and intangible assets of USTMAN.
Gilbarco Acquisition
On April 11, 1994, the Company acquired the principal assets of the
Environmental Services Division of Gilbarco, Inc. ("Gilbarco ESD"), a division
engaged in testing USTs. In the Gilbarco ESD acquisition, the Company acquired
tank testing vehicles, related tank testing equipment, ancillary equipment,
testing systems, regulatory approvals, intellectual property rights, customer
information, supplier and distributor information and other intangible assets.
In 1996, the Company recognized an extraordinary gain of $1,813,149 related to
the early retirement and settlement of debt incurred in conjunction with the
Gilbarco ESD acquisition and recorded a $833,321 write down of the acquired
vehicles and test equipment due to permanent impairment of their value.
Canada Disposition
An element of the Company's strategy is to focus financial, management, and
other resources on operations in the United States and leverage its technology
base internationally through licensing arrangements. Consistent with this
strategy, in 1995, TNDE made the decision to phase out its operations in Canada
and entered into a licensing agreement for western Canada. In 1996, the Company
secured a licensee for the eastern part of Canada and, prior to the Acquisition,
ceased the operations of NDE Canada. On February 20, 1997, the Company sold
substantially all of the operating assets of Tanknology Canada to the Company's
eastern Canada licensee. The Company did not realize any gain or loss on this
sale as the net proceeds from the sale approximated the carrying value of the
tangible and intangible assets of Tanknology Canada.
Lines of Business
The Company expects that over the next two years that it will see a
significant decline in its precision tank testing services as government
regulations and enforcement thereof take effect. Accordingly, the Company plans
to broaden beyond its historical service offerings to replace these revenues. In
1997, the Company entered into the construction services field (see description
below) and also expanded its participation in the installation of Automatic Tank
Gauges ("ATG"). The Company expects that it may introduce new services related
to its current business and may expand certain existing service offerings.
The Company offers comprehensive services to its customer base of retail
and non-retail fuel distributors who own or operate USTs. The Company has four
operating divisions that reflect its primary lines of business: Field Services,
Compliance Management Services (CMS), Construction Services, and International.
Field Services
Historically, the principal business of the Company's Field Services
division ("Field Services") has been the precision testing of petroleum USTs and
associated piping to detect leaks. This service also is referred to as
"tightness testing" or "integrity testing." UST owners or operators purchase
testing services for a variety of reasons, including:
o to comply with regulations;
o to certify the system as tight after work has been performed on
the system;
o to investigate inventory discrepancies;
o to satisfy environmental liability concerns; and
o to investigate the site for evidence of pollution or a fire
hazard.
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
The Company uses a number of proprietary systems to perform tightness
testing on USTs. All of the Company's systems have been certified by independent
laboratories as meeting EPA standards for UST testing methods. UST testing has
the following general characteristics:
o it is performed periodically;
o the test system is moved between UST locations by van, truck, or
trailer;
o the test is precise -- capable of reliably detecting leaks
smaller than 0.1 gallon per hour; and
o the preferred testing method may differ based upon environmental
or business conditions, state regulations, tank type, design or
contents, owner or operator preference and other variables.
Due to the final phase-in of EPA regulations on December 22, 1998, annual
precision tightness testing will no longer be accepted as a primary means of
meeting leak detection requirements. As a result, the Company expects revenues
from precision testing to decline substantially after 1998. Precision tests will
still be required in certain situations (such as prior to property transfers, to
confirm an inconclusive SIR result or to confirm a leak indicated by an ATG but
at greatly reduced frequency.
Field Services provides "Stage II Testing" to verify functionality of Stage
II Vapor Recovery equipment and to verify that it does not leak. During
refueling, Stage II equipment collects vapor emissions displaced from the
vehicle gas tank receiving the fuel and incinerates or returns the vapor to the
UST. EPA limitations on fuel vapor emissions are designed to help reduce ozone
layer depletion and are enforced in metropolitan areas that do not attain
emissions targets set forth in the Clean Air Act. TNDE also provides pipeline
and container leak detection services ("Specialty Testing"). Specialty Testing
vehicles are equipped to perform either hydrostatic or acoustic pipeline testing
and large storage tank testing.
On July 16, 1997, the EPA issued its new air quality standards for
particulate matter and ozone. Implementation of these more stringent standards,
which are currently under Congressional review, may increase the number of
metropolitan areas subject to Stage II Vapor Recovery requirements. The EPA's
On-board Vapor Recovery ("OBVR") requirements, which call for automakers to
install in-car vapor recovery canisters, start to phase-in in 1998. Forty
percent of all new cars for the model year 1999 must be equipped with OBVR. By
2000, all cars must have OBVR, and, by 2001, light duty and heavy duty trucks
will be included. Although full implementation of the requirements will, over
time, replace most Stage II systems and greatly reduce the Company's Stage II
testing services, management does not expect the aggregate market for Stage II
testing to change significantly within the next five years.
Field Services also offers installation of ATG. In 1997 the Company derived
more than 10% of its revenues from the installation, inspection, maintenance and
parts sales associated with ATG. No significant revenues were derived from ATG
in 1996. ATG consist of a probe permanently installed in the tank and wired to a
monitor to provide information on product level and temperature. These systems
automatically calculate the changes in product volume that can indicate a
leaking tank. ATG meet regulatory requirements as an accepted means of monthly
monitoring. After December 22, 1998, UST owners must generally use a form of
monthly monitoring for leak detection requirements (such as the installation of
an ATG or the use of Statistical Inventory Reconciliation (SIR). However, tanks
owners may continue to use precision tightness testing at 5 year intervals for
ten years after the upgrades in most states. See "Government Regulations." It is
currently anticipated that the rate of UST closure and upgrade trends will
increase as the 1998 deadline approaches.
Field Services also offers the equipment, design, installation, and
maintenance of cathodic protection systems including video internal tank
inspection ("Petroscope"). The EPA requires all USTs and associated underground
piping to be upgraded with corrosion protection by December 22, 1998. See
"Government Regulations." Cathodic protection is required unless the UST system
is lined with, or made of, non-corrodible material. Cathodic protection is one
of two viable corrosion protection alternatives for owners or operators of steel
USTs who wish to upgrade rather than close or replace their USTs. Cathodic
protection prevents corrosion by making the entire steel surface act as the
cathode of an electrochemical cell, transferring corrosion from the UST's metal
surface to an external anode. Cathodic protection systems are typically
installed by drilling holes at various points around the UST and related piping,
inserting anodes within the holes, wiring the anodes together and connecting the
system to the facility's electrical system. Cathodic protection systems require
periodic tests and inspections which are services the Company performs for its
customers. For the same reasons that annual tightness testing is expected to
decline, the Company expects strong demand for cathodic protection services
through a period shortly after December 22, 1998. The degree to which the
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
Company will experience a significant increase in cathodic protection revenues
or profits is not clear. However, in 1997, the Company experienced revenue
growth in this area and cathodic protection services accounted for approximately
12% of Field Services revenues.
In addition to testing and upgrading UST systems, Field Services also
provides overfill protection, UST cleaning and value added site services,
including survey and compilation of site information and minor maintenance. The
Field Services division may, as a customer service, subcontract the upgrading of
USTs with spill protection but typically does not provide other UST services
such as secondary containment, interstitial monitoring or groundwater or vapor
monitoring.
In 1997, Field Services revenues were approximately $32.7 million, or 85%,
of the Company's consolidated revenues.
Compliance Management Services
In 1995, the Company established its CMS division to enable tank owners and
operators to outsource the regulatory compliance function. CMS provides turn-key
administrative, managerial, technical, data processing and regulatory liaison
services. CMS helps UST owners and operators coordinate regulated activities and
manage their relationship with regulators. On behalf of its customers, CMS can:
o administer UST systems in compliance with regulations;
o acquire and maintain operating and regulatory permits;
o respond to, report on and manage environmental incidents;
o report in accordance with SARA III community right-to-know
requirements;
o resolve environmental notices of violation;
o track hazardous waste transportation via manifest;
o manage the liabilities associated with the operation of USTs and
storage of hazardous material;
o assist in UST owner or operator management reporting and capital
budgeting related to UST upgrades;
o coordinate construction, maintenance, testing and contractor
oversight; and
o coordinate the provision of services from the customer's other
UST vendors.
Currently, the CMS division manages the environmental compliance for
approximately 11,000 tanks in the United States.
Construction Services
In 1997, the Company established Tanknology-NDE Construction Services, Inc.
("CS") which provides construction management services. CS provides turn-key
construction program management to customers that cannot, or do not want to,
manage large-scale, complex tank upgrade projects, removals, replacements and
other petroleum related construction. CS program managers have many years of
petroleum construction and project management experience, as well as several
excellent customer relations that complement the Company's list of major
customers. Additionally, as the project manager, CS can usually influence which
sub-contractors will perform the construction or related work. This allows an
opportunity for other TNDE services, with customer approval, to be specified for
work. CS provides the following services (among numerous others) to its
customers:
o Single point program management;
o Site surveys;
o Project design and permitting;
o UST upgrades;
o UST tank and line removals;
o Above ground and underground tank installations;
o Canopy installations and modifications;
o Supply of parts and equipment;
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
o Other petroleum related construction; and
o Coordination with services offered by other TNDE divisions.
International
Through ProEco, its wholly owned subsidiary, TNDE licenses technology to
service providers in Australia, Brazil, Canada, Chile, Ireland, Italy, South
Korea, Mexico, Malaysia, New Zealand, Puerto Rico, Portugal and the United
Kingdom. Service providers receive a license for specific countries or
geographic areas and purchase or lease equipment from the Company. TNDE
typically reviews the test data, issues the test report, provides technical
support and receives license or processing fees on each test.
Government Regulations
The primary driver for the Company's services are various environmental
regulations issued by the EPA and enforced by state environmental departments.
In addition, regulatory interpretations and additional requirements are
determined by local and county officials, which vary significantly from area to
area.
In response to concerns about ground water contamination, Congress included
UST amendments in the 1984 Resource Conservation and Recovery Act ("RCRA"). The
RCRA amendments led to federal UST regulations (40 CFR Part 280) that went into
effect in late 1988. The regulations distinguish between "existing" and "new"
USTs. Currently, this distinction is interpreted to apply different regulatory
requirements based on whether the UST was installed before or after December 22,
1988. State regulatory agencies were empowered to require earlier deadlines or
additional requirements.
Tank Upgrades
Federal rules require USTs installed before December 22, 1988 ("existing
USTs") to be upgraded with spill protection, overfill protection and corrosion
protection by December 22, 1998. Owners and operators of existing USTs must
either upgrade or close them. Failure to comply timely can result in citations,
fines and reduction or elimination of insurance coverage provided by third-party
firms or state reimbursement funds.
When closing a UST (including closing prior to replacement), the owner or
operator must notify the state regulatory authority before taking the UST out of
service in case the regulators want to monitor the activity. The owner or
operator must determine if releases from the UST have contaminated the
environment using the results of vapor or groundwater monitoring or a site
assessment. The state may require additional closure assessment measures. If
contamination is found, corrective action must be taken. Upgrading the tank, as
opposed to replacing it, postpones these requirements.
To meet the corrosion protection upgrade requirements, existing steel tanks
must have cathodic protection, or be lined with non-corrodible material (such as
fiberglass), or both. Existing steel piping must have cathodic protection. Tanks
or piping made of non-corrodible material do not have to be upgraded to meet the
corrosion protection requirement.
If a UST owner or operator decides to upgrade by adding cathodic protection
without also adding a lining, the integrity of the tank must be assessed by an
approved monthly monitoring method, two tightness tests or an internal
inspection. Regulations require a qualified cathodic protection expert to
design, supervise installation and inspect cathodic protection systems. Most
cathodic protection systems also require bimonthly inspections.
Leak Detection
Since December 1993, leak detection has been required for all USTs. Owners
or operators of USTs that do not have a leak detection method can be cited for
violations and fined. Leak detection violations can prevent the owner or
operator from obtaining legally required insurance coverage and reimbursement
for cleanup costs.
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
There are two categories of leak detection:"monthly monitoring" and
"tightness testing". Monthly monitoring methods must be able to detect leaks of
0.2 gallons per hour with a probability of detection of at least 95 percent and
a probability of false alarm of no more than 5 percent. Tightness testing
methods must be able to detect a 0.1 gallon-per-hour leak with at least a 95
percent probability of detection and no more than a 5 percent probability of
false alarm.
Leak detection is required for all "new" USTs after installation or
"upgraded" USTs within 10 years of upgrade. Such methods include: SIR, ATG,
secondary containment with interstitial monitoring, vapor or groundwater
monitoring or other methods approved by the state regulatory authority that are
at least as precise as the EPA requirements.
ATG provide an alternative to SIR, as a replacement to manual inventory
control procedures, to meet leak detection requirements in combination with tank
tightness testing or SIR. Secondary containment consists of using a barrier, an
outer wall, a vault or a liner around the UST or piping. Leaked product from the
inner tank or piping is directed toward an interstitial monitor located between
the inner tank or piping and the outer barrier.
Tightness testing combined with inventory control is an acceptable method
of leak detection for existing USTs that have not been upgraded or for USTs that
have been upgraded or installed within the last 10 years. For existing tanks
that have not been upgraded, tightness must be tested annually if tightness
testing combined with inventory control are relied upon as the leak detection
method. New or upgraded tanks using this method must be tested every five years.
Inventory control requires comparing "stick" inventory (daily measurements of
tank contents using a calibrated "stick," conversion chart, and mathematical
calculations) to "book" inventory (calculated from initial inventory, deliveries
and dispensing).
Tightness testing combined with inventory control does not meet leak
detection requirements for all types of piping. If certain design criteria are
not met, a suction line requires a line tightness test every three years,
monthly SIR, monthly interstitial monitoring or monthly vapor or groundwater
monitoring. Pressurized piping must be equipped with certain hardware and
receive an annual tightness test or be equipped with monthly SIR, monthly
interstitial monitoring, or monthly vapor or groundwater monitoring.
SIR may be used currently and indefinitely to meet the leak detection
requirement for existing, upgraded, or new tanks and is one of the options for
leak detection with suction and pressurized piping. Generally, few product or
site restrictions apply to the use of SIR.
With a probability of detection of at least 95 percent and a probability of
false alarm of no more than 5 percent, SIR must be able to detect leaks of:
o 0.2 gallons per hour to serve as a monthly monitoring method;
o 0.1 gallons per hour to serve as a replacement for tank tightness
testing; and
o 0.08 gallons per hour to serve as a replacement for pipe
tightness testing.
Approximately 20 state regulatory authorities will accept SIR on the same
basis as EPA. Many states impose some restrictions on the use of SIR, and a few
states do not accept it.
Vapor monitoring measures product "fumes" in the soil around the UST to
check for a leak. This method requires installation of carefully placed
monitoring wells. Vapor monitoring can be performed manually on a periodic basis
or continuously using permanently installed equipment. Groundwater monitoring
senses the presence of liquid product floating on the groundwater. This method
requires installation of monitoring wells at strategic locations in the ground
near the tank and along the piping runs. It cannot be used at sites where
groundwater is more than 20 feet below the surface. Both of these methods risk
attributing releases from other sources to the tank they were installed to
monitor.
Some state and local jurisdictions have adopted regulations regarding
testing of UST that are stricter than EPA regulations. The failure of the
Company's testing systems to comply with any such current or future regulations
or the failure of the Company to obtain any necessary certifications could have
a material adverse impact on the revenues and operating results of the Company.
Management believes the Company and all of its testing methods, services and
practices are currently in compliance with all existing EPA regulations for
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
which a lack of compliance would have a material adverse impact on the operating
results of the Company.
Distribution
Geographical
As part of the Company's business strategy, the Company has expanded its
service offerings, both through acquisitions and internal expansion. The Company
plans to take advantage of its broad product line by cross marketing these
services to its customers who do not use all of the offered services and by
bundling separate services into a combined service offering. In 1998, the
Company plans to create a national sales organization to focus on selling the
entire line of service offerings to all geographic areas. This group will
supplement the Company's existing regional sales force. In addition, the Company
plans to develop relationships with other service providers, equipment
manufacturers and distributors and others in order to more effectively market
its services to a broader base of customers. In late 1997, the Company entered
into two separate agreements that it believes are significant first steps to
accomplishing its goals of more effectively marketing its service offerings and
extending its customer base:
1) Ryder Total Compliance Contract. In an agreement with Ryder
System Inc., the Company bundled its CMS, ATG installation, the
purchase of the gauge and related equipment, system maintenance
and remote monitoring of the gauge in a single turnkey service
called Total Compliance (tm). In 1997, this new service offering
covered approximately 325 USTs, and, in January 1998, the program
was expanded to cover approximately 1,350 USTs for Ryder.
2) Strategic Alliance with Veeder Root. In December 1997, the
Company entered into a strategic business alliance with
Veeder-Root Company ("Veeder-Root"), a subsidiary of Danaher
Corporation ("Danaher"), which included an $8 million investment
in the Company by Danaher. Veeder-Root is the industry's leading
manufacturer of ATG and line leak detection equipment. Through
its Simplicity Petroleum Data Services unit, Veeder-Root provides
a turnkey package of ATG and line leak equipment, twenty-four
hour remote monitoring, compliance reports, dispatching and field
management services. The Company believes that this alliance will
allow for joint marketing of the two companies' complementary
service offerings to provide customers more value as well as to
provide the Company with an expanded distribution capability by
using Veeder-Root's established direct sales force and
distribution network.
Field Services distributes its services throughout the United States
utilizing approximately 175 vehicles. Sales and operations are managed through
12 regional offices as well as the Company headquarters. Field Services markets
its services and products primarily to gasoline retailers (e.g., major oil
companies, independent fuel retailers and convenience store chains), businesses
with vehicle fleets that are fueled from internally-operated USTs (e.g. vehicle
rental companies, package delivery services or product distributors) and tank
owners or operators who maintain tanks as a source of emergency power, such as
hospitals and hotels.
CMS markets to Field Services and Construction Services customers and trade
show attendees and recipients of industry trade publications. CMS services are
marketed by CMS division personnel based at the Company's headquarters, the
corporate sales and marketing departments and the regional Field Services office
management and salespersons. CMS services are performed primarily at the Company
headquarters. The Company also has customer-dedicated locations in California,
Connecticut and Virginia.
Construction Services markets to Field Services and CMS customers as well
as through direct sales and attendance at trade shows. Construction Services
performs throughout the United States and maintains an administrative office in
Atlanta, Georgia.
International operations are marketed through attendance at trade shows,
direct sales and advertising in trade publications. International operations are
managed from the Company headquarters.
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
Information Systems and Products
TOPS (formerly known as, NDEOE) and CMS (formerly known as, USTLine) are
the trade names for a group of proprietary information systems that facilitate
the environmental compliance of UST installations. TOPS and CMS were developed
in response to the growing informational needs of tank owners and operators in
their efforts to manage complex regulatory, risk avoidance and operational
requirements. While TOPS and CMS are not sold individually, they represent a
value-added method of distribution which, management believes, gives the Company
a competitive advantage in serving large customers with:
o many tanks under management;
o geographical coverage spanning regulatory jurisdictions with
different compliance requirements; and
o USTs distant from managerial oversight.
TOPS is primarily used by Field Services. It integrates the scheduling of
tests, the deployment of the service technicians and test vehicle fleet and the
collection, analysis and reporting of test data and billing information.
Technicians are equipped with laptop computers, and they input data into TOPS
while on-site. The TOPS database provides comprehensive information about the
customers' UST systems which is useful for their operational and regulatory
compliance functions and which can be sorted and analyzed electronically.
CMS is a comprehensive management information system that tracks UST site
data, test/upgrade histories, contractor visits and regulatory inquiries to help
ensure full compliance information is available when needed.
TNDE's database management system features the flexibility necessary to
efficiently build a bank of information obtained from a variety of sources. For
example, information regarding ground water level might best be obtained by
TNDE's technician while visiting the site, while regulatory information would be
maintained on an associated database by TNDE regulatory affairs personnel and
tied to a particular site location via zip codes.
Master databases are centrally managed at TNDE's Austin headquarters.
Customized reports are generated which meet the needs of each particular client
or regulator. The TNDE database management systems have the built-in flexibility
required to generate specific report formats based on the needs of the
individual customer. Reports can be faxed or hard copies can be printed and
mailed to the customer and/or regulatory agency.
These systems add value for UST owners in the following ways:
o lower costs resulting from diminished paper processing and
archival requirements;
o increased efficiency and speed through computerized storage,
filing, sorting and data retrieval;
o real-time access to testing schedules, test results and site
surveys;
o enhanced communication with TNDE through integrated e-mail;
o increased efficiency in planning, budgeting and scheduling due to
the integrated data-base management tools; and
o enhanced regional emergency response (e.g., earthquake), the TOPS
system can sort the data by proximity to a particular landmark
and other site characteristics.
Competition
In the Acquisition, the Company acquired TCI, formerly the Company's
primary national competitor. However, the Company continues to face competition
for UST testing services from a number of smaller testing companies serving
local or regional customers and using inexpensive technology. Prices for
tightness testing, which have historically declined, were relatively stable in
1997, although some price degradation occurred in certain geographic markets.
Competitors may refine existing technologies or develop new systems that render
the Company's technology obsolete or less competitive.
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
Barriers to entry into the business of providing cathodic protection
services are low. "Small" owners or operators (those with relatively few tanks)
may experience financial hardship relating to the upgrade and may be very price
sensitive. Owners or operators who operate nationwide have the ability to exact
price concessions from installation providers.
The Company does not believe that the CMS division currently has
significant direct competition.
Construction Services competes with local construction companies, larger
national construction companies and internal construction groups within major
customers.
Customers
The Company provides UST services to oil companies, independently owned
gasoline retailers, convenience store operators, fleet owners, government
facilities and other operators of USTs. Below are selected customers (in
alphabetical order) within a few of the Company's major customer groups. The
organizations listed are not meant to be representative of the Company's entire
customer base, but are meant to give an indication of the caliber of
organizations that purchase TNDE's services.
o Oil companies: Amoco Oil Company, B.P. Oil, Chevron U.S.A.
Products Company, Exxon U.S.A., Mobil Oil Corporation, Shell Oil
Company;
o Convenience stores: Cumberland Farms, Dairy Mart, Diamond
Shamrock, Southland Corporation; and
o Fleet owners: Hertz Corporation, Ryder Truck Rental.
Mobil Oil Corporation accounted for approximately 21%, 20% and 13% of the
Company's 1997, 1996 and 1995 revenues, respectively. No other single customer
contributed more than 10% of the Company's revenues during these three years.
Other matters
Suppliers
The Company does not depend upon any single supplier for spare parts for
any of its technologies. Substantially all repair, diagnostic and maintenance
functions are performed at the Company's headquarters.
Patents
The Company owns or has obtained licenses for various rights in the form of
patents, trademarks, copyrights and/or registered names. TNDE's policy is to
vigorously defend these rights, and the Company is currently working with
counsel to address infringements. There can be no assurance that the rights, or
the Company's efforts to enforce them, will provide the Company with a
competitive advantage. The Company believes that the duration of its patents
generally exceeds the life cycles of the technologies disclosed and claimed
therein. Although the patents it holds may be of value, the Company believes
that its success will depend primarily on its engineering, marketing and service
skills.
Research and Development
The Company has incurred no significant expenses for research and
development since its inception. Most technology used by the Company has been
obtained through acquisition.
Insurance
The Company's testing activities, consistent with the industry, present
risks of substantial liability. Spills of petroleum products and hazardous
substances, or the creation or exacerbation of a contamination problem through
errors or omissions in tank testing, could result in substantial liability under
federal and state anti-pollution statutes and regulations or from tort claims by
those suffering personal injury or property damage as a result of such
contamination. In addition, many of the Company's tank testing services involve
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
USTs containing volatile substances such as gasoline. The Company or its former
licensees could be held liable for damage to persons or property caused by any
resulting fire or explosion. In addition, most of the Company's services are
provided by technicians driving Company vehicles with the attendant risks
associated with operating motor vehicles.
The Company maintains professional and pollution liability insurance of $2
million per occurrence with a $2 million aggregate limit; general, product and
personal injury coverage of $1 million per occurrence, with a $2 million
aggregate limit; and fire, legal liability coverage to $500,000. In addition,
the Company maintains umbrella coverage for all sources of liability other than
professional and pollution liability in the amount of $10 million. Deductibles
are in the amount of $100,000 per occurrence for professional and pollution
liability claims. The umbrella policy carries a $10,000 self-insured retention.
All other coverages carry a $5,000 deductible per occurrence. The Company
believes that the policies in force will be sufficient to cover all current and
expected claims. The Company has not been denied any coverages sought. However,
there can be no assurance that all possible types of liabilities that may be
incurred by the Company are covered by its insurance or that the dollar amount
of such liabilities will not exceed the Company's policy limits. The occurrence
of any significant uninsured loss or liability would have a material adverse
effect on the Company's business, financial condition and results of operations.
Personnel
As of December 31, 1997, the Company employed 313 full-time and 10
part-time personnel. None of the Company's personnel are represented by a labor
union. The Company believes that its relationship with its employees is
satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns no real property. All operations are conducted from leased
premises. The Company's headquarters is located in approximately 17,000 square
feet of leased office space in Austin, Texas. The Company also leases regional
offices and storage facilities.
ITEM 3. LEGAL PROCEEDINGS
In February 1995, U.S. Test, Inc. ("U.S. Test") filed a lawsuit against the
Company in the United Statesl District Court for the Western District of
Louisiana. The lawsuit is for a declaratory judgment that certain patents owned
by TNDE are invalid and unenforceable and/or that certain U.S. Test tank testing
systems do not infringe such patents. The relief U.S. Test is seeking includes a
final determination on the above issues, a preliminary injunction regarding
actions taken by TNDE and attorneys' fees and costs. In May 1995, TNDE filed a
counterclaim alleging that (1) the TNDE patents are valid and enforceable, (2)
the U.S. Test tank testing systems infringe such patents and (3) TNDE is owed
damages for such infringement. The amount of damages owed by U.S. Test, if any,
has not been specifically alleged. The patents at issue were transferred from
Gilbarco, Inc. in the 1994 acquisition by TNDE of Gilbarco ESD. After numerous
delays, an evidentiary hearing occurred in early 1998, and the parties are in
the process of preparing post hearing submissions. There have been no
dispositive rulings to date. The Company does not believe that the outcome of
such litigation will have a material adverse effect on the Company's results of
operations or financial condition.
The Company also is subject to various claims and litigation in the normal
course of business. The Company believes that the ultimate resolution of such
matters will not have a material adverse effect on the Company's results of
operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On July 20, 1995, the Company was delisted from the Nasdaq Stock Market for
failure to meet certain listing requirements. These requirements included
maintaining a minimum bid price, minimum capital surplus and minimum market
value of public float. On December 22, 1995, the Company voluntarily delisted
from the Boston Stock Exchange for similar reasons. The Company's common stock
continues to be traded on the OTC Bulletin Board under the symbol "TNDE".
The following table sets forth high and low bid prices of the shares of
Common Stock of the Company as reported in the OTC Bulletin Board, Daily Trade
and Quote Summary Report for each quarterly fiscal period within the last two
fiscal years. Quotations reflect inter-dealer prices, without retail markups,
markdowns or commissions and may not represent actual transactions.
High Low
1996
First Quarter $1/8 $1/20
Second Quarter $5/16 $1/8
Third Quarter $5/16 $1/16
Fourth Quarter $9/16 $3/32
1997
First Quarter $9/16 $13/32
Second Quarter $7/16 $3/16
Third Quarter $11/32 $3/16
Fourth Quarter $1/2 $1/8
As of July 11, 1997, there were approximately 174 holders of record of the
Company's Common Stock including those shares held in "street name". The Company
did not declare or pay any dividends during 1996 or 1997. The Company currently
intends to retain any future earnings to finance the development and expansion
of its business.
Sales of Unregistered Securities
In October 1996, as part of the consideration given to Banc One Capital
Partners, L.P. ("BOCP") for a $8 million senior subordinated note (the "1996
Note") issued in connection with the Acquisition, BOCP received warrants to
purchase 13,022,920 shares of the Company's common stock (the "Warrants"). The
Warrants were exercisable at $0.325 per share and were exercisable at any time
from October 24, 1996 through December 31, 2005. Both the number of shares and
the exercise price were subject to adjustment based upon certain factors. The
Warrants were also subject to a put option whereby, under certain circumstances,
the BOCP could require the Company to repurchase the Warrants (including any
common shares owned as a result of a previous Warrant exercise). The appraised
fair market value of the Warrants at issuance was $1.6 million and was recorded
as a discount to, and separately from, the subordinated note. These securities
were repurchased in December 1997. See "Management's Discussion and Analysis or
Plan of Operation."
In December 1997 the Company sold 150 shares of Series A Redeemable
Preferred Stock with a liquidation preference of $10,000 per share were issued
to DH Holdings Corp. ("DH"), a subsidiary of Danaher. The shares are redeemable
at the option of the Company at any time after the later of June 30, 2001 or the
date upon which all principal and interest on the $6,500,000 senior subordinated
note (the "1997 Note") payable to DH is paid in full at the redemption price per
share. Any shares which are outstanding at December 31, 2004 will be redeemed by
the Company. Each share is convertible at the option of DH at any time after
December 31, 1997 into 20,000 shares of the Company's common stock (subject to
certain adjustments as defined in the agreement). DH is entitled to a annual
dividend of $1,000 per share, payable semi-annually in arrears on June 30 and
December 31 of each year. Additionally, in December 1997, the Company issued to
DH the 1997 Note. In consideration for the 1997 Note, DH also received a warrant
to purchase 4,500,000(subject to adjustment as defined in the warrant agreement)
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
shares of the common stock of the Company at an exercise price of $.375 per
share. The warrant is exercisable in a single exercise at any time. The warrant
expires on December 31, 2002.
In consideration of Bank One Texas, N.A.'s consent to enter into the
refinancing transaction in December 1997, the bank was paid a $50,000 fee and
received a warrant to purchase 350,000 shares of the Company's common stock at
an exercise price of $.375 per share. The terms of this warrant are the same as
that issued to DH.
The Company acted in reliance with Rule 506 under the Securities Act and
Section 4(6) of the Securities Act in not filing a registration statement with
these transactions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
All forward-looking statements contained in this Annual Report on Form
10-KSB/A and in Management's Discussion and Analysis of Financial Condition and
Results of Operations is based on the Company's current knowledge of factors
affecting its business. The Company's actual results may differ materially if
these assumptions prove invalid.
Significant risk factors include, but are not limited to,:
o increasing price competition in the Company's marketplace;
o changes in government regulations that decrease the requirements
for the Company's testing services or adversely affect pricing;
o product liability losses in excess of insured limits and third
party indemnifications;
o the loss of a significant customer or group of customers;
o a failure in the computer or communication systems used to manage
the Company's geographically- dispersed operations;
o risks associated with technological obsolescence; and
o failure of the Company to replace anticipated revenue declines in
its core tank testing business with new and profitable revenue
streams.
Revenues
Revenues for 1997 were $38,683,146, an increase of $22,744,020 or 143%,
compared to $15,939,126 for 1996. The increase in revenues in 1997 was due to
several factors:
1) The start up of the Construction Services division which began
producing revenues in July 1997 and generated $2,857,564 of
revenues for the year.
2) Increased revenues of $1,049,869 generated by the USTMAN and
Canadian operations that were sold in 1997. These two operations
had combined revenues of $2,001,530 and $951,661 in 1997 and
1996, respectively.
3) Revenues from an ATG upgrade program for a major customer of
$4,238,349.
4) Inclusion of 12 months of revenues of the Field Services division
of the UST Group acquisition compared to only two months
inclusion in 1996.
The Company expects that in 1998 revenues for the Construction Services
division will increase substantially as it was in operation for only six months
in 1997, that the upgrade program revenues for the major customer noted above
will decline in 1998 as the program is completed and that tank tightness
revenues will decline as more and more UST are fitted with ATG, other remote
monitoring systems or are cathodically protected. The Company expects that due
to the impending December 1998 regulatory deadlines, the level of business
activity in 1998 will be favorable to the Company as UST owners/operators
endeavor to meet the regulatory guidelines and may require use of services such
as those offered by the Company. Additionally, the Company is constantly
reviewing additional acquisitions as well as new internally developed service
offerings to replace the anticipated decline in revenue streams from tank
tightness testing and ATG installations after the regulatory deadline passes and
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
UST owners become compliant with the regulations. In general, the price of UST
tightness testing, which is the Company's main revenue source, as well as other
services were stable in 1997.
Cost of Services
Cost of services for 1997 was $29,246,121 (76% of revenue), an increase of
$18,161,059 or 164%, compared to $11,085,062 (70% of revenue) for 1996. Gross
margin was $9,437,025 (24% of revenue) in 1997, compared to $4,854,064 (30% of
revenue) in 1996. The decline in gross margin percentage is due primarily to (i)
the inclusion of twelve months of operations of the Field Services unit of the
UST Group compared to two months inclusion of these operations in 1996, (ii) the
start up of the Construction Services division in 1997, which realizes lower
margins in general than other services since it primarily manages
sub-contractors and (iii) a planned increase in capacity in both trained
technicians and vehicles to prepare for increased demand in the fourth quarter
of 1997 and an anticipated increase in demand for the Company's services in 1998
due to the approaching regulatory deadlines in December 1998.
Selling, General and Administrative
Selling, general and administrative expenses ("SG&A") for 1997 were
$7,853,002 (20% of revenue), an increase of $1,271,665 or 19%, compared to
$6,581,337 (41% of revenue) for 1996. The increase in SG&A was primarily due to
the start-up of the Construction Services division, increased costs incurred to
upgrade computer systems and administrative systems due to increased business
levels and, to a lesser extent, increases in the staffing levels required as a
result of the Acquisition. As a percentage of sales, SG&A expenses declined from
41% in 1996 to 20% in 1997. SG&A expenses in 1996 reflect only two months of
spending subsequent to the Acquisition. The increase in revenues and the
elimination of duplicate SG&A expenses subsequent to the Acquisition reduced
SG&A expenses as a percentage of revenues from 1996. These factors were
partially offset by increased spending in 1997 to upgrade systems and to
start-up the Construction Services division as noted above.
Impairment of Long-Lived Assets
In the third quarter of 1996, the Company recorded an impairment of
long-lived assets of $833,321 relating to the write-down of vehicles and test
equipment purchased from Gilbarco ESD. This write-down was based on a periodic
review to determine whether there had been any permanent decline in values of
the Company's assets.
Earnings Before Interest, Taxes, Depreciation and Amortization and Extraordinary
Gains (EBITDA)
EBITDA in 1997 was $5,495,138 which was an increase of $6,025,877 from
negative EBITDA of $530,739 in 1996. The increase in EBITDA is due to increased
revenues from the Acquisition and the absence of the $833,321 charge in 1996 for
impairment of long-lived assets and growth in other service offerings such as
Construction Services. The Company believes that EBITDA is an important measure
of the Company's financial performance as it is an indication of the funds
generated by operations available for debt service, capital expenditures and
payment of taxes.
Interest Expense
Interest expense for 1997 was $3,205,475, (8% of revenue), an increase of
$2,143,066 or 202%, compared to $1,062,409 (7% of revenue), in 1996. The
increase in interest expense is due to the increased debt incurred for the
Acquisition and due to the fact that the Acquisition debt was outstanding for
the full 1997 year versus only two months in 1996. Additionally, increased
non-cash interest expense related to accretion of the 1996 Note of $349,140,
estimated accretion of the Warrants of $734,250 (none in 1996) and increased
amortization of the deferred financing costs incurred on the Acquisition-related
debt of $177,424, accounted for $1,260,814 of the increase over 1996. These
increases were partially offset by generally lower interest rates on the new
debt compared to the Company's prior financing arrangements that were in effect
for the first ten months of 1996. The Company expects that interest expense will
decline in 1998 as a result of the refinancing in December 1997(see below) which
will lower the amount of subordinated debt outstanding from $8 million to $6.5
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
million, reduce the interest rate on subordinated debt from 13% to 10%,
eliminate the accretion of the Warrants of $734,250 incurred in 1997 and reduce
the amount of subordinated debt accretion by approximately $357,000.
Extraordinary Gain
In December 1997, the Company recorded an extraordinary gain on the early
retirement of the 1996 Note and associated Warrants that were issued in
connection with the Acquisition in 1996. The 1996 Note had a cost basis of
$6,884,422 at the time of retirement, net of unamortized discount, and the
Warrants had a carrying value of $2,334,250. These instruments were retired for
an aggregate cost of $8,500,000, plus $144,415 in related expenses. In
connection with this transaction, the Company wrote off the deferred financing
costs associated with the original issuance of the 1996 Note of $353,760. The
net gain on this transaction was $220,497.
In September 1996, the Company recorded an extraordinary gain on the early
retirement of debt of $1,813,149. The retired debt related to a $2,450,000
six-year note which was collateralized by assets acquired in the April 1994
transaction with Gilbarco ESD. At settlement (September 30,1996), the note's
carrying value of $2,113,149 including accrued interest was retired in
consideration of cash payments by the Company totaling $546,000.
Net Loss
The Company recorded a net loss for 1997 of $1,353,635 (3% of revenue)
compared to a net loss of $1,638,998 for 1996 (10% of revenue). Although EBITDA
(as defined above) in 1997 increased by $6,025,877 over 1996, increased interest
expense of $2,143,066, increased depreciation and amortization of $1,881,250 and
the reduction of the extraordinary gains over 1996 of $1,592,652 largely offset
the improvement in EBITDA and contributed to the net loss in 1997.
If the debt refinancing that occurred in December 1997, had occurred on
January 1, 1997 (excluding the extraordinary gain on the transaction) the
Company would have a pro forma net loss of $90,580 for 1997.
Liquidity and Capital Resources
The Company's strategy has been to build a national UST service capability
and to expand its service offerings both through internal growth and through
acquisitions. A substantial portion of the Company's growth has come through
acquisitions, beginning with the Pan American Environmental Services, Inc.
acquisition in 1990 and the Kaneb Metering Corporation transaction in 1991 and
continuing with the domestic ProEco transaction in January 1993, the ProEco
international transaction in December 1993, the Gilbarco ESD transaction in 1994
and the Acquisition in October 1996.
On October 25, 1996 (the "Closing Date"), the Company acquired all of the
capital stock of three underground storage tank services subsidiaries (the "UST
Group") from TEI. The subsidiaries acquired were TCI, USTMAN and Tanknology
Canada. Immediately following the Acquisition, the Company merged its wholly
owned subsidiary NDE Testing and Equipment, Inc. into TCI and changed the name
of the merged entity to Tanknology/NDE Corporation.
The UST Group was purchased for an aggregate purchase price of $12 million
which was paid to TEI at closing of the transaction. This purchase price is
subject to upward adjustment for certain taxes that may be owed to TEI relating
to operations of the UST Group from August 31, 1996 to October 25, 1996 (the
"Interim Period") and interest on the $12 million purchase price for the Interim
Period at 8% per annum. The purchase price adjustment will be reduced by any
claims the Company may have as a result of its internal post-closing audit of
the acquired assets. As of December 31, 1997, this purchase price adjustment was
still being negotiated between the Company and TEI. The Company believes that
this matter will be resolved in 1998 and that any settlement will not have a
material impact on its financial position or results of operations.
Sale of Canadian Operations
In February 1997, the Company sold the business and operations of
Tanknology Canada which it acquired as part of the Acquisition. In the
transaction, the Company sold certain patent, software, and trademark rights as
well as the fixed assets associated with the operation of the Canadian business
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
and entered into a series of royalty generating license agreements. Payments
totaling $1,200,000 were made at closing of which $1,150,000 of the proceeds
were allocated to the sale of the patent, software and trademark rights and
$50,000 being allocated to the sale of the fixed assets. The net proceeds from
this sale approximated the carrying values of the assets sold, and, therefore,
no gain or loss was realized. As a condition of sale, the Company agreed to
"block" $500,000 from is borrowing base, which reduced the Company's borrowing
capacity under the Company's revolving credit facility with its bank. The
"block" was removed as part of the debt restructuring in December 1997 ("1997
Refinancing") described below.
Sale of USTMAN
On May 22, 1997 the Company sold USTMAN, which was acquired as part of the
Acquisition, to USTMAN Technologies, Inc. (formerly named Watson General
Corporation). The terms of this transaction called for a cash payment at closing
of $5,250,000, the execution of a $500,000 8.5% Note due on June 1, 1998 ("8.5%
Note"), the assumption of certain liabilities of the Company and an additional
payment based upon certain calculations of USTMAN's working capital as of the
closing date. In December 1997, as part of a settlement of the working capital
adjustment the Company received a payment of $150,000 for one half of the
working capital adjustment and early repayment of the 8.5% Note. The final
working capital payment of $150,000 was received in early 1998. As a condition
of the sale, the Company agreed to use $2,000,000 of the closing proceeds to
immediately repay all of the then outstanding borrowings under the revolving
credit facility and to place $3,000,000 in a restricted certificate of deposit
with the Company's senior bank. The net proceeds of the sale approximated the
carrying value of the assets sold, including a $4,795,000 reduction of goodwill.
Accordingly, the Company did not realize any gain or loss on this transaction in
its 1997 results of operations.
Financing
In 1996, in connection with the Acquisition, the Company obtained a total
of $19 million of financing (the "Acquisition Financing") under two separate
loan agreements. The Acquisition Financing consisted of senior secured bank debt
comprised of (i) a three-year, $5 million revolving line of credit ( the
"Revolving Line") and (ii) a five-year, $6 million term loan and (iii) the 1996
Note which was refinanced in December 1997 as described below under "1997
Refinancing." Substantially all of the Company's assets were pledged as security
under the loan agreements. Concurrent with the Acquisition and the Acquisition
Financing, a major stockholder of the Company provided a $1 million standby
commitment in the event of a payment default by the Company under the loan
agreements and, in conjunction with an affiliated debt holder, converted
$1,035,882 of existing debt ($1 million of principal, plus accrued interest)
into 8 million shares of common stock. The proceeds from the Acquisition
Financing were used (i) to purchase the UST Group, (ii) to pay off outstanding
balances under a then existing term loan and an existing factoring agreement in
the aggregate amount of $2,526,970, (iii) for funding of Acquisition related
fees and expenses and for (iv) general working capital.
Senior Subordinated Note and Warrants with Put Option
As part of the consideration given to the holder of the 1996 Note issued in
connection with the Acquisition, the debt holder also received the Warrants. The
Warrants were exercisable at $0.325 per share and were exercisable at any time
from October 24, 1996 through December 31, 2005. Both the number of shares and
the exercise price were subject to adjustment based upon certain factors. The
Warrants were also subject to a put option (the "Put") whereby, under certain
circumstances, the holder could require the Company to repurchase the Warrants
(including any common shares owned as a result of a previous Warrant exercise).
The appraised fair market value of the Warrants at issuance was $1.6 million and
was recorded as a discount to, and separately from, the 1996 Note.
In 1997, the Company recorded interest expense of $734,250 to accrete the
value of the Warrants to their estimated value. With the retirement of this
instrument, there will be no similar charges in the future.
1997 Refinancing
In December 1997, the Company retired the 1996 Note, and the Warrants for
an aggregate price of $8,500,000, plus accrued, unpaid interest on the 1996 Note
through the closing date. As part of this termination agreement, the Company
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TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
also entered into a Post Closing Agreement (the "PCA") with the lender. The PCA
calls for payment to the lender upon the occurrence of certain "Triggering
Events" as defined in the PCA, which include, among other events, (i) the
dissolution or liquidation of the Company, (ii) the merger of the Company into
another entity in which (a) the Company is not the surviving entity or (b) the
current stockholders of the Company hold less than 50% of the combined voting
power of the surviving entity. Upon the occurrence of a Triggering Event, the
Company has agreed to pay to the lender 20% of the amount by which the Market
Determined Value (as defined in the PCA) at or as a result of the closing of a
Triggering Event exceeds the Target Amount. The Target Amount is $10,000,000 for
the period December 23, 1997 through March 31, 1998; $12,500,000 for the period
from April 1, 1998 through June 30, 1998; $15,000,000 for the period July 1,
1998 through September 30, 1998; $17,500,000 for the period October 1, 1998
through December 31, 1998; and $20,000,000 for the period January 1, 1999
through March 31, 1999. The PCA expires after March 31, 1999. Such payment is to
the lender will occur on the same date and will take the same form as the
payment other shareholders of the Company would receive. As of December 31,
1997, there has been no occurrence of a Triggering Event, and the Company is not
aware of any potential Triggering Events.
The funds for this transaction were provided by the issuance of $1,500,000
of Series A Redeemable, Convertible Preferred Stock and the issuance of the 1997
Note and $500,000 of the Company's cash. Additionally, the Company's bank credit
agreement was modified to allow for these transactions and to amend certain
other terms and conditions of the agreement.
Series A Redeemable, Convertible Preferred Stock
As part of the 1997 Refinancing, 150 shares of Series A Redeemable,
Convertible Preferred Stock with a liquidation preference of $10,000 per share
were issued to DH Holdings Corp. ("DH"), a subsidiary of Danaher. The shares are
redeemable at the option of the Company at any time after the later of June 30,
2001 or the date upon which all principal and interest on the $6,500,000 note
payable to DH is paid in full at the redemption price per share. Any shares
which are outstanding at December 31, 2004 will be redeemed by the Company. Each
share is convertible at the option of the holder at any time after December 31,
1997 into 20,000 shares of the Company's common stock (subject to certain
adjustments as defined in the agreement). The holders of shares of Series A
Redeemable, Convertible Preferred Stock are entitled to a annual dividend of
$1,000 per share, payable semi-annually in arrears on June 30 and December 31 of
each year.
1997 Note
As part of the 1997 Refinancing, the Company issued to DH the 1997 Note.
The interest rate on the 1997 Note is 10% and the maturity date is December 31,
2002. Principal payments under the 1997 Note are due quarterly in twelve equal
installments of $541,667 beginning on March 31, 2000. Interest payments are due
quarterly beginning March 31, 1998. The 1997 Note is collateralized by
substantially all of the assets of the Company. In consideration for the1997
Note, DH also received a warrant to purchase 4,500,000 (subject to adjustment as
defined in the warrant agreement) shares of the common stock of the Company at
an exercise price of $.375 per share. The warrant is exercisable in a single
exercise at any time. The warrant expires on December 31, 2002.
Senior Secured Bank Debt
The funds available for borrowing under the Revolving Line are based on a
formula as applied to the eligible accounts receivable of the Company. In
conjunction with the February 1997 sale of the Tanknology Canadian operations,
the amount available to the Company under the credit line was reduced by
$500,000 as a condition to obtaining the banks agreement to sell the Tanknology
Canadian operation. As a result of the 1997 Refinancing, the $500,000 reduction
to the credit line was eliminated and certain other terms and covenants of this
agreement were modified. In consideration of the bank's consent to enter into
the 1997 Refinancing the bank was paid a $50,000 fee and received a warrant to
purchase 350,000 shares of the Company's common stock at an exercise price of
$.375 per share. The terms of this warrant are the same as that issued to DH.
- 18 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
At December 31, 1997, the Company had $1,792,667 of borrowings outstanding
under the Revolving Line and also had $185,000 in letters of credit outstanding.
As of December 31, 1997, there was an additional $3,022,333 available for
borrowing under the Revolving Line.
The $6 million term loan carries an interest rate of the bank's prime rate
plus 1.5%. Principal payments of $100,000 are paid monthly. At December 31,
1997, $4,800,000 remained outstanding under the term loan. Interest is payable
monthly under both the Revolving Line and the term loan. Under both the
revolving credit line and the term loan and the Company is subject to certain
restrictions and covenants. At December 31, 1997, the Company was in compliance
with all restrictions and covenants related to the revolving credit line and
term loan.
Gilbarco Financing
Two notes were issued by the Company in connection with the Gilbarco ESD
acquisition. Both were payable to Gilbarco. The first note, in the principal
amount of $400,000, became due on March 31, 1995 and was paid in full by the
Company. The second note was in the principal amount of $2,450,000. In March
1996, the Company obtained from Gilbarco a prepayment incentive in exchange for
an immediate payment of $256,000. In September 1996, the Company settled the
remaining note balance for $300,000. The debt had a carrying value at the
prepayment date of $2,113,149, including accrued interest. The settlement
resulted in an extraordinary gain of $1,813,149.
In November 1995, in consideration of the assignment of certain Gilbarco
patents, the Company entered into a note to pay Gilbarco an additional $300,000.
The $300,000 note was outstanding at December 31, 1996, bears interest at a
variable rate (currently, approximately 6%), and is due in October 2000.
The aggregate annual maturities of long-term debt and financing agreements
at December 31, 1997 are as follows:
1998 $ 4,055,072
1999 1,389,647
2000 3,844,577
2001 3,458,438
2002 2,166,590
14,914,324
Less: Discount related to subordinated notes (270,000)
-----------------
$ 14,644,324
=================
In January 1995, the Company raised $500,000 from a significant shareholder
("Proactive") in exchange for its promissory notes (the "1995 Bridge Notes").
The 1995 Bridge Notes were to mature on April 30, 1995. In January 1995, the
1995 Bridge notes were extended to May 31, 1995. In June 1995, the Company
completed a restructuring of the 1995 Bridge Note and Proactive's portion of the
Subordinated Debt. Proactive agreed to exchange (i) the 1995 Bridge Note of
$500,000 plus accrued interest of $25,644, (ii) Proactive's portion of the
Subordinated Debt, which was $273,038, plus accrued interest of $4,728, and
(iii) cash of $500,000 for 261 newly issued shares of the Company's Series DDD
Preferred Stock. The Series DDD Preferred Stock was never issued. In March 1996,
in lieu of receiving the Series DDD Preferred Stock, Proactive received a total
of 5,482,254 shares of Common Stock.
At December 31, 1997, the Company had positive working capital of $743,612
compared with working capital of $182,885 at December 31, 1996. The increase in
working capital was generated by the sale of USTMAN and Canada for aggregate net
proceeds of approximately $7,100,000 and the sale of certain international
licensing agreements which generated cash proceeds of $800,000. The Company has
deferred the revenue generated from this sale and is recognizing the revenue on
a pro-rata basis over the term of the respective agreements.
Cash flows used in operating activities in 1997 was $2,225,165 versus cash
flows provided by operating activities in 1996 of $868,023. The most significant
factors contributing to the use of cash from operations in 1997 were a
$4,121,276 increase in accounts receivable and a $2,942,089 decrease in accrued
- 19 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
liabilities. The increase in accounts receivable was caused by an increase in
revenues in December 1997 as compared to December 1996 and delays in payment by
one large customer which was received in January 1998. The decrease in accrued
liabilities was primarily due to payments made for liabilities associated with
the Acquisition in 1996 including legal fees, accounting fees, severance, moving
costs and reclassifications made to certain acquired assets against accrued
liabilities that were recorded at the time of the Acquisition.
Capital expenditures in 1997 were $2,841,530 compared to $1,120,752 in
1996. The increase in capital expenditures in 1997 was primarily due to the
purchase of replacement and new service vehicles, increased expenditures for
computer hardware and software and the purchase of automated tank gauges for a
specific customer contract. The Company expects that capital expenditures in
1998 will be approximately $2,500,000, subject to the Company identifying
additional investment opportunities. This is a forward-looking statement, and
the Company's actual capital expenditures may differ from management's current
expectation due to risk factors that may affect the Company's ability to fund
capital expenditure requirements, changes in technology that may require
substantial capital investments, changes in government regulations or customer
other business opportunities that may arise.
Prior to the Acquisition, the Company incurred operating losses and
negative cash flows from operations and relied primarily on its principal
shareholders for financing. To a lesser extent, the Company had relied on bank
financing, lease financing, vendor financing and seller financing with respect
to acquisitions. The Company has historically utilized cash proceeds from the
issuance of debt and equity securities to satisfy its cash requirements from
operations. The Company believes that the 1997 Refinancing and cash flows
generated from operations will provide it with sufficient borrowing capacity and
funds to meet the Company's capital expenditure requirements, operational needs,
and debt service requirements for 1998. This is a forward-looking statement, and
the Company's actual cash flows from operations and capital requirements may
differ from management's current expectation due to risk factors that may affect
the Company's ability to fund capital expenditure requirements, operations and
debt service.
Impact of Year 2000
Some of the Company's older computer systems were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a dare using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in normal business activities. The Company has made an initial assessment and
will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The total Year 2000 project cost is estimated at less than $250,000
as some of the Company's systems are already Year 2000 compliant. To date, the
Company has incurred some costs for this problem, however, these costs were
incurred as part of the normal systems assessment and software enhancements that
the Company has made over the past year and as such is not identifiable.
The project is estimated to be completed not later than June 30, 1999,
which is prior to any anticipated impact on its operating systems. The Company
believes that with modifications to existing software and conversions to new
software, the Year 2000 Issue will not pose significant operational problems for
its computer systems. However if such modifications and conversions are not
made, or are not completed timely, the Year 2000 Issue could have a material
impact on the operations of the Company.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and the actual
results could differ materially from those anticipated. Specific factors that
might cause material differences include, but are not limited to, the
availability of trained personnel in this area, the ability to locate and
correct all relevant computer codes, and similar uncertainties.
- 20 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
ITEM 7. FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Company and its
subsidiaries are attached hereto.
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Report of Independent Auditors ......................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 ........... F-3
Consolidated Statements of Operations for the years ended December 31,
1997 and 1996 ...................................................... F-4
Consolidated Statements of Stockholders' Deficit for the years ended
December 31, 1997 and 1996 ......................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1996 ...................................................... F-7
Notes to Consolidated Financial Statements .............................. F-8
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- 21 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Executive Officers and Directors
The following table sets forth certain information regarding the Company's
executive officers and directors.
<TABLE>
<CAPTION>
<S> <C> <C>
Officer and/or Director Positions Age
- -------------------------- -------------------------------------------------- --
Jay Allen Chaffee Chairman of the Board, Director, Officer 46
A. Daniel Sharplin President, Chief Executive Officer, Director 35
David G. Osowski Vice President, Secretary, Chief Financial Officer 45
H. Baxter Nairon Vice President of Strategy and Business Development 38
Charles G. McGettigan Director 53
Michael S. Taylor Director 56
Myron A. Wick, III Director 54
Steven H. Sigmon Director 42
</TABLE>
Jay Allen Chaffee was elected to the Company's Board of Directors in April
1991 and has been the Chairman of the Board since December 1994. He served as
the Company's President, Chief Executive Officer and Chief Financial Officer
from May 1991 until June 1995. Mr. Chaffee has served as President and a
director of Bunker Hill Associates, Inc. ("Bunker Hill") since 1985, and he
continues to serve in these capacities. Mr. Chaffee received a Bachelor of Arts
from Franklin & Marshall College in 1974 and a Juris Doctor from the University
of Tulsa, College of Law in 1978.
A. Daniel Sharplin has been the Company's President and Chief Executive
Officer and a Director since June 1995. He became the Company's Vice President,
Western Region, in December 1991, was appointed the Company's Chief Operating
Officer and Secretary in July 1992 and was appointed President in December 1994.
Prior to joining the Company, Mr. Sharplin functioned as an environmental
service industry consultant from April 1991 to December 1991. Mr. Sharplin
received a Masters of Business Administration from the University of Texas in
1987.
H. Baxter Nairon was named Vice President of Strategy and Business
Development of the Company in December 1997. Prior to that, he was President of
Field Services for the Company from April 1996 to December 1997. Before joining
the Company, from 1989 to 1996, Mr. Nairon was employed by Booz-Allen &
Hamilton, a global management consulting firm, where he achieved the position of
Principal, specializing in engagements for large oil companies. He has received
a Professional Engineering registration and holds a Bachelor of Science in
Mechanical Engineering from the University of Tennessee at Knoxville and a
Masters of Business Administration from the University of Texas.
David G. Osowski was named Vice President, Secretary and Chief Financial
Officer in December 1996. Prior to joining the Company, from May 1991 until July
1996, Mr. Osowski served as Senior Vice President, Controller and Treasurer for
Summagraphics Corporation. Mr. Osowski received a Bachelor of Science from the
University of Bridgeport.
Charles C. McGettigan has been a director since 1995. Since November 1988,
he has been a Managing Director of McGettigan, Wick & Co. Inc., an investment
banking firm in San Francisco. Since May 1991, Mr. McGettigan has been a general
partner of Proactive Investment Managers, L.P. ("PIM"), which is the general
partner of Proactive Partners, L.P. ("Proactive"), a merchant banking fund.
Prior to co-founding McGettigan, Wick & Co., Mr. McGettigan was a Principal,
Corporate Finance, of Hambrecht & Quist, Incorporated. Prior to that, Mr.
McGettigan was a Senior Vice President of Dillon, Read & Co. Inc. He currently
serves on the boards of directors of Cuisine Solutions, Inc. digital dictation,
inc., I- FLOW Corporation, Modtech, Inc, Onsite Energy, Inc., PMR Corporation,
Phoenix Network, Inc., Sonex Research, Inc., and Wray-Tech Instruments, Inc. Mr.
McGettigan is a graduate of Georgetown University, and he received a Masters of
Business Administration in Finance from the Wharton School at the University of
Pennsylvania.
- 22 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
Michael S. Taylor has been a director of the Company since July 1992. He
has been Senior Vice-President- Corporate Finance of Gilford Securities
Incorporated since December 1996. From March 1996 to November 1996, he held a
similar position with Laidlaw Equities. From June 1989 to March 1996 he was an
Associate Director of Investment Banking of Josephthal. From early 1980 until
joining Josephthal, he was President of Mostel & Taylor Securities, Inc. He has
been involved in the securities industry since 1966 when he joined Lehman
Brothers Inc. as an analyst. He became a director of New Paradigm Software
Corporation in April 1996. He attended Amherst College and Columbia University.
Myron A. Wick, III has been a director of the Company since November 1991.
Since November 1988, he has been Managing Director of McGettigan, Wick & Co.,
Inc., an investment banking firm in San Francisco. Since May 1991, Mr. Wick has
been a general partner of PIM. From September 1985 to May 1988, Mr. Wick was
Chief Operating Officer of California Biotechnology, Inc., a publicly traded
biotechnology firm. Mr. Wick is a director of Children's Discovery Centers of
America, Inc., digital dictation, inc., Modtech, Inc., Sonex Research, Inc., and
Wray-Tech Instruments, Inc. Mr. Wick received a Bachelor of Arts from Yale
University in 1965 and a Masters of Business Administration from Harvard
University in 1968.
Steven H. Sigmon has been a director since February 1998. Since January
1997, he has been President of Veeder- Root, North America ("Veeder-Root") a
subsidiary of Danaher. Prior to that, Mr. Sigmon held positions with Veeder-Root
as Vice President of Marketing and Sales from June 1996 to December 1996, and as
Vice President of Marketing and International Sales from October 1995 to June
1996. Previously, he held positions with Emerson Electric Company as Vice
President of Marketing for the Emerson Power Transmission Bearing Division from
January 1992 to June 1995 and as President of the Camco Division from June 1995
to September 1995. Mr. Sigmon received a Bachelor of Science in Engineering
Technology from Clemson University in 1977.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, officers and beneficial
owners of more than 10% of the Common Stock to file with the Securities and
Exchange Commission (the "SEC"), initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and 10% stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. The
Company believes that, during the 1997 fiscal year, the filings required of its
officers, directors or greater than 10% beneficial owners were timely filed,
except that the Form 5's filed by Mr. Sharplin and Mr. Chaffee were filed on an
untimely basis.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the most highly compensated executive officers of the Company (the
"Named Executive Officers") for all services rendered in all capacities to the
Company and its subsidiaries during 1995, 1996 and 1997. No other person who was
an executive officer of the Company at the end of 1997 was awarded, earned or
received annual salary and bonus in excess of $100,000.
- 23 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
------------
Awards
Annual Compensation ------------
------------------------------------ Shares
Name and Underlying All Other
Principal Position Year Salary Bonus Options Compensation
<S> <C> <C> <C> <C> <C>
- --------------------------- ---- ------------- ------------- ------------- ------------
Jay Allen Chaffee 1997 $ 90,000 (1) $ 200,000 (1) 800,016 (4) ---
Chairman of the Board 1996 $ 90,000 (1) $ 150,000 (1) --- ---
of Directors 1995 $ 113,671 $ 19,969 (1) 440,000 (4) ---
A. Daniel Sharplin 1997 $ 150,000 (2) $ 100,000 (2) 1,200,024 (5) ---
President and Chief 1996 $ 154,526 (2) $ 75,000 (2) --- $ 4,526 (7)
Executive Officer 1995 $ 136,779 $ 39,969 (2) 640,000 (5) ---
H. Baxter Nairon 1997 $ 138,000 $ 58,000 (3) --- ---
Vice President; President, 1996 $ 95,537 $ 45,000 384,000 (6) ---
Tanknology-NDE 1995 N/A N/A N/A ---
David G. Osowski 1997 $ 135,000 $ 47,625 (8) ---
Vice President, Secretary 1996 N/A N/A 250,000 (9) ---
and Chief Financial Officer 1995 N/A N/A N/A ---
</TABLE>
The Company has agreed to pay or reimburse the travel expenses of its
directors resulting from attendance at Board meetings. Except as hereinafter
provided, no other cash compensation was paid to, or on behalf of, Board
members, in consideration of their services provided as directors in 1997.
Certain directors were provided compensation for other services provided to the
Company as described above, and, beginning in 1997, the Board of Directors
agreed to pay Mr. Taylor a per meeting fee of $2,250. Mr. Taylor was paid a
total of $6,750 for 1997 meeting fees.
(1) In July 1997, the Company entered into an Executive Consulting Agreement
with Mr. Chaffee. See "Certain Transactions". In 1993, the Company awarded
Mr. Chaffee a bonus of $19,969; this amount was paid in installments in
1995 and 1996. In 1996, the Compensation Committee awarded Mr. Chaffee a
bonus for 1996 of $150,000 which was paid in 1997. In 1997, the
Compensation Committee awarded Mr. Chaffee a bonus for 1997 of $200,000, to
be paid in 1998.
(2) In July 1997, the Company entered into an Employment Agreement with Mr.
Sharplin. See "Certain Transactions". In 1995, the Compensation Committee
awarded Mr. Sharplin a $20,000 bonus which was paid in 1997. Mr. Sharplin
was also paid his 1993 bonus of $19,969 in 1995. Mr. Sharplin's 1996 bonus
award of $75,000 was paid in 1997. Mr. Sharplin's 1997 bonus award of
$100,000 was paid in 1998.
(3) In 1996, the Compensation Committee awarded Mr. Nairon a 1996 bonus of
$35,000 which was paid in 1997. Mr. Nairon was also awarded a $10,000 bonus
as an inducement to join the Company in 1996. In 1997, the Compensation
Committee awarded Mr. Nairon a 1997 bonus of $58,000, of which $16,000 was
paid in 1997 and $42,000 was paid in 1998.
(4) On June 22, 1995, Mr. Chaffee was awarded an option to purchase 440,000
shares of Common Stock at $0.125 per share which will expire in June 2005.
The option vests one-third each year from the date of grant commencing on
June 22, 1995. In 1996, certain previously granted options were repriced.
see "Fiscal Year End Options Values" below). On July 1, 1997, pursuant to
the Executive Consulting Agreement, Mr. Chaffee was awarded convertible
cash stock appreciation rights (the "SARs") for an aggregate of 800,016
shares of Common Stock at $0.2813 per share. On July 2, 1997, the Company
- 24 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
converted the SARs into a stock option for 800,016 shares of Common Stock
at $0.2813 per share which will expire on December 31, 2005.
(5) On June 22, 1995, Mr. Sharplin was awarded an option to purchase 640,000
shares of Common Stock at $0.125 per share which will expire in June 2005.
The option vests one-third each year from date of grant starting June 22,
1995. In 1996, certain previously granted options were repriced. See
"Report on Repricing of Options". On July 1, 1997, pursuant to the
Employment Agreement, Mr. Sharplin was awarded convertible cash stock
appreciation rights (the "SARs") for an aggregate of 1,200,024 shares of
Common Stock at $0.2813 per share. On July 2, 1997, the Company converted
the SARs into a stock option for 1,200,024 shares of Common Stock at
$0.2813 per share which will expire on December 31, 2005.
(6) In March 1996, Mr. Nairon was granted an option to purchase 384,000 shares
of Common Stock of the Company at $0.1875, the market price of the
Company's Common Stock on Mr. Nairon's hire date. The option vests ratably
one-third each year starting on April 15, 1996.
(7) Consists of matching funds for the Company 401(k) Plan relating to Company
contributions for 1992, 1993 and 1994 which were made in 1996.
(8) In 1997, the Compensation Committee awarded Mr. Osowski a 1997 bonus of
$47,625, of which $28,125 was paid in 1997 and $19,500 was paid in 1998.
(9) On December 19, 1996 , Mr. Osowski was granted options to purchase 250,000
shares of Common Stock of the Company at $0.4063, the market price of the
Company's Common Stock on Mr. Osowski's hire date. The option vests ratably
one-third each year starting on December 19, 1996.
Option Grants in Last Fiscal Year
The following table sets forth options granted to the Named Executive
Officers during the year ending December 31, 1997.
<TABLE>
<CAPTION>
Number of Percent of
Shares Total Options
Underlying Granted to Exercise
Options Employees in Price Per
Name Granted Fiscal Year Share Expiration Date
- ------------------ ------------- ------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Jay Allen Chaffee 800,016 (1) 32% $ 0.2814 December 2005
A. Daniel Sharplin 1,200,024 (2) 48% $ 0.2814 December 2005
H. Baxter Nairon --- --- --- ---
David G. Osowski --- --- --- ---
</TABLE>
(1) Issued pursuant to an Executive Consulting Agreement. See Certain
Transactions above.
(2) Issued pursuant to an Employment Agreement. See Certain
Transactions above.
- 25 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
Fiscal Year End Options Values
The following table sets forth the option holdings and the value of
unexercised options held by each Named Executive Officer as of December 31,
1997. None of the Named Executive Officers exercised options during 1997.
<TABLE>
<CAPTION>
Numbers of Shares Underlying Value of Unexercised
Unexercised-Options in-the-Money-Options
at December 31, 1997 at December 31, 1997
---------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jay Allen Chaffee 114,288 685,728 $ 3,572 $ 21,429 (1)
293,333 146,667 $ 55,000 $ 27,500 (2)
50,000 0 $ 9,375 $ 0 (2)
A. Daniel Sharplin 171,432 1,028,592 $ 5,357 $ 32,144 (1)
426,667 213,333 $ 80,000 $ 40,000 (2)
50,000 --- $ 9,375 $ 0 (2)
H. Baxter Nairon 128,000 256,000 $ 16,000 $ 32,000 (3)
David G. Osowski 83,333 166,667 $ 0 $ 0
</TABLE>
(1) Represents (i) the difference ($0.03125) between the exercise price of the
options ($0.28125) and the per share fair market value of the Company's
Common Stock on December 31, 1997 ($0.3125) times (ii) the number of shares
subject to the options.
(2) Represents (i) the difference ($.1875) between the exercise price of the
options ($0.125) and the per share fair market value of the Company's
Common Stock on December 31, 1997 ($0.3125) times (ii) the number of shares
subject to the options.
(3) Represents (i) the difference ($0.125) between the exercise price of the
options ($0.1875) and the per share fair market value of the Company's
Common Stock on December 31, 1997 ($0.3125) times (ii) the number of shares
subject to the options.
In 1996, the Compensation Committee determined that in connection with the
granting of executive options in 1995, it would be in the best interests of
the shareholders and the Company to reprice certain management options that
had been granted in 1993 to a current market price rather than issue
additional new options. The Committee believed that at the existing
exercise prices, the options were not providing the proper performance
incentive to management. Accordingly, the Committee repriced 50,000 options
that had been previously granted to each of Messrs. Chaffee and Sharplin as
well as 20,000 options that had been previously granted to Eric Hopkins,
the former Vice President and Chief Financial Officer of the Company, to
the then market price of the Common Stock which was $.125. All of the
aforementioned options previously had exercise prices of $3.75. All of
these options remain fully vested following the repricing.
In 1992, the Company granted to each of its then outside directors (
including Michael Taylor and Myron A. Wick), options to purchase 4,000
shares of Common Stock. These options were granted at exercise prices equal
to the market prices on the grant dates ($7.50 for options granted to Mr.
Wick, $12.50 for the options granted to Mr. Taylor. In March 1996, the
Company canceled the prior options issued to Messrs. Taylor and Wick and
granted 40,000 options with an exercise price of $0.125 to each
non-management director (Messrs. Taylor, Wick, and McGettigan). In December
1996, the Board granted Mr. Bober 40,000 options to purchase Common Stock
at an exercise price of $0.40625.
There was no other director compensation paid during 1997 or 1996 to the
non-management directors.
- 26 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to the beneficial
ownership of the Company's capital stock as of March 31, 1998 by: (a) each
stockholder known by the Company to be the beneficial owner of more than 5% of a
class of voting stock, (b) each director, (c) each of the executive officers of
the Company and (d) all executive officers and directors as a group.
Beneficial Ownership of Common Stock(1)
Beneficial Owner Number of Shares Percentage
- ------------------------------------ ---------------- ----------
Proactive Partners, L.P.(2 14,375,901 54.76%
50 Osgood Place, Penthouse
San Francisco, CA 94153
Lagunitas Partners, L.P.(3) 14,319,558 54.55%
50 Osgood Place, Penthouse
San Francisco, CA 94153
Danaher Corporation(4) 7,500,000 28.57%
1250 24th Street, N.W.
Washington, DC 20037
Myron A. Wick, III(5) 10,627,930 40.48%
c/o Proactive Partners
50 Osgood Place, Penthouse
San Francisco, CA 94133
Charles C. McGettigan(6) 10,627,930 40.48%
c/o Proactive Partners
50 Osgood Place, Penthouse
San Francisco, CA 94133
A. Daniel Sharplin(7) 1,359,823 5.18%
Jay Allen Chaffee/Bunker Hill(8) 639,059 2.43%
H. Baxter Nairon(9) 256,000 *
Steven H. Sigmon 0 *
Michael S. Taylor(10) 30,667 *
David G. Osowski(11) 83,333 *
All executive officers and directors 16,811,783 64.04%
* Less than 1% of the outstanding Common Stock
(1) For the purposes of the above table and the following notes, the shares of
Common Stock shown as "beneficially owned" include all shares of Common
Stock that the "beneficial owner" has the right to acquire within 60 days
upon the conversion of other securities, upon the exercise of warrants or
otherwise. In calculating the total number of shares of Common Stock deemed
to be outstanding for the purpose of reflecting the beneficial owner's
percentage of the class, the shares that other owners did not then own but
had the right to acquire within 60 days or more are not included.
(2) Includes 10,267,379 outstanding shares of Common Stock. Also includes (i)
175,000, 105,874 and 50,000 shares reserved for issuance upon the exercise
of warrants at prices of $0.375, $0.15, and $0.125, respectively; (ii)
3,721,305 shares beneficially owned by Lagunitas Partners, L.P. and
referenced to in note (3) below; (iii) 29,677 shares beneficially owned by
Mr. McGettigan and referenced to in note (5) below; and (v) 3,010 shares
- 27 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
issuable upon the exercise of warrants at a price of $0.15 per share issued
to McGettigan, Wick & Co., Inc. and to Proactive's general partner, PIM.
See also note (7) below.
(3) Includes 3,694,391 outstanding shares of Common Stock. Also includes (i)
26,914 shares of Common Stock issuable upon the exercise of warrants at a
price of $0.15 per share and (ii) 10,598,253 shares beneficially owned by
Proactive Partners, L.P. and referenced to in note (2) above.
(4) Consists of warrants to purchase 4,500,000 shares of Common Stock at $.375
per share and 3,000,000 shares of Common Stock issuable upon conversion of
Preferred Stock at $.50 per share.
(5) Includes (i) 26,667 shares of Common Stock issuable upon the exercise of
stock options granted to Mr. Wick under the Company's 1989 Incentive Plan
and (ii) the shares beneficially owned by Proactive and referred to in note
(2) above (10,598,253). Mr. Wick is a general partner of PIM. Also includes
3,010 shares beneficially owned by McGettigan, Wick & Co. (Mr. Wick is a
general partner of McGettigan, Wick & Co.) but does not include an
additional 13,333 shares subject to options that are not yet exercisable.
Also does not include 184,410 shares owned by the Company's 401(K) plan of
which Mr. Wick is a trustee.
(6) Includes (i) 26,667 shares of Common Stock issuable upon the exercise of
stock options granted to Mr. McGettigan under the Company's 1989 Long-Term
Incentive Plan and (ii) the shares beneficially owned by Proactive and
referenced to in note (2) above (10,598,253). Mr. McGettigan is a general
partner of PIM. Also includes 3,010 shares beneficially owned by
McGettigan, Wick & Co. (Mr. McGettigan is a general partner of McGettigan,
Wick & Co.) but does not include an additional 13,333 shares subject to
options that are not yet exercisable.
(7) Includes 513,932 outstanding shares of Common Stock. Also includes 26,360
shares reserved for issuance upon the exercise of warrants at prices of
$7.50. Also includes 819,531 shares reserved for issuance to Mr. Sharplin
under the Company's 1989 Long-Term Incentive Plan but does not include an
additional 1,070,493 shares subject to options that are not yet
exercisable. Also does not include 184,410 shares owned by the Company's
401(K) plan of which Mr. Sharplin is a trustee.
(8) Includes 67,150 outstanding shares of Common Stock. These shares are held
in the name of Bunker Hill, an affiliate of Mr. Chaffee. Also includes
571,909 shares subject to exercisable options granted to Bunker Hill under
the Company's 1989 Long-Term Incentive Plan but does not include 718,107
shares subject to options that are not yet exercisable. Also does not
include 184,410 shares owned by the Company's 401(K) plan of which Mr.
Chaffee is a trustee.
(9) Consists of 256,000 shares issuable upon the exercise of options granted to
Mr. Nairon under the Company's 1989 Long-Term Incentive Plan but does not
include 128,000 shares subject to options that are not yet exercisable.
(10) Includes 26,667 shares issuable upon the exercise of options granted to Mr.
Taylor under the Company's 1989 Long-Term Incentive Plan but does not
include 13,333 shares subject to options that are not yet exercisable. Also
includes 4,000 shares outstanding held by Mr. Taylor's wife. Mr. Taylor
disclaims beneficial ownership of his wife's shares.
(11) Consists of 83,333 shares issuable upon the exercise of options granted to
Mr. Osowski under the Company's 1989 Long-Term Incentive Plan but does not
include 166,667 shares subject to options that are not yet exercisable.
- 28 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the last fiscal year, the following transactions in excess of
$60,000 were entered into with related parties. During 1997, the Company paid
$290,000 to Bunker Hill for services of Jay Allen Chaffee and related expenses
as described below. Mr. Chaffee is the Chairman of the Board and president of
Bunker Hill Associates, Inc. ("Bunker Hill").
Employment Agreements
In 1991, the Company entered into a service contract with Bunker Hill to
retain the services of Mr. Chaffee. Mr. Chaffee is a principal of Bunker Hill, a
management consulting firm based in Houston, Texas. Pursuant to the contract,
Mr. Chaffee has agreed to serve the Company in various capacities as an officer
and director. In July 1997, the Company entered into an Executive Consulting
Agreement pursuant to which the Company agreed to pay a base retainer for such
services at the rate of $7,500 per month with additional stock and cash bonus
consideration. The term of the contract is three and one-half years, it may be
extended for one or more additional periods, and it can be terminated by Bunker
Hill on thirty days' prior written notice and by the Company at any time. The
contract supercedes the 1991 service contract between the Company and Bunker
Hill. In 1997, Bunker Hill, on behalf of Mr. Chaffee, received $90,000 in
consideration of Mr. Chaffee's management services as an officer of the Company
plus a bonus of $200,000 earned but not paid in fiscal year 1997. In addition,
$90,788 was remitted to Bunker Hill for secretarial support and reimbursement of
travel and out-of-pocket expenses related to Mr. Chaffee's services.
In July 1997, the Company entered into an employment agreement with A.
Daniel Sharplin, its President, Chief Executive Officer, pursuant to which Mr.
Sharplin will continue to serve the Company as President and Chief Executive
Officer and director. The Company paid Mr. Sharplin an annual base salary at the
rate of $150,000 through June 1997, at which time his salary was increased to
$200,000 pursuant to the Employment Agreement. Pursuant to the Employment
Agreement, the Company will pay him an annual base salary of $225,000 through
1998 and an annual base salary of $250,000 for all periods after December 31,
1998, except that the salary may be increased but not decreased at the
discretion of the Board of Directors. Mr. Sharplin will also receive additional
stock and cash bonus consideration. The term of the contract is three and
one-half years, and it may be extended for one or more additional periods.
The agreements described above between the Company and Messrs. Chaffee and
Sharplin (who for the purposes of this paragraph only will be referred to as the
"Employed Person") provide for change of control protection in case of a change
of control, (i) if the Employed Person is terminated, (A) the Employed Person
will be entitled to receive his base compensation for a period equal to the
remaining portion of the designated term of the relationship, (B) all of the
stock appreciation rights or stock options of the Employed Person granted
pursuant to the agreement which have accrued but not vested prior to the date on
which the change in control has occurred will automatically vest as of such date
and (C) all other rights and benefits the Employed Person may have under the
employee benefit, bonus and/or stock option plans and programs of the Company
will be determined in accordance with the terms and conditions of those plans
and programs, and (ii) if the Employed Person is not terminated, (A) the terms
and provisions of the agreements will remain in full force and effect, (B) at
the election of the Employed Person, the stock appreciation rights and stock
options of the Employed Person granted pursuant to the agreements which have
accrued but not vested prior to the date of such change in control shall either
(x)vest or (y) remain accrued but not vested and (C) regardless of the election
of the Employed Person pursuant to the immediately preceding clause, the stock
appreciation rights and stock options granted pursuant to the agreements shall
continue to accrue after the date of the change in control. A change in control
means a change in control of the Company which shall be deemed to have occurred
if (i) there is an event required to be reported with respect to the Company
under federal securities laws, (ii) any person shall have become the beneficial
owner, directly or indirectly, of securities of the Company representing 40% or
more of the combined voting power of the Company's then outstanding voting
securities, (iii) the Company is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a consequence of which
members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter or (iv) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors cease for any
reason to constitute at least a majority of the Board of Directors.
Strategic Alliance
In December 1997, the Company entered into a strategic alliance with
Veeder-Root, a subsidiary of Danaher, which encompassed both a commercial
agreement with Veeder-Root and an $8 million investment by Danaher. Veeder-Root
is a manufacturer of environmental monitoring equipment and a provider of
supporting services through its Simplicity offering. Under the terms of the
commercial agreement, the Company and Veeder-Root will work to integrate their
complementary service offerings. Under the terms of the investment agreement,
the Company issued (i) a $6.5 million Senior Subordinated Note with a 10% annual
interest rate and a 5-year term, (ii) $1.5 million of Redeemable, Convertible
Preferred Stock ("Preferred Stock") which is convertible into 3 million shares
of the Company's Common Stock and pays a 10% annual dividend with a 7-year term
and (iii) 4.5 million warrants to purchase the Company's Common Stock at $0.375
per share with a 5-year term. If Veeder-Root exercises its warrants and converts
the Preferred Stock, its ownership would be approximately 25% of the Company on
a fully-diluted basis. With the proceeds of this investment and approximately
- 29 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
$750,000 of cash, the Company repaid all of its obligations to Banc One Capital
Partners, L.P. ("BOCP") and repurchased BOCP's 13 million warrants. Mr. Sigmon
is President of Veeder-Root and a director of the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith or incorporated herein
by reference:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(1) 1997 Financial Statements, Table of Contents........................F-1
Report of Independent Auditors......................................F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996........F-3
Consolidated Statements of Operationsfor the years ended
December 31, 1997 and 1996.....................................F-4
Consolidated Statements of Stockholders' Deficit for the
years ended December 31, 1997 and 1996.........................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996.....................................F-7
Notes to Consolidated Financial Statements..........................F-8
</TABLE>
(2) Index to Financial Statement Schedules:
All information required in Financial Statement Schedules
for which provision is made in the applicable accounting
regulations of the Commission (i) are included in the notes
to the financial statements included in this report or (ii)
are not required under the related instruction or are
inapplicable and, therefore, have been omitted.
(3) Exhibits:
No. Exhibit
------ -------------------------------------------------------
3.01 Amended and Restated Certificate of Incorporation of
the Registrant, as amended May 22, 1996. (Incorporated
by reference from Exhibit 3.01 of Form 10-KSB/A for the
fiscal year ended December 31, 1996.)
3.02 Bylaws of the Registrant, as adopted November 29, 1988
and amended July 10, 1990. (Incorporated by reference
from Exhibit 3.06 of Form 10-KSB for the fiscal year
ended December 31, 1991.)
10.01 Stock Purchase Agreement, dated as of December 11,
1993, among the Registrant, Jim R. Clare and Donald
Valverde. (Incorporated by reference from Exhibit 10.76
of Form 10- KSB for the fiscal year ended December 31,
1993.)
10.02 Secured Promissory Note, dated April 11, 1994, issued
by the Registrant to Gilbarco Inc. in the principal
amount of $2,450,000. (Incorporated by reference from
Exhibit 10.83 of Form 10-KSB for the fiscal year ended
December 31, 1993.)
10.03 Security Agreement, dated as of April 11, 1994, between
the Registrant and Gilbarco Inc. securing payment of
the Secured Promissory Note (Exhibit 10.02).
(Incorporated by reference from Exhibit 10.84 of Form
10-KSB for the fiscal year ended December 31, 1993.)
10.04 Patent License Agreement, dated as of April 11, 1994,
between the Registrant and Gilbarco Inc. (Incorporated
by reference from Exhibit 10.86 of Form 10-KSB for the
fiscal year ended December 31, 1993.)
- 30 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
No. Exhibit
------ -------------------------------------------------------
10.05 Third Amendment to Tanknology-NDE International,
Inc.'s Secured Notes, Dated as of March 31, 1995,
between the Registrant and Proactive Partners; Spears,
Benzak, Salomon, & Farrell; Dan Purjes; Peter Sheib;
Lawrence Rice; and Joan Taylor. (Incorporated by
reference from Exhibit 10.88 of Form 10-KSB for the
fiscal year ended December 31, 1994.)
10.06 Second Amendment to Tanknology-NDE International,
Inc.'s Subordinated Note, dated as of March 31, 1995,
between the Registrant and Spears, Benzak, Salomon, and
Farrell. (Incorporated by reference from Exhibit 10.89
of Form 10-KSB for the fiscal year ended December 31,
1994.)
10.07 First Amendment to Tanknology-NDE International,
Inc.'s Subordinated Secured Promissory Note, dated as
of February 28, 1995, between the Registrant and
Gilbarco, Inc. (Incorporated by reference from Exhibit
10.90 of Form 10-KSB for the fiscal year ended December
31, 1994.)
10.08 Promissory Note, dated as of January 17, 1995, between
the Registrant and Proactive Partners, L.P.
(Incorporated by reference from Exhibit 10.94 of Form
10-KSB for the fiscal year ended December 31, 1994.)
10.09 First Amendment of the Promissory Note dated January
17, 1995, dated April 30, 1995, between the registrant
and Proactive Partners, L. P. (Incorporated by
reference from Exhibit 10.96 of Form 10-QSB for the
quarterly period ended March 31, 1995.)
10.10 First Amendment of the Financing Agreement between the
Registrant and Silicon Valley Financial Services, dated
June 20, 1995. (Incorporated by reference from Exhibit
10.97 of Form 10-QSB for the quarterly period ended
June 30, 1995.)
10.11 Notice of Conversion regarding Series AAA Preferred
Stock between the Registrant and Proactive Partners,
L.P.; Lagunitas Partners, L.P.; and A. Daniel Sharplin,
dated as of April 17, 1995. (Incorporated by reference
from Exhibit 10.98 of Form 10-QSB for the quarterly
period ended June 30, 1995.)
10.12 Notice of Conversion regarding Series BBB Preferred
Stock between the Registrant and Proactive Partners,
L.P.; Lagunitas Partners, L.P.; and A. Daniel Sharplin,
dated as of April 17, 1995. (Incorporated by reference
from Exhibit 10.99 of Form 10-QSB for quarterly period
ended June 30, 1995.)
10.13 Notice of Conversion regarding Series CCC Preferred
Stock between the Registrant and Proactive Partners,
L.P.; Lagunitas Partners, L.P.; and A. Daniel Sharplin,
dated as of April 17, 1995. (Incorporated by reference
from Exhibit 10.100 of Form 10-QSB for the quarterly
period ended June 30, 1995.)
10.14 Promissory Note, dated as of November 6, 1995, between
the Registrant and Gilbarco, Inc. (Incorporated by
reference from Exhibit 10.102 of Form 10-KSB for the
fiscal year ended December 31, 1995.)
10.15 Promissory Note, dated as of February 13, 1996,
between the Registrant and Proactive Partners, L. P.
(Incorporated by reference from Exhibit 10.103 of Form
10-KSB for the fiscal year ended December 31, 1995.)
10.16 Promissory Note, dated as of February 13, 1996,
between the Registrant and Lagunitas Partners, L. P.
(Incorporated by reference from Exhibit 10.104 of Form
10-KSB for the fiscal year ended December 31, 1995.)
10.17 Second Amendment to Tanknology-NDE International,
Inc.'s Secured Promissory Note, dated as of March 22,
1996, between Registrant and Gilbarco, Inc.
(Incorporated by reference from Exhibit 10.105 of Form
10-KSB for the fiscal year ended December 31, 1995.)
10.18 Settlement Agreement, dated as of November 30, 1995,
between the Registrant and Protank, Inc. (Incorporated
by reference from Exhibit 10.106 of Form 10-KSB for the
fiscal year ended December 31, 1995.)
- 31 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
No. Exhibit
------ -------------------------------------------------------
10.19 1996 Funding Agreement, dated as of, March 27, 1996,
between the Registrant, Proactive Partners, L.P. and
Lagunitas Partners, L. P. (Incorporated by reference
from Exhibit 10.107 of Form 10-KSB for the fiscal year
ended December 31, 1995.)
10.20 1996 Additional Funding Agreement, dated as of March
15, 1996, between the Registrant and Proactive
Partners, L.P. (Incorporated by reference from Exhibit
10.108 of Form 10- QSB for the quarterly period ended
June 30, 1996.)
10.21 1996 Second Additional Funding Agreement, dated as of
June 13, 1996, between the Registrant and Proactive
Partners, L.P. (Incorporated by reference from Exhibit
10.109 of Form 10-QSB for the quarterly period ended
June 30, 1996.)
10.22 Revised Agreement to Tanknology-NDE International,
Inc's Secured Promissory Note between the Registrant
and Gilbarco, Inc., dated as of September 15, 1996.
(Incorporated by reference from Exhibit 10.1 of Form
10-QSB for the quarterly period ended September 30,
1996.)
10.23 Stock Purchase Agreement between Tanknology-NDE
International, Inc and Tanknology Environmental, Inc.,
dated as of October 7, 1996. (Incorporated by reference
from Exhibit 2.1 of Form 8-K dated October 25, 1996.)
10.24 First Amendment to Stock Purchase Agreement between NDE
Environmental Corporation and Tanknology Environmental,
Inc., dated as of October 25, 1996. (Incorporated by
reference from Exhibit 2.2 of Form 8-K dated October
25, 1996.)
10.45 Note, Preferrred Stock and Warrant Purchase Agreement,
signed as of December 23, 1997, by and between
Tanknology-NDE International, Inc., ProEco, Inc.,
Tanknology/NDE Corporation, 2368692 Canada, Inc.,
Tanknology-NDE Construction Services, Inc. and DH
Holdings Corp.
10.46 Senior Subordinated Note, dated December 23, 1997,
provided for in the Note, Preferrred Stock and Warrant
Purchase Agreement (Exhibit 10.45) by and between
Tanknology-NDE International, Inc. and DH Holdings
Corp..
10.47 Distribution, Services and Marketing Agreement, signed
as of December 23, 1997, by and between Tanknology-NDE
International and Veeder-Root Company
10.48 Certificate of Designation of Preferences and Rights of
Series A Redeemable Convertible Preferred Stock of
Tanknology-NDE International, Inc., meeting held
December 22, 1997, providing for the issuance of a
series of Perferred Stock designated as the Series A
Redeemable Convertible Preferred Stock
10.49 Preemptive Rights Agreement, signed as of December 23,
1997, by and between Tanknology-NDE International, Inc.
and DH Holdings Corp. entered into pursuant to the
Note, Preferrred Stock and Warrant Purchase Agreement
(Exhibit 10.45)
10.50 Registration Rights Agreement, signed as of December
23, 1997, by and between Tanknology-NDE International,
Inc. and DH Holdings Corp. entered into pursuant to the
Note, Preferrred Stock and Warrant Purchase Agreement
(Exhibit 10.45)
10.51 Co-Sale Agreement, signed as of December 23, 1997, by
and between Tanknology-NDE International, Inc.,
Proactive Partners, L.P., Lagunitas Partners, L.P., Jay
Allen Chaffee, A. Daniel Sharplin and DH Holdings Corp.
entered into pursuant to the Note, Preferrred Stock and
Warrant Purchase Agreement (Exhibit 10.45)
- 32 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
No. Exhibit
------ -------------------------------------------------------
10.52 Tanknology-NDE International, Inc. Security Agreement
- Personal Property, Signed as of December 23, 1997, by
and between Tanknology-NDE International, Inc., ProEco,
Inc., Tanknology/NDE Corporation, 2368692 Canada, Inc.,
Tanknology-NDE Construction Services, Inc. and DH
Holdings Corp. entered into pursuant to the Note,
Preferrred Stock and Warrant Purchase Agreement
(Exhibit 10.45)
10.53 Tanknology-NDE International, Inc. Security Agreement
- Pledge of Subsidiary Stock, Signed as of December 23,
1997, by and between Tanknology-NDE International, Inc.
and DH Holdings Corp. entered into pursuant to the
Note, Preferrred Stock and Warrant Purchase Agreement
(Exhibit 10.45)
10.54 Amendment No. 1 to the Note, Perferred Stock and
Warrant Purchase Agreement (Exhibit 10.45) by and
between Tanknology-NDE International, Inc.,ProEco,
Inc., Tanknology/NDE Corporation, 2368692 Canada, Inc.,
Tanknology-NDE Construction Services, Inc. and DH
Holdings Corp.
10.55 Amendment No.3 to Loan Agreement (Exhibit 10.25) by and
between Tanknology-NDE International, Inc.
Tanknology-NDE Corporation, Tanknology-NDE Construction
Services, inc., ProEco, Inc., and 2368692 Canada, Inc.
and Bank One, Texas, N.A.
10.56 Amended and Restated Standby Commitment, dated December
23, 1997, by and among Proactive Partners, L.P.,
Tanknology-NDE International, Inc., and Bank One,
Texas, N.A.
10.57 Termination Agreement, dated as of December 10, 1997,
by and between Tanknology-NDE International, Inc.,
Tanknology/NDE Corporation, ProEco, Inc. and 2368692
Canada Inc. and Banc One Capital Partners, LLC
10.58 Employment Agreement, effective as of July 1, 1997, by
and between Tanknology-NDE International, Inc. and A.
Daniel Sharplin
10.59 Executive Consulting Agreement, effective July 1,
1997, by and between Tanknology-NDE International, Inc.
and Bunker Hill Associates, Inc.
10.60 Amendment No. 1 to the Employment Agreement (Exhibit
10.60) effective July 2, 1997, by and between
Tanknology-NDE International, Inc. and A. Daniel
Sharplin
10.61 Amendment No. 1 to the Executive Consulting Agreement
(Exhibit 10.61) effective July 2, 1997, by and between
Tanknology-NDE International, Inc. and Bunker Hill
Associates, Inc.
10.62 Amendment to Stock Purchase Agreement dated May 22,
1997 (Incorporated by reference from Exhibit 2.1 of
Form 8-K dated October 25, 1996) dated as of October
30, 1997, by and between Watson General Corporation,
and Tanknology-NDE International, Inc.
10.63 Asset Purchase Agreement dated February 19, 1997 among
Precision Tank Testing Limited, Tanknology Canada
(1988) Inc., NDE Environmental Corporation,
Tanknology/NDE Corporation.
21.01 Subsidiaries of the Registrant
27.01 Selected Financial Data
(b) There were no Reports on Form 8-K filed during the quarter ended
December 31, 1997.
Filed Dated
---------------------- --------------------
N/A N/A
- 33 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
Exhibit 21.01
SUBSIDIARIES OF REGISTRANT
Tanknology/NDE Corporation, a Delaware corporation, incorporated on
December 27, 1991, is a wholly owned subsidiary of Tanknology-NDE International,
Inc. and does business under the name Tanknology/NDE Corporation.
NDE Environmental Canada Corporation was incorporated on May 21, 1993 under
the Business Corporations Act of Alberta, is a wholly owned subsidiary of
Tanknology-NDE International, Inc. and does business under the name NDE
Environmental Canada Corporation.
ProEco, Inc., a Delaware corporation, incorporated as Tank Testing
International, Inc. on March 19, 1990, changed its name to ProEco, Inc. on July
26, 1991, is a wholly owned subsidiary of Tanknology-NDE International, Inc. and
does business under the name ProEco, Inc.
EcoAm, Inc., a Florida corporation, incorporated on July 15, 1991, is a
wholly owned subsidiary of Tanknology-NDE International, Inc. and does business
under the name EcoAm, Inc.
ProEco, Ltd., a United Kingdom corporation, incorporated in October 16,
1992, as EcoAm, Ltd., is a wholly owned subsidiary of Tanknology-NDE
International, Inc. and does business under the name ProEco, Ltd.
2368692 Canada Inc., incorporated in Ontario, Canada is a wholly owned
subsidiary of Tanknology-NDE International, Inc. and does business under the
name Tanknology Canada (1988) Inc.
Tanknology-NDE Construction Services, Inc., a Delaware corporation,
incorporated on December 5, 1997, is a wholly owned subsidiary of Tanknology-NDE
International, Inc. and does business under the name Tanknology-NDE Construction
Services, Inc.
- 34 -
<PAGE>
TANKNOLOGY-NDE INTERNATIONAL, INC.
1997 ANNUAL REPORT ON FORM 10-KSB/A
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this Annual Report filed on Form 10-KSB/A to be signed on its behalf
by the undersigned, thereunto duly authorized.
Tanknology-NDE International, Inc
Date: April 15, 1998 By: /s/ A. DANIEL SHARPLIN
---------------------- -------------------------------------------
A. Daniel Sharplin
President, Chief Executive Officer and Director
(PRINCIPAL EXECUTIVE OFFICER)
- 35 -
<PAGE>
Consolidated Financial Statements
Years ended December 31, 1997 and 1996
Contents
Report of Independent Auditors..............................................F-2
Consolidated Balance Sheets.................................................F-3
Consolidated Statements of Operations.......................................F-4
Consolidated Statements of Stockholders' Deficit............................F-5
Consolidated Statements of Cash Flows.......................................F-7
Notes to Consolidated Financial Statements..................................F-8
F-1
<PAGE>
Report of Independent Auditors
Stockholders and Board of Directors
Tanknology-NDE International, Inc.
We have audited the accompanying consolidated balance sheets of
Tanknology-NDE International, Inc. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tanknology-NDE
International, Inc. and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Austin, Texas
March 13, 1998
F-2
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
------------ ------------
Assets
Current assets:
Cash ............................................................ $ 193,627 $ 2,412,233
Trade accounts receivable, less allowance for doubtful
accounts of $1,066,331 in 1997 and $837,480 in 1996 ....... 9,856,826 5,735,550
Inventories ..................................................... 482,107 367,362
Prepaid expenses and other current assets ....................... 1,149,950 1,659,820
------------ ------------
11,682,510 10,174,965
Restricted cash (Note 2) ................................................. 3,000,000 --
Equipment and improvements, net (Note 3) ................................. 4,812,500 5,736,391
Goodwill, net of accumulated amortization of $55,122 in 1996 (Note 2) .... -- 4,922,617
Patents, licenses and other intangible assets, net of accumulated
amortization of $1,169,104 in 1997 and $773,140 in 1996 ......... 1,604,194 3,293,239
Deferred financing costs, net ............................................ 649,614 922,424
------------ ------------
Total assets ............................................................. $ 21,748,818 $ 25,049,636
============ ============
Liabilities, redeemable convertible preferred stock and stockholders' deficit
Current liabilities:
Accounts payable ................................................ $ 2,675,345 $ 1,673,470
Accrued liabilities ............................................. 2,249,208 4,885,260
Accrued payroll and payroll taxes ............................... 1,959,273 1,469,786
Current portion of long-term debt (Note 4) ...................... 4,055,072 1,963,564
------------ ------------
10,938,898 9,992,080
Long-term debt, less current portion (Note 4) ........................... 10,589,252 14,192,011
Deferred license revenue ................................................. 525,000 --
Warrants with put option (Note 4) ........................................ -- 1,600,000
Redeemable Convertible Preferred Stock, at redemption value (Note 5) ..... 1,500,000 --
Stockholders' deficit:
Series AAA Convertible Preferred Stock, $.0001 par value;
authorized 400 shares; issued and outstanding 1 share;
stated at liquidation value of $5,000 per share .... 5,000 5,000
Common Stock, $.0001 par value; authorized 50,000,000
shares; issued and outstanding 15,978,610 ........... 1,598 1,598
Warrants (Note 6) ......................................... 291,000 --
Additional paid-in capital ................................ 27,578,446 27,578,446
Accumulated deficit ....................................... (29,659,297) (28,302,374)
Cumulative foreign currency translation adjustment ........ (21,079) (17,125)
------------ ------------
(1,804,332) (734,455)
------------ ------------
Total liabilities, redeemable convertible preferred stock and
stockholders' deficit .................................................... $ 21,748,818 $ 25,049,636
============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
F-3
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996
------------ ------------
<S> <C> <C>
Revenues ..................................... $ 38,683,146 $ 15,939,126
Cost of services ............................. 29,246,121 11,085,062
------------ ------------
Gross margin ................. 9,437,025 4,854,064
Selling, general and administrative .......... 7,853,002 6,581,337
Impairment of long-lived assets (Note 3) ..... -- 833,321
------------ ------------
Operating income (loss) ...................... 1,584,023 (2,560,594)
Other income (expense):
Interest expense .................... (3,205,475) (1,062,409)
Interest income ................ 97,800 --
Other income (expense), net ......... (11,420) 214,641
------------ ------------
Net loss before provision for income taxes and
extraordinary gain .................. (1,535,072) (3,408,362)
Provision for income taxes (Note 9) .......... (39,060) (43,785)
Extraordinary gain (Note 4) .................. 220,497 1,813,149
------------ ------------
Net loss ..................................... $ (1,353,635) $ (1,638,998)
Less:
Preferred stock dividends ..... 3,288 --
------------ ------------
Net loss available to common ................. $ (1,356,923) $ (1,638,998)
============ ============
Basic and diluted loss per share:
Before extraordinary gain ........... $ (0.10) $ (0.45)
Extraordinary gain .................. 0.01 0.24
------------ ------------
Basic and diluted loss per share ............. $ (0.09) $ (0.21)
============ ============
<FN>
See accompanying notes.
</FN>
</TABLE>
F-4
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
Series AAA
Convertible Preferred
Stock Common Stock Warrants
------------------ ------------------------------------------ ------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Subscribed Amount Issuable Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Balance at
December 31, 1995 1 $5,000 2,274,420 $ 227 5,482,254 $1,303,410 - -
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Issuance of Common
Stock to settle
licensing dispute - - 20,000 2 - -
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Issuance of Common
Stock Subscribed - - 5,482,254 548 (5,482,254) (1,303,410)
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Exchange of Secured
Promissory Notes
for Common Stock - - 8,000,000 800 - -
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Company contribution
to 401(k) Plan - - 201,936 21 - -
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Cumulative foreign
currency translation - - - - - -
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Net loss - - - - - -
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Balance at
December 31, 1996 1 $5,000 15,978,610 $1,598 0 0 0 0
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
</TABLE>
TABLE CONTINUED ...
<TABLE>
<CAPTION>
Cumulative
Foreign
Currency
Paid-in Accumulated Translation Stockholders
Capital Deficit Adustment Deficit
<S> <C> <C> <C> <C>
- ------------------- ----------- ------------- ---------- -------------
Balance at
December 31, 1995 $25,134,457 $(26,663,376) $ (18,740) (239,022)
- ------------------- ----------- ------------- ---------- -------------
Issuance of Common
Stock to settle
licensing dispute 3,748 - - 3,750
- ------------------- ----------- ------------- ---------- -------------
Issuance of Common
Stock Subscribed 1,302,862 - - 0
- ------------------- ----------- ------------- ---------- -------------
Exchange of Secured
Promissory Notes
for Common Stock 1,035,082 - - 1,035,882
- ------------------- ----------- ------------- ---------- -------------
Company contributio
to 401(k) Plan 102,297 - - 102,318
- ------------------- ----------- ------------- ---------- -------------
Cumulative foreign
currency translatio - - 1,615 1,615
- ------------------- ----------- ------------- ---------- -------------
Net loss - (1,638,998) - (1,638,998)
- ------------------- ----------- ------------- ---------- -------------
Balance at
December 31, 1996 $27,578,446 $(28,302,374) $ (17,125) $ (734,455)
- ------------------- ----------- ------------- ---------- -------------
</TABLE>
F-5
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit (continued)
<TABLE>
<CAPTION>
Series AAA
Convertible Preferred
Stock Common Stock Warrants
------------------ ------------------------------------------ ------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Subscribed Amount Issuable Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Balance at
December 31, 1996 1 $5,000 15,978,610 $1,598 - $ - - -
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Issuance of Warrants 4,850,000 $291,000
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Dividend on
Redeemable Preferred
Stock
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Foreign currency
translation
adjustments
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Net loss - - - - - - -
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
Balance at
December 31, 1997 1 $5,000 15,978,610 $1,598 - - 4,850,000 $291,000
- ------------------- ----------- ------ ----------- ------ ----------- ----------- --------- --------
</TABLE>
TABLE CONTINUED...
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency Total
Paid-in Accumulated Translation Stockholders'
Capital Deficit Adjustment Deficit
<S> <C> <C> <C> <C>
- ------------------- ----------- ------------- ---------- -------------
Balance at
December 31, 1996 $27,578,446 $(28,302,374) $ (17,125) $ (734,455)
- ------------------- ----------- ------------- ---------- -------------
Issuance of Warrant 291,000
- ------------------- ----------- ------------- ---------- -------------
Dividend on
Redeemable Preferr
Stock (3,288) (3,288)
- ------------------- ----------- ------------- ---------- -------------
Foreign currency
translation
adjustments (3,954) (3,954)
- ------------------- ----------- ------------- ---------- -------------
Net loss - (1,353,635) - (1,353,635)
- ------------------- ----------- ------------- ---------- -------------
Balance at
December 31, 1997 $27,578,446 $(29,659,297) $ (21,079) $ (1,804,332)
- ------------------- ----------- ------------- ---------- -------------
</TABLE>
F-6
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................................ $(1,353,635) $ (1,638,998)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Extraordinary gain ......................................... (220,497) (1,813,149)
Write down of assets ....................................... 16,396 833,321
Depreciation ............................................... 3,376,237 1,740,254
Amortization ............................................... 534,878 289,611
Amortization of discounts and financing costs .............. 1,366,713 309,954
Deferred license revenue earned ............................ (91,667) --
Gain on sale of equipment .................................. (22,758) (214,641)
Other ...................................................... (3,954) --
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable .................... (4,121,276) 1,192,044
Increase in inventories ............................................. (114,745) (45,689)
Decrease in prepaid expenses and other current assets ............... (140,130) (480,452)
Increase in accounts payable ........................................ 1,001,875 147,526
Decrease in accrued liabilities ..................................... (2,942,089) (285,175)
Increase in accrued payroll and payroll taxes ....................... 489,487 833,417
----------- -----------
Net cash provided by (used in) operating activities ........ (2,225,165) 868,023
Cash flows from investing activities:
Proceeds from the sale of USTMAN .................................... 5,900,000 --
Restricted cash received in the sale of USTMAN ...................... (3,000,000) --
Proceeds from the sale of licenses .................................. 1,947,500 --
Business acquisitions, net of cash acquired of $700,000 ............. -- (11,299,757)
Capital expenditures ................................................ (2,841,530) (1,120,752)
Proceeds from sale of equipment ..................................... 80,258 234,450
Other ............................................................... (4,095) 10,737
----------- -----------
Net cash provided by (used in) investing activities ........ 2,082,133 (12,175,322)
Net cash from financing activities:
Proceeds from issuance of long-term debt and warrants with put option -- 16,529,903
Proceeds from issuance of long-term debt and warrants ............... 6,500,000 --
Proceeds from issuance of redeemable convertible preferred stock .... 1,500,000 --
Deferred financing costs ............................................ (299,363) (959,413)
Payments on long-term debt .......................................... (6,966,968) (3,177,993)
Proceeds from issuance of debt (Note 4) ............................. 5,690,757 1,000,000
Repayment of long-term debt and warrants with put option ............ (8,500,000) --
----------- -----------
Net cash provided by (used in) financing activities ........ (2,075,574) 13,392,497
Net increase (decrease) in cash ............................ (2,218,606) 2,085,198
Cash at beginning of year ........................................... 2,412,233 327,035
=========== ===========
Cash at end of year ................................................. $ 193,627 $ 2,412,233
=========== ===========
Supplemental disclosure of cash flow information: Cash paid during the
year for:
Interest .......................................... $ 1,840,031 $ 487,334
=========== ===========
Income taxes ...................................... $ - $ -
=========== ===========
Capital lease financing .................................... $ 170,704 $ 60,153
=========== ===========
<FN>
See accompanying notes.
</FN>
</TABLE>
F-7
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1. Summary of Significant Accounting Policies
Description and History of Business
Tanknology-NDE International, Inc. and subsidiaries (the Company) provides
regulatory compliance and related services, primarily tightness testing for
underground storage tanks (USTs) and associated pipelines, which the Company
considers to encompass only one business segment. Operations are conducted in
the United States, Puerto Rico, and the District of Columbia. Although work is
occasionally performed outside of the U.S., the Company generally operates
through foreign licensees. The Company has grown significantly through
acquisitions, financed primarily by debt.
Basis of Presentation
The consolidated financial statements include the accounts and operations
of Tanknology-NDE International, Inc. and its wholly-owned subsidiaries:
Tanknology/NDE Corporation, 2368692 Canada, Inc., NDE Environmental Canada
Corporation, ProEco, Inc., ProEco, Ltd., and EcoAm, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain amounts in the consolidated financial statements for years prior to
December 31, 1997 have been reclassified to conform to the current year
presentation.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market funds and all
investments with an initial maturity of three months or less.
Revenue Recognition
Tank testing, line testing and consulting service revenues are recognized
when services are performed. Revenues for construction contracts, generally on
short term projects, are recognized as the work is performed. Equipment sales
are recognized upon delivery to the customer.
Concentrations of Credit Risk
The Company's customers are principally the retail fuel operations of major
oil companies, independently owned gasoline retailers, convenience store
operators, large vehicle fleet owners and governmental entities. Accounts
receivable potentially expose the Company to concentrations of credit risk.
Generally, accounts receivable are due within 30 days and are not
collateralized. Credit losses historically have not been significant. One
customer accounts for approximately 21% of the Company's revenues. A payment
default by this customer could have a material impact on the Company's results
of operations.
Inventories
Inventories consist principally of parts sold by the Company in connection
with the performance of testing services and are valued at lower of cost
(first-in, first-out) or market.
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized over the
estimated useful lives, or the term of the related leases, whichever is shorter,
using the straight-line method.
The estimated useful lives used in computing depreciation and amortization
are as follows:
Tank testing equipment 8 years
Furniture and fixtures 5 years
Vehicles 3 - 5 years
Software 3 - 15 years
Other equipment 3 - 6 years
Intangible Assets
Intangible assets are amortized using the straight-line method over the
following estimated useful lives:
Goodwill 15 years
Patents 5 - 12 years
Licenses 15 years
Other intangible assets 3 - 5 years
The carrying values of intangible assets are reviewed if the facts and
circumstances suggest that they may be impaired. If this review indicates the
intangible assets will not be recoverable as determined based on the
undiscounted cash flows related to the intangible asset over the remaining
amortization period, the Company's carrying value of the intangible assets is
reduced by the estimated shortfall of cash flows.
Stock Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, ("APB 25") "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, compensation expense is recognized only when the exercise price of the
Company's stock options is less than the market price of the underlying stock on
the date of grant.
Income Taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between balances recognized for financial reporting purposes and income tax
purposes, and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. Management establishes a
valuation allowance for deferred tax assets, primarily net operating losses,
that may not be realizable.
Basic and Diluted Loss Per Share Data
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. For the years ended December 31, 1997 and 1996, the effects of dilutive
potential common shares are not considered in calculating loss per common share
because their effects would be anti-dilutive to the net loss reported for these
years. All earnings per share for all periods have been presented to conform to
Statement 128 requirements.
Basic loss per share has been computed by dividing net loss (numerator) by
weighted average common shares outstanding (denominator) for all periods
presented. The numerator (net loss) for the year ended December 31, 1997 is
increased by preferred stock dividends of $3,288. There are no reconciling items
to net loss for the year ended December 31, 1996. Weighted average common shares
outstanding at December 31, 1997 and 1996 are 15,978,610 and 7,725,372,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.
Recently Issued Accounting Pronouncements
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." This statement establishes standards for disclosing
information about an entity's capital structure. This statement is effective for
financial statements for periods ending after December 15, 1997, and will not
materially change the disclosures currently included in the Company's financial
statements.
F-8
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. This statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The statement
is effective for fiscal years beginning after December 15, 1997. Adoption of
this statement will have no impact on the Company's results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This statement is
effective for fiscal years beginning after December 15, 1997. Adoption of this
statement will have no impact on the Company's results of operations.
2. Business Acquisitions
Tanknology UST Group (the "Acquisition")
On October 25, 1996, the Company acquired all of the common stock of the
Tanknology UST Group of Tanknology Environmental, Inc. ("TEI"). The Tanknology
UST Group consisted of three subsidiaries of TEI: Tanknology Corporation
International ("TCI"), 2368692 Canada, Inc. (formerly named Tanknology Canada
(1988) Inc.) ("Canada"), and USTMAN Industries, Inc. ("USTMAN"). The Acquisition
was accounted for as a purchase and thus results of operations of the UST Group
from the date of the acquisition are included in the Company's statement of
operations. The purchase price is subject to final closing adjustments, which
are expected to occur in 1998.
In addition to the purchase price paid to TEI, the Company incurred
approximately $714,000 in fees and costs related to consummating and effecting
the Acquisition. The Company also accrued approximately $857,000 for costs
related to the planned relocation of and reduction in the former UST Group's
Field Services management and administrative groups. Included in this accrual
are costs for severance, employment contract obligations, personnel and facility
relocation costs, excess lease costs and other acquisition-related costs. The
Company also recorded approximately $758,000 for certain additional liabilities
relating to potential purchase price adjustments and liabilities recognized in
connection with the acquisition.
The purchase price was recorded as follows:
Working capital, other than cash $ 3,255,000
Property and equipment 2,950,000
Intangibles, other than goodwill 2,428,000
Other assets 18,000
Goodwill 4,978,000
Accrued fees and acquisition liabilities (2,329,000)
----------------
Purchase price, net of cash acquired $ 11,300,000
================
Sale of Acquired Canadian Operations
On February 20, 1997 the Company sold certain patents, software and
trademark rights as well as fixed assets associated with the operation of
Canada, Inc. for $1.2 million. The Company also canceled certain existing
license agreements and entered into new agreements, which will generate a future
revenue stream. The net proceeds from this sale approximated the basis of the
assets sold and had no material impact to the Company's results of operations in
1997.
The Company recognized revenues and expenses related to Canadian operations
of approximately $111,000 and $84,000 in 1997 and $280,000 and $232,000 in 1996,
respectively.
F-9
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Sale of USTMAN Industries, Inc.
On May 22, 1997, the Company sold the stock of USTMAN, which was acquired
as part of the Acquisition. The terms of the sale called for a cash payment at
closing of $5,250,000, a $500,000, 8.5% note due on June 1, 1998, the assumption
of certain liabilities of the Company and an additional payment based upon
certain calculations of USTMAN's working capital as of the closing date. In
December 1997, as part of a settlement of the working capital adjustment the
Company received early repayment of the $500,000 note and a payment of $150,000
for one half of the working capital adjustment. The final adjustment of $150,000
was received in early 1998. The net proceeds of the sale approximated the
carrying value of the assets sold. Accordingly, the sale had no material impact
on the Company's results of operations for 1997.
The Company recognized revenues and expenses related to the USTMAN
operations of approximately $692,000 and $622,000 in 1997 and $1,184,000 and
$1,552,000 in 1996, respectively.
As a condition of approval of the USTMAN sale transaction by the Company's
senior bank, $3,000,000 of the cash proceeds have been placed in a restricted
account with the Company's senior bank and will be held as collateral against
outstanding Company loans. The remaining $2,250,000 cash proceeds from the sale
were used to pay down amounts due under the revolving credit line.
3. Equipment and Improvements
Equipment and improvements consist of the following:
At December 31,
1997 1996
------------ ------------
Equipment .................................... $ 13,805,523 $ 12,474,380
Furniture and fixtures ....................... 154,046 334,261
Vehicles ..................................... 1,677,664 277,812
Equipment replacement parts .................. 161,500 161,500
Leasehold improvements ....................... 66,353 99,672
15,865,086 13,347,625
Less accumulated depreciation and amortization (11,052,586) (7,611,234)
$ 4,812,500 $ 5,736,391
============ ============
In 1996, due to the acquisition of more efficient and effective tank
testing systems, management began discontinuing the use of the tank testing
technology acquired from Gilbarco ESD, and future undiscounted cash flows
related to using this technology were expected to be significantly less than
anticipated. Accordingly, in the third quarter of 1996 management recognized a
loss on the impairment of these assets by reducing the book value of this
equipment by approximately $833,000.
F-10
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
4. Long-Term Debt
Long-term debt and financing agreements consist of the following:
At December 31,
1997 1996
------------ ------------
Revolving line of credit
$ 1,792,667 $ 2,000,000
Term loan ................................ 4,800,000 6,000,000
------------ ------------
Senior secured bank debt ........ 6,592,667 8,000,000
Senior subordinated note ................. 6,500,000 8,000,000
Less: Discount ........................... (270,000) (1,532,359)
------------ ------------
Senior subordinated note ........ 6,230,000 6,467,641
Other collateralized notes ............... 835,286 902,312
Other non-collateralized notes ........... 986,371 785,622
------------ ------------
Other long-term debt ............ 1,821,657 1,687,934
------------ ------------
Total long-term debt ............ 14,644,324 16,155,575
Less: Current portion .................... (4,055,072) (1,963,564)
------------ ------------
$ 10,589,252 $ 14,192,011
============ ============
1996 Acquisition Financing
In October 1996, in connection with the Acquisition, the Company obtained a
total of $19 million of financing (the "Financing") under two separate loan
agreements. The Financing consisted of senior secured bank debt consisting of a
three-year $5 million revolving line of credit and a five-year, $6 million term
loan and an $8 million subordinated note which was refinanced in December 1997
as described below under "1997 Refinancing".
In 1996,as part of the acquisition financing, the Company obtained a $8
million senior subordinated note with a 5 year term, maturing December 31, 2001
with interest at 13%. The debt holder received warrants to purchase 13,022,920
shares of the Company's common stock at an initial an exercise price of $0.325
per share which could be exercised at any time from October 24, 1996 through
December 31, 2005. Both the number of shares and the exercise price were subject
to adjustment based upon certain factors. These warrants were also subject to a
put option (the "Put") whereby, under certain circumstances, the holder could
require the Company to repurchase the warrants (including any common shares
owned as a result of a previous warrant exercise). The appraised market value of
the put warrants at issuance was determined to be $1.6 million and was recorded
as a discount to, and separately from, the Subordinated Note.In 1997, the
Company recorded interest expense of $734,250 in its results of operations to
accrete the value of the warrants to their estimated value.
Related to the Financing Agreements, a major stockholder of the Company
provided a $1 million standby commitment in the event of a payment default by
the Company, and, together with an affiliated debt holder, converted $1,035,882
of existing debt (principal and accrued interest) into 8,000,000 shares of
common stock.
The $8 million senior subordinated note and warrants for 13,022,920 shares
were retired in 1997 - see 1997 Refinancing below.
1997 Refinancing
In December 1997, the Company retired the then-existing Senior Subordinated
Note and the Warrants with Put Option for an aggregate of $8.5 million, plus
accrued interest on the Senior Subordinated Note through the closing date. As
part of this termination agreement, the Company also entered into a Post Closing
Agreement (the "PCA") with the lender. The PCA calls for an additional
contingent payment to the lender upon the occurrence of certain "Triggering
Events" as defined in the PCA, which include, among other events, the
dissolution or liquidation of the Company or the
F-11
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
merger of the Company into another entity wherein i) the Company is not the
surviving entity or ii) the current stockholders of the Company hold less than
50% of the combined voting power of the surviving entity. Upon the occurrence of
a Triggering Event, the Company has agreed to pay to the lender 20% of the
amount by which the Market Determined Value (as defined in the PCA) at or as a
result of the closing of a Triggering Event exceeds the Target Amount. The
Target Amount increases from $10 million as of the date of the 1997 Refinancing
through March 31, 1998 to $12.5 million for the period April 1, 1998 to June 30,
1998, to $15 million for the period July 1, 1998 to September 30, 1998 to $17.5
million for the period October 1, 1998 to December 31, 1998 and to $20 million
for the period January 1, 1999 to March 31, 1999. The PCA expires after March
31, 1999. Such payment to the lender is required on the same date and in the
same form as payments to shareholders of the Company. As of December 31, 1997,
there has been no occurrence of a Triggering Event, and the Company is not aware
of any potential Triggering Events.
The funds for this transaction were provided by the issuance of $1.5
million of Redeemable Convertible Preferred Stock (Note 5), the issuance of a
$6.5 million Senior Subordinated Note and $500,000 of the Company's cash.
Additionally, the Company's Senior Secured Bank Debt was modified to allow for
these transactions and to amend certain other terms and conditions of the
agreement.
1997 Senior Subordinated Note
In 1997, the Company obtained a $6.5 million senior subordinated note with
interest at 10% and maturing December 31, 2002. Required principal payments of
$541,667 per quarter begin March 31, 2000 and interest is payable quarterly in
arrears beginning March 31, 1998.This note, along with the Senior Secured Bank
Debt, is collateralized by substantially all of the assets of the Company. In
consideration for the note, the holder also received a warrant to purchase
4,500,000 shares of the Company's common stock at an initial exercise price of
$0.375 per share (subject to adjustment pursuant to anti-dilution provisions)
and is exercisable in a single exercise at any time. The warrant expires on
December 31, 2002. The appraised fair market value of the warrants at issuance
was determined to be $270,000 and was recorded as a discount to, and separately
from the note. The discount is being amortized over the life of the note using
the effective interest method. At December 31, 1997, the note had a carrying
value, net of unamortized discount, of $6,230,000. Under the terms of the Note
agreement, the Company is subject to certain restrictions and covenants.
Senior Secured Bank Debt
The Senior Secured Bank Debt at December 31, 1997, consists of a three-year
revolving credit line of up to $5 million, and a 5-year term note, maturing
December 31, 2001. The funds available under the revolving line of credit are
based on a formula as applied to the eligible accounts receivable of the
Company. In May 1997, as a condition to release the assets of USTMAN from its
collateral (see Note 2), the bank obtained as additional collateral a $3 million
restricted certificate of deposit. Outstanding balances under the credit line
bear interest at a rate of prime plus 0.75% (9.25% and 9.0% at December 31, 1997
and 1996, respectively). The commitment fee related to the unused portion of the
$5 million line is 0.5%. The term loan bears interest at of prime plus 1.5%
(10.0% and 9.75% at December 31, 1997 and 1996, respectively) with monthly
principal payments of $100,000.
At December 31, 1997, the Company had $1,792,667 of borrowings outstanding
under the revolving credit line and also had $185,000 in letters of credit
outstanding. Additionally, at December 31, 1997, there was approximately
$3,000,000 available for borrowing under the revolving credit facility.
Substantially all of the Company's assets were pledged as security for the
agreements. The Financing Agreements also impose restrictions on the Company's
ability to incur additional indebtedness, sell assets, pay dividends, make
additional business acquisitions, repurchase shares of common stock, make
capital expenditures and make certain management changes. At December 31, 1997,
the Company was in compliance with the financial debt covenants related to the
Financing Agreements as amended in December 1997.
F-12
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Gain on Extinguishment of Debt
In December 1997, the Company recorded an extraordinary gain on the early
retirement of the Senior Subordinated Note and associated Warrant with Put
Option that were issued in connection with the Acquisition in 1996. The Senior
Subordinated Note had a cost basis of $6,884,422 at the time of retirement, net
of unamortized discount, and the Warrant with Put Option had a carrying value of
$2,334,250. These instruments were retired for an aggregate cost of $8,500,000,
plus $144,415 in related expenses. In connection with the transaction, the
Company wrote off deferred financing costs associated with the original issue of
the Senior Subordinated Note of $353,760. The net gain on this transaction was
$220,497.
In September 1996, the Company prepaid a $2,450,000 note relating to a
previous 1994 acquisition. The debt had a carrying value including accrued
interest at the settlement date of $2,113,149. The prepayment of $300,000
resulted in an extraordinary gain of $1,813,149.
Other Collateralized Notes
Other collateralized notes include financing arrangements collateralized
solely by certain purchased assets, or by the Company's common stock, and
includes a 7.6% insurance note with a balance outstanding at December 31, 1997
of $613,119, payable in monthly installments. Maturities range from 1 to 5
years. Interest rates range from 7.6% to 25.5% per year, with a weighted average
interest rate of 8.7%.
Other Non-Collateralized Notes
Other non-collateralized notes consist of subordinated notes, a note for
purchased patent rights and a note to a vendor. Interest on the $645,335 of
subordinated notes is payable quarterly from 7.5% to 8%; principal is payable
annually in equal amounts over five years. A note for $300,000 relates to patent
rights purchased in November 1995 bears interest at a variable rate of
approximately 6% and is due October 2000. The vendor note of $41,036 bears no
interest. Payments on the vendor note are due monthly in 1998.
The aggregate annual maturities of long-term debt and financing agreements
at December 31, 1997 are as follows:
1998 4,055,072
1999 1,389,647
2000 3,844,577
2001 3,458,438
2002 2,166,590
14,914,324
Less: Discount (270,000)
--------------------
14,644,324
====================
5. Series A Redeemable Convertible Preferred Stock
In December 1997, as part of the 1997 Refinancing (Note 4), the Company
issued 150 shares of it's Series A Redeemable Convertible Preferred Stock
("Series A Preferred") with a liquidation value of $10,000 per share. The
Company has recorded the Series A Preferred at its redemption value of
$1,500,000. The holders of Series A Preferred are entitled to receive annual
dividends of $1,000 per share payable in arrears semi-annually beginning June
30,1998. The shares are redeemable at the option of the Company at any time
after June 30, 2001 or the date upon which all principal and interest on the
$6.5 million senior subordinated note is paid in full at the redemption price of
$10,000 per share. Any shares which are outstanding at December 31, 2004 must be
redeemed by the Company. Because these shares are mandatorily redeemable, they
are not included in stockholders' equity. These shares are convertible at the
option of the holder at any time after December 31, 1997 into shares of the
Company's common stock at an initial conversion price of $0.50 per share
(subject to anti- dilution and anti-inflation provisions). The Company has 150
shares of Series A Preferred authorized at December 31, 1997.
F-13
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
The holders of Series A Preferred will be entitled to 20,000 votes per
share of Series A Preferred, subject to anti-dilution provisions, on all matters
subject to a vote of stockholders of the Corporation (except as specified in the
Series A Preferred Certificate of Designation), such that holders of the Series
A Preferred shall have the same voting rights as they would have if the shares
of Series A Preferred held by them had been converted into common stock.
6. Stockholders' Equity
Series AAA Convertible Preferred Stock
The Company's Series AAA Convertible Preferred Stock ("Series AAA
Preferred") may be converted into Common Stock at any time at the initial
conversion price of $2.50 per share (subject to adjustment pursuant to anti
dilution provisions). In May 1995, 256.5 shares of the Series AAA Preferred with
a liquidation value of $1,282,500 were converted into an aggregate of 511,000
shares of Common Stock at a conversion price per share of $2.50. One share with
a liquidation value of $5,000 was outstanding at December 31, 1997 and 1996.
Series DDD Preferred Stock
In January 1995, the Company obtained $500,000 from its major shareholders
in exchange for a promissory note ("Bridge Note"). The note bore interest at
prime plus 4% and became due, after extension, on May 31, 1995. In June 1995,
the Company completed a restructuring of the Bridge Note. The shareholders
agreed to exchange the Bridge Note of $500,000 plus accrued interest of $25,644,
their promissory note for $273,038 plus accrued interest of $4,728, and cash of
$500,000 for 261 shares of the Company's Series DDD Preferred Stock ("Series DDD
Preferred"). This Series DDD Preferred was never issued. In March 1996, pursuant
to the 1995 Recapitalization Agreement Amendment between the Company and the
shareholders, 5,482,254 shares of Common Stock were issued in lieu of the Series
DDD Preferred. This transaction was recorded in the accompanying financial
statements as common stock issued in 1996.
Secured Promissory Notes
In 1996, the Company entered into a series of Secured Promissory Notes (the
"1996 Notes") with its largest stockholders in the aggregate amount of
$1,000,000, bearing interest at 8%. Concurrent with the Acquisition, the 1996
Notes, plus $35,882 of accrued interest thereon were converted into 8,000,000
shares of common stock.
Common Stock
In 1996 the Company increased the authorized number of common shares from
10,000,000 to 50,000,000.
F-14
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Warrants
As of December 31, 1997, the Company had the following warrants
outstanding:
Number of Shares Issuable Exercise Price Expiration
- --------------------------- -------------- ---------------
175,000 $.380 January 1998
50,000 $.150 January 1998
5,000 $7.500 September 1998
73,798 $.150 April 1999
3,675 $.750 April 1999
34,360 $7.500 April 1999
50,000 $.125 April 1999
12,000 $.150 May 1999
12,000 $7.500 May 1999
58,334 $11.400 December 1999
31,667 $21.000 December 1999
32,219 $25.800 December 1999
4,850,000 $.375 December 2002
- ---------------------------
5,388,053
===========================
In consideration of the bank's consent to enter into the 1997 Refinancing,
the bank was paid a $50,000 fee and received a warrant to purchase 350,000
shares of the Company's common stock at an exercise price of $.375 per share.
The warrant is exercisable in a single exercise at any time and expires December
31, 2002.
In 1996, the expiration dates on warrants to purchase 122,220 number of
shares of common stock that were originally scheduled to expire in 1996 were
extended to 1999.
Stock Options
The Company has elected to account for its employee stock options under APB
25. As a result, pro forma information regarding net loss and loss per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996, respectively: risk-free interest rates of 6.15%
and 6.00%; no dividend yield; volatility factors of the expected market price of
the Company's common stock of 1.2; and a weighted-average expected life of the
option of 4 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-15
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
1997 1996
------------- -------------
Pro forma net loss:
Before extraordinar......... $ (1,829,913 $ (3,602,859)
Extraordinary gain ......... 220,497 1,813,149
Net loss ................... $ (1,609,416) $ (1,789,710)
============= =============
Pro forma loss per share:
Before extraordinary gain... $ (0.11) $ (0.47)
Extraordinary gain ......... 0.01 0.24
Net loss ................... $ (0.10) $ (0.23)
============= =============
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect has been fully reflected in only 1997.
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
Weighted Average Weighted Average
Options Exercise Price Options Exercise Price
- ------------------------------- ---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 2,734,556 $ 0.18 304,850 $ 2.79
Granted 2,528,040 0.30 2,753,000 0.18
Exercised - - - -
Canceled (130,667) 0.29 (323,294) 2.58
- ------------------------------- ---------- ---------------- ---------- ----------------
Outstanding-end of year 5,131,929 $ 0.23 2,734,556 $ 0.18
========== ================ ========== ================
Exercisable at end of year 1,709,609 $ 0.17 609,667 $ 0.13
========== ================ ========== ================
Weighted-average fair value of
options granted during the year $ 0.23 $ 0.14
========== ==========
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged from
$0.05 to $0.4375. The weighted-average remaining contractual life of those
options is 8.1 years.
F-16
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
The following table summarizes outstanding options at December 31, 1997 by
price range:
<TABLE>
<CAPTION>
Outstanding Exercisable
- ----------------------------------------------- -------------------------------
Weighted Weighted-Average Weighted
Number of Average Remaining Number of Average
Options Exercise Price Contractual Life Options Exercise Price
- ------------- -------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
45,000 $ 0.05000 8 years 15,000 $ 0.05000
55,000 $ 0.09375 8.8 years 18,333 $ 0.09375
1,493,889 $ 0.12500 7.4 years 1,053,889 $ 0.12500
201,000 $ 0.15625 8.6 years 67,000 $ 0.15625
492,000 $ 0.18750 8.6 years 128,000 $ 0.18750
155,000 $ 0.25000 8.9 years 50,000 $ 0.25000
2,000,040 $ 0.28125 8 years 285,720 $ 0.28125
65,000 $ 0.31250 9.5 years - -
310,000 $ 0.40625 9 years 91,667 $ 0.40625
315,000 $ 0.43750 9.3 years - -
- ------------- -------------- ---------------- --------------- --------------
5,131,929 $ 0.23444 8.1 years 1,709,609 $ 0.175
============= ============== ================ =============== ==============
</TABLE>
Stock Option Plan
In 1997, the 1989 Stock Option Plan was amended and renamed the
Tanknology-NDE International, Inc. 1989 Long-Term Incentive Plan("Plan"). The
purpose of the Plan as so amended and restated is to retain key executives and
other selected employees, reward them for making major contributions to the
success of the Company and provide them with a proprietary interest in the
growth and performance of the Company and its subsidiaries. In general, the Plan
as so amended permits the award of stock-based compensation in addition to
options, extends the term of the Plan, increases the number of shares of stock
with respect to which awards may be made under the Plan and accommodates changes
in response to the enactment of section 162(m) of the Internal Revenue Code of
1986 as amended (the "Code"), and the revisions to Rule 16b-3 promulgated by the
U.S. Securities and Exchange Commission. The Plan was amended to allow up to
6,000,000 shares to be awarded, an increase from the previously authorized
2,500,000 shares.
The Plan provides for the grant of any or all of the following types of
awards: stock options, stock appreciation rights, stock awards and cash awards.
Awards of different types may be made singly, in combination or in tandem. Stock
options may be incentive stock options ("ISOs") that comply with Section 422 of
the Code. No participant may be granted awards consisting of stock options or
stock appreciation rights exercisable for more than fifty percent of the shares
of Common Stock of the Company reserved for issuance under the Plan. Awards
issued under the Plan as it was constituted prior to this amendment and
restatement are not being canceled or reissued, but shall remain in effect in
accordance with their terms.
The Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee") . Subject to the terms of the plan, the Committee
will have authority (i) to select employees to receive awards, (ii) to determine
the timing, form, amount or value and term of awards, and the conditions and
limitations, if any, subject to which awards will be made and become payable and
(iii) to interpret the Plan and adopt rules, regulations and guidelines for
carryong out the Plan. The Committee may delegate certain of its duties under
the Plan to the Chairman of the Board, the President and other senior officers
of the Company. The Committee may not, however, delegate to any person the
authority to grant awards to, or take other action with respect to, participants
who are subject to Section 16 of the Securities Exchange Act of 1934, as amended
, or section 162(m) of the Code.
In 1996, the Committee determined that in connection with the granting of
executive options in 1995, it would be in the best interests of the shareholders
and the Company to reprice certain management options that had been granted in
1993 to a current market price rather than issue additional new options. The
Committee believed that at the existing exercise prices, the options were not
providing the proper performance incentive to management. Accordingly, the
Committee repriced 50,000 options that had been previously granted to the
Chairman of the Board and the Chief Executive Officer
F-17
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
as well as 20,000 options that had been previously granted to an officer to the
then market price of the Common Stock which was $.125. All of the aforementioned
options previously had exercise prices of $3.75. All of these options remain
fully vested following the repricing.
In 1996 the Company canceled all options that had been previously issued to
outside directors and issued 40,000 new options priced at $0.125 (market value
of underlying stock at date of grant) to each of the four current outside
directors
Effective June 1995, the Company adopted the 1995 Incentive Plan for
Non-management Employees (the "Non- management Plan"). The Non-management Plan
is administered by a Committee appointed by the Board of Directors. The Company
has reserved an aggregate of 250,000 shares for issuance pursuant to the
Non-management Plan.
Common Shares Reserved for Issuance
Common shares reserved for issuance under convertible securities, options,
warrants and other arrangements are detailed in the following table:
Common Shares
Reserved for Issuance
--------------------------
Warrants .......................................... 5,388,053
Stock Options ..................................... 6,250,000
Series A Redeemable Convertible Preferred Stock ... 3,000,000
Series AAA Convertible Preferred Stock ............ 2,000
Shares issuable upon conversion of promissory notes 24,725
Common shares reserved for issuance ............. 14,664,778
==========================
7. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash
The carrying amount reported in the consolidated balance sheets
approximates the fair market value.
Long-term Debt
The carrying amount of the Company's long-term debt approximates their fair
value since most of this debt bears interest at variable rates.
Warrants with Put Option
The warrants with put option which were outstanding at December 31, 1996
were carried at their fair market value as determined by independent appraisal.
8. Related Party Transactions
The Company has a service contract with Bunker Hill Associates, Inc.
("Bunker Hill") to retain the services of Mr. Chaffee. Mr. Chaffee is Chairman
of the Board of the Company. The contract expiries December 31, 2000 and it may
be extended for one or more additional periods and it can be terminated by
Bunker Hill on thirty days notice and by the Company at any time. The contract
calls for a base retainer of $7,500 per month with additional stock and cash
bonus consideration. In 1997 and 1996, Bunker Hill earned or incurred
reimbursable expenses totaling $380,785 and $318,775, respectively, associated
with both the aforementioned services contract and certain acquisition-related
fees.
In December 1997, the Company entered into a strategic alliance with
Veeder-Root, a subsidiary of Danaher, which encompassed both a commercial
agreement with Veeder-Root and an $8 million investment by Danaher. Veeder-Root
is a manufacturer of environmental monitoring equipment and a provider of
supporting services through its Simplicity offering. Under the terms of the
commercial agreement, the Company and Veeder-Root will work to integrate their
F-18
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
complementary service offerings. Under the terms of the investment agreement,
the Company issued (i) a $6.5 million Senior Subordinated Note with a 10% annual
interest rate and a 5-year term, (ii) $1.5 million of Redeemable, Convertible
Preferred Stock ("Preferred Stock") which is convertible into 3 million shares
of the Company's Common Stock and pays a 10% annual dividend with a 7-year term
and (iii) 4.5 million warrants to purchase the Company's Common Stock at $0.375
per share with a 5-year term. If Veeder-Root exercises its warrants and converts
the Preferred Stock, its ownership would be approximately 25% of the Company on
a fully-diluted basis. With the proceeds of this investment and approximately
$750,000 of cash, the Company repaid all of its obligations to Banc One Capital
Partners, L.P. ("BOCP") and repurchased BOCP's 13 million warrants. Mr. Sigmon
is President of Veeder-Root and a director of the Company.
During 1996, the Company also paid $335,563 to its two largest
stockholders, primarily for financing fees related to the Acquisition.
9. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at December 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ........................... $ 989,000 $ 1,640,000
Allowance for doubtful accounts ............................ 412,000 143,000
Nondeductible accruals ..................................... 698,000 290,000
----------- -----------
Total deferred tax assets .................................. 2,099,000 2,073,000
Valuation allowance ........................................ (1,536,000) (1,379,000)
----------- -----------
Net deferred tax assets .................................... 563,000 694,000
Deferred tax liabilities:
Book over tax basis of depreciable assets .................. 563,000 694,000
----------- -----------
Deferred taxes, net ............................................ $ 0 $ 0
=========== ===========
</TABLE>
The valuation allowance for deferred tax assets increased by $156,000
during 1997 as a result of the combined effect of current year utilization of
net operating losses and current year activity which increased the net amount of
deferred tax assets. At December 31, 1997, for income tax purposes, the Company
had net operating loss carryforwards of $23,463,000. Due to a change in
ownership of the Company's stock pursuant to Internal Revenue Code Section 382,
the Company's future utilization of the net operating loss carryforwards
incurred prior to such change will be subject to a significant annual
limitation. Remaining losses will expire in tax years 2004-2011.
The Company's provision for income taxes differs from the expected tax
expense (benefit) amount computed by applying the statutory federal income tax
rate of 35% to income before income taxes as a result of the following:
1997 1996
--------- ---------
Income taxes at the statutory rate .......... $(460,000) $(592,000)
Change in valuation allowance ............... 156,000 694,000
Nondeductible interest ...................... 230,000 25,000
State taxes, net of Federal benefit ......... 25,000 0
Other, net .................................. 84,000 (93,000)
Tax rate differential - foreign jurisdictions 4,000 10,000
--------- ---------
Income taxes ................................ $ 39,000 $ 44,000
========= =========
F-19
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
1997 1996
------- -------
Current:
Federal ......................... $ 0 $ 0
State ........................... 25,000 0
Foreign ......................... 14,000 44,000
------- -------
Total Current ........................ 39,000 44,000
Deferred:
Federal ......................... 0 0
State ........................... 0 0
Foreign ......................... 0 0
------- -------
Total Deferred ....................... 0 0
------- -------
39,000 44,000
======= =======
10. Leases
The Company's office space and certain equipment and vehicles are leased
under noncancelable operating lease agreements which expire on various dates
through 2000. Under the terms of most of the leases, the Company is required to
pay all taxes, insurance and maintenance. Future minimum payments under
noncancelable operating leases at December 31, 1997 were as follows:
1998 $ 361,695
1999 $ 279,163
2000 $ 105,723
Rent expense under operating leases totaled $420,426 in 1997 and $216,910
in 1996. As of December 31, 1997, approximately $57,000 of aggregate future
minimum rentals are due to the Company under noncancelable subleases.
11. Significant Customer
Sales to one customer comprised 21% of total revenue in 1997 and 20% in
1996. Loss of this customer would significantly and adversely impact the
Company's results of operations.
12. Commitments and Contingencies
Potential Liability and Insurance
The Company's and its licensees' tank testing activities, consistent with
the industry, present risks of substantial liability. Spills of petroleum
products and hazardous substances, or the creation or exacerbation of a
contamination problem through errors or omissions in tank testing, could result
in liability under federal and state anti-pollution statutes and regulations or
from tort claims by those suffering personal injury or property damage as a
result of such contamination. In addition, many of the Company's tank testing
services involve volatile substances such as gasoline. The Company or its
licensees could be held liable for damage to persons or property caused by any
resulting fire or explosion.
The Company carries professional and pollution liability insurance of up to
$2 million per occurrence with a $2 million aggregate limit; general, product
and personal injury coverage of up to $1 million per occurrence, with a $2
million aggregate limit; fire and, legal liability coverage to $500,000. In
addition, umbrella coverage for all sources of liability other than professional
and pollution liability coverage in the amount of $10 million is maintained.
Deductibles are in the amount of $100,000 per occurrence, for professional and
pollution liability claims. The umbrella policy carries a $10,000 self insured
retention. All other coverages carry a $5,000 deductible per occurrence. The
Company believes that the policies in force are expected to be sufficient to
cover all current and expected claims. The Company has not been denied any
coverages sought. However, there can be no assurance that all possible types of
liabilities that may be incurred by the Company are covered by its insurance or
that the dollar amount of such liabilities will not exceed the Company's policy
F-20
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
limits. The occurrence of any significant uninsured loss or liability would have
a material adverse effect on the Company's business, financial condition, and
results of operations.
Litigation
In February 1995, U.S. Test, Inc. ("U.S. Test") filed a lawsuit against the
Company in the United States District Court for the Western District of
Louisiana. The lawsuit is for a declaratory judgment that certain patents owned
by The Company are invalid and unenforceable and/or that certain U.S. Test tank
testing systems do not infringe such patents. The relief U.S. Test is seeking
includes a final determination on the above issues, a preliminary injunction
regarding actions taken by The Company and attorneys' fees and costs. In May
1995, The Company filed a counterclaim alleging that (1) the The Company patents
are valid and enforceable, (2) the U.S. Test tank testing systems infringe such
patents and (3) The Company is owed damages for such infringement. The amount of
damages owed by U.S. Test, if any, has not been specifically alleged. The
patents at issue were transferred from Gilbarco, Inc. in the 1994 acquisition by
The Company of Gilbarco ESD. After numerous delays, an evidentiary hearing
occurred in early 1998, and the parties are in the process of preparing post
hearing submissions. There have been no dispositive rulings to date. The Company
does not believe that the outcome of such litigation will have a material
adverse effect on the Company's results of operations or financial condition.
The Company also is subject to various claims and litigation in the normal
course of business. The Company believes that the ultimate resolution of such
matters will not have a material adverse effect on the Company's results of
operations or financial condition.
In connection with the purchase of the UST group of companies in October
1996, the Company accepted the legal liability for certain potential claims and
existing law suits and claims against the acquired companies. These suits range
from former employee-related claims to environmental remediation claims incurred
in the course of UST's business activities. In connection with claims related to
product liability, the Company assumed a liability of $658,450 (the "Assumed
Liability") as part of the Acquisition. To the extent that certain of these
claims are settled for an amount exceeding the Assumed Liability, the Company
has been indemnified by the former owner of the UST group for any claims made by
the Company under the provisions of the acquisition agreement within three years
from the closing date of the acquisition in an amount up to $1,250,000 over the
Assumed Liability, net of any insurance proceeds or additional insurance
premiums that might become due as a result of such claims. It is possible that
estimates relating to the $658,450 of claims and litigation contingencies could
change. In connection with other claims, as defined in the Acquisition
Agreement, the Company is indemnified for claims asserted against the former UST
Group owner within two years from the closing date of the acquisition in an
amount up to $1,000,000 in excess of any liabilities transferred to the Company,
net of any insurance proceeds or additional insurance premiums that become due
as a result of such claims. The Company believes that the liability assumed and
recorded in its accounts and the indemnification from the former owner of the
UST Group are sufficient and that the indemnification is enforceable and
collectible such that the resolution of these matters will not have a material
adverse effect on the consolidated financial position or results of operations
of the Company.
The Company is also subject to various claims and litigation in the normal
course of business not directly related to the Acquisition. However, in the
opinion of management, the ultimate resolution of such matters will not have a
material adverse effect on the consolidated financial position or results of
operations of the Company.
13. Employee Benefit Plan
The Company has a 401(k) defined contribution plan covering all employees.
Employees are eligible to participate in the plan after thirty days of service.
At December 31, 1997, approximately 319 employees are eligible to participate in
the plan. The Company matches annually at its discretion, with equivalent value
of Company stock (using the market value as of December 31) or cash, 50% of a
participant's voluntary contributions, up to 3% of a participant's compensation,
and 100% for contributions between 3% to 6% of a participant's compensation.
There was no Company contribution of either stock or cash in 1997. The Company's
contribution in 1996 for the plan totaled $102,318. The Company contributed
201,936 shares of common stock to the plan for 1992, 1993 and 1994 contributions
in 1996.
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EXHIBIT 10.45
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Note, Preferred Stock and
Warrant Purchase Agreement
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Dated as of December 23, 1997
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Defined Terms.....................................................1
Section 2. Purchase and Sale of the Note....................................12
Section 3. Purchase and Sale of Preferred Stock.............................12
Section 4. Issuance of Warrants.............................................12
Section 5. Conditions to Closings...........................................13
Section 6. Representations and Warranties of Sell...........................14
Section 7. Representations and Warranties of Purchaser......................20
Section 8. Financial Reporting..............................................22
8.1 Financial Reports.......................................22
8.2 Other Information.......................................23
8.3 Preparation of Annual and Quarterly Financial
Statements in Accordance with GAAP......................23
8.4 Changes in GAAP and in Practices, Policies and
Procedures..............................................23
8.5 Notice of Certain Events................................24
8.6 Inspections.............................................25
Section 9. Affirmative Covenants............................................25
Section 10. Negative Covenants...............................................27
Section 11. Financial Tests..................................................31
Section 12. Events of Default................................................32
Section 13. Miscellaneous....................................................32
EXHIBITS
Exhibit A - Senior Subordinated Note
Exhibit B - Certificate of Designation
Exhibit C - Warrant Certificate
Exhibit D - Certificate of Responsible Party
Exhibit E - Opinion of TNDE Counsel
Exhibit F - Preemption Agreement
Exhibit G - Certificate of Incorporation
SCHEDULES
Schedule 1 - Liens
Schedule 2 - Trade Names
Schedule 3 - Indebtedness
Schedule 4 - Leases
Schedule 5 - Financial Statements
Schedule 6 - Shareholder Information
Schedule 7 - TNDE Obligations
<PAGE>
NOTE, PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
This Note, Preferred Stock and Warrant Purchase Agreement (the
"Agreement"), dated as of December 23, 1997 (the "Effective Date"), is entered
into by and between Tanknology- NDE International, Inc. ("TNDE"), a Delaware
corporation, ProEco, Inc. ("ProEco"), a Delaware corporation, Tanknology/NDE
Corporation ("NDE"), a Delaware corporation, 2368692 Canada, Inc. ("Canada"), a
Canadian Federal corporation and Tanknology-NDE Construction Services, Inc.
("Construction"), a Delaware corporation (collectively referred to herein as
"Sellers"), as sellers, and DH Holdings Corp., a Delaware corporation
("Purchaser"), as purchaser.
WHEREAS, Sellers desire to obtain, and Purchaser is willing to provide,
financing of approximately $8 million through (i) the sale and issuance by
Sellers to Purchaser of a Senior Subordinated Note (the "Note") in the aggregate
principal amount of $6.5 million and (ii) the sale and issuance by TNDE of 150
shares (the "Preferred Shares") of TNDE's Series A Convertible Redeemable
Preferred Stock (the "Preferred Stock") at a price of $10,000.00 per share; and
WHEREAS, TNDE has agreed, in partial consideration of the terms of this
Agreement, to issue and sell to Purchaser warrants (the "Warrants") to purchase
4,500,000 shares (the "Warrant Shares") of common stock of TNDE, par value
$.0001 per share.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows:
Section 1. Defined Terms.
As used herein, the following terms shall have the following meanings,
unless the context otherwise requires, as modified, amended or restated from
time to time as provided for herein.
1.1 "Accountant" means TNDE's current independent public accountant or such
other independent public accountant as may be selected by TNDE.
1.2 "Accountant's Statement" means, with respect to each Annual Financial
Statement, a written statement of such Accountant stating in effect that in the
course of its Audit with respect to such Financial Statement no Default has come
to its attention, or, if a Default has come to its attention, stating the nature
and period of existence of such Default.
1.3 "Accounting Period" means the Fiscal Year, Quarter or Month, as
applicable.
1.4 "Accounting Statements" mean collectively, with respect to any
Accounting Period, the consolidated balance sheet, consolidated statement of
operations, consolidated statement of cash flows and consolidated statement of
stockholders equity of TNDE and the Subsidiaries as of the end of such
Accounting Period.
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1.5 "Adjusted EBITDA" means with respect to any Accounting Period, EBITDA
for that Accounting Period less the sum of (i) taxes paid in cash with respect
to such Accounting Period, and (ii) the lesser of (A) $750,000.00 (annualized)
and (B) actual Capital Expenditures incurred with respect to that Accounting
Period.
1.6 "Affiliate" means any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with the specified
Person. A Person shall be deemed to control another Person if such Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such corporation, whether through the ownership
of voting securities, by contract or otherwise.
1.7 "Affirmative Covenants" means the covenants of TNDE set forth in
Section 9.
1.8 "Agreement" means this Note, Preferred Stock and Warrant Purchase
Agreement dated as of December 23, 1997 by and among TNDE, ProEco, NDE, Canada,
Construction and Purchaser.
1.9 "Annual Financial Statements" means, with respect to each Fiscal Year,
the consolidated and consolidating Accounting Statements of TNDE with respect to
such Fiscal Year, presented with corresponding Accounting Statements for the
preceding Fiscal Year, which Accounting Statements shall be Audited, prepared in
accordance with GAAP and presented in reasonable detail (including appropriate
footnotes). Accounting Statements prepared for and contained in TNDE's Form 10-K
filed with the SEC shall be deemed to constitute the Annual Financial Statement.
1.10 "Audit" or "Audited" means, with respect to the Annual Financial
Statements, an examination without limitation as to scope by the Accountant in
accordance with generally accepted auditing standards for the purpose of
expressing an opinion on such Accounting Statements.
1.11 "Audit Report" means, with respect to the consolidated (but not the
consolidating) Annual Financial Statements, the report of the Accountant
indicating the scope of the Audit with respect to such Annual Financial
Statements and setting forth the opinion of such Accountant with respect to such
Annual Financial Statements as a whole, or an assertion to the effect that an
overall opinion cannot be expressed. The Audit Report shall set forth any
qualification to such opinion and, when such an overall opinion cannot be
expressed, set forth the reasons therefor.
1.12 "Board of Directors" means the board of directors of TNDE and, as
applicable and to the extent permitted by law, any committee of such board of
directors authorized to exercise the powers of the board of directors.
1.13 "BOCP" means Bank One Capital Partners, LLC, a Delaware limited
liability company.
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1.14 "BOCP Agreement" means the Note and Warrant Purchase Agreement, dated
as of October 25, 1996, by and among TNDE, certain other parties and BOCP.
1.15 "Business Day" means any day other than a Saturday, Sunday or day upon
which banking institutions are authorized or required by law or executive order
to be closed in the City of Houston, Texas.
1.16 "Capital Stock" of any Person means, any and all shares, interests,
participations or other equivalents (however designated) of corporate stock,
including each class of common stock and preferred stock of such Person or
partnership interests and any warrants, options or other rights to acquire such
stock or interests.
1.17 "Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof which mature within 90 days from the date of acquisition
and (ii) time deposits and certificates of deposit, which mature within 90 days
from the date of acquisition, of any domestic commercial bank having capital and
surplus in excess of $200,000,000.00, which has, or the holding company of which
has, a commercial paper rating of at least A-1 or the equivalent thereof by
Standard & Poors Corporation or P- I or the equivalent thereof by Moody's
Investor Service.
1.18 "CFO Certificate" means, with respect to the Quarterly Financial
Statements and the consolidating Annual Financial Statements, a certificate
signed by the Chief Financial Officer of TNDE stating in effect that such
Financial Statements, when delivered, (i) were prepared in accordance with GAAP
and (ii) fairly present the results of operations for the applicable Accounting
Period and the financial condition as of the end of such Accounting Period. The
CFO Certificate shall be presented in a standard form reasonably satisfactory to
Purchaser.
1.19 "Closing Date" means December 23, 1997 or such later date as the
Parties shall mutually agree in writing.
1.20 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.21 "Collateral" means the collateral defined in the Pledge Agreement and
in the Subordinated Security Agreement.
1.22 "Common Shares" or "Common Stock" means the shares of common stock,
$0.0001 par value, of TNDE, at any time outstanding.
1.23 "Co-Sale Agreement" means the Co-Sale Agreement dated as of December
23, 1997 by and among TNDE, Proactive Partners, L.P., a California limited
partnership, Lagunitas Partners, L.P., a California limited partnership, Jay
Allen Chaffee, A. Daniel Sharplin and Purchaser.
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1.24 "Compliance Certificate" means, with respect to each Fiscal Year and
each Quarter, a certificate signed by the Chief Financial Officer of TNDE (i)
stating that no Default has occurred and is continuing, (ii) stating that, to
the best of his knowledge, Sellers are in compliance with each of the
Affirmative Covenants and each of the Negative Covenants and (iii) setting forth
in reasonable detail a computation of each of the Financial Tests as of the end
of the applicable Fiscal Year or Quarter. The Compliance Certificate shall be
presented in a standard form reasonably satisfactory to Purchaser.
1.25 "Debt Service Coverage Ratio" means with respect to any Accounting
Period, the ratio of (i) Adjusted EBITDA for such Accounting Period, to (ii) the
sum of the following for such Accounting Period: (a) all interest (including
interest on the Note); (b) preferred dividends; (c) actual scheduled principal
amortization of the Senior Indebtedness for the applicable period; and (d)
actual scheduled principal amortization of the Note for the applicable period.
1.26 "Default" is defined in the Note attached hereto as Exhibit A.
1.27 "Disposition" means (i) a merger, consolidation or other business
combination in which TNDE is not the surviving entity and in which TNDE's
stockholders receive cash or non-cash consideration in exchange for or in
respect of their shares of Capital Stock of TNDE or (ii) the sale, lease,
conveyance, transfer or other disposition (other than the grant of a security
interest) in any single transaction or series of related transactions of all or
substantially all of the assets of TNDE.
1.28 "Dividends" in respect of any corporation means:
(i) Cash distributions or any other distributions on, or in respect
of, any class of equity security of such corporation, except for
distributions made solely in shares of securities of the same
class; and
(ii) Any and all funds, cash or other payments made in respect of the
redemption, repurchase or acquisition of such securities; but
shall exclude the exercise of the Warrants or the conversion or
redemption of the Preferred Shares.
1.29 "EBITDA" means, as determined as of any date, earnings of TNDE and the
Subsidiaries (as reflected on the most recent Financial Statements) for the
applicable period ended immediately prior to any such date of determination
determined by excluding all amounts expensed as reflected on such Financial
Statements during such applicable period with respect to (i) interest expense
with respect to Permitted Indebtedness, (ii) federal and state income tax
expense, (iii) depreciation expense, (iv) accretion expense and (v) amortization
expense.
1.30 "Environmental Law" means any and all laws, statutes, judgements,
ordinances, rules, regulations, orders, determinations, interpretations or
guidance of any governmental authority, whether now existing or hereafter
effected, pertaining to health or the
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environment in effect in any and all jurisdictions in which TNDE or the
Subsidiaries are conducting or at any time have conducted business, or where any
property of TNDE or the Subsidiaries, whether leased or owned, is located, or
where any hazardous substances generated or disposed of by TNDE or the
Subsidiaries are located.
1.31 "ERISA" means the Employee Retirement Security Act of 1974, as amended
from time to time.
1.32 "ERISA Affiliate" means all members of the group of corporations and
trades or businesses (whether or not incorporated) which, together with TNDE,
are treated as a single employer under Section 414 of the Code.
1.33 "ERISA Plan" means any pension benefit plan subject to Title IV of
ERISA or Section 412 of the Code maintained or contributed to by TNDE or any
ERISA Affiliate with respect to which TNDE has a fixed or contingent liability.
1.34 "Event of Default" is defined in the Note attached hereto as Exhibit
A.
1.35 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
1.36 "Financial Statements" means the Annual Financial Statements, Monthly
Financial Statements and Quarterly Financial Statements.
1.37 "Financial Tests" means the financial tests with respect to TNDE and
the Subsidiaries set forth in Section 11, which tests are based upon the Annual
Financial Statements and Quarterly Financial Statements and determined as
provided for therein.
1.38 "Fiscal Quarter" means the three-month periods ending on March 31,
June 30, September 30 and December 31 of the applicable Fiscal Year.
1.39 "Fiscal Year" means each year ended on December 31, or other fiscal
year of TNDE adopted in the manner provided for in this Agreement. Each Fiscal
Year consists of four Quarters.
1.40 "GAAP" means those generally accepted accounting principles and
practices as in effect from time to time which are recognized as such by the
Financial Accounting Standards Board (or any generally recognized successor).
1.41 "Indebtedness" means with respect to TNDE, as of any date of
determination, (i) all indebtedness of TNDE and the Subsidiaries for borrowed
money or for the deferred purchase price of property or services or which is
evidenced by a note, bond, debenture, or similar instrument, reflected on the
most recent Financial Statements, (ii) all obligations of TNDE and the
Subsidiaries
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under any financing lease, (iii) all obligations of TNDE and the Subsidiaries in
respect of letters of credit, acceptances, or similar obligations issued or
created for the account of TNDE and the Subsidiaries, (iv) all guaranty
obligations of TNDE and the Subsidiaries, and (v) all liabilities secured by any
lien on any property owned by TNDE or the Subsidiaries, whether or not TNDE or
the Subsidiaries have assumed or otherwise become liable for the payment
thereof; provided that, the term "Indebtedness" shall not include any
obligations incurred with regard to performance bonds and payment bonds relating
to the business of Construction.
1.42 "Interest Rate"is defined in the Note attached hereto as Exhibit A.
1.43 "Intercreditor Agreement" means the Intercreditor and Subordination
Agreement dated as of December 23, 1997, by and between Purchaser and the Senior
Lender, as modified, amended or restated from time to time.
1.44 "Investment" is defined in Section 10(e) hereof.
1.45 "Lender Reports" means, without duplication of statements,
certificates, notices or reports furnished to Purchaser pursuant to Section 8.1
of this Agreement, copies of all financial statements, certificates, notices,
reports or other information furnished to any bank, financial institution or
note purchaser pursuant to the requirements of any loan or note purchase or
similar agreement with respect to any material Indebtedness of TNDE or any of
the Subsidiaries.
1.46 "Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (whether statutory or otherwise), or preference,
priority or other security agreement or similar preferential arrangement of any
kind or nature whatsoever (including, without limitation, any conditional sale
or other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement under the uniform commercial code or comparable law of any
jurisdiction in respect of any of the foregoing).
1.47 "Litigation" is defined in the Note attached hereto as Exhibit A.
1.48 "Management Letters" means any letter or report furnished by the
Accountants to management of TNDE or any Subsidiary in connection with any Audit
or otherwise describing findings or recommendations with respect to the
accounting or management practices or procedures of TNDE and the Subsidiaries
and, including, all reports submitted to TNDE or the Subsidiaries by the
Accountant in connection with any interim or special audit made by the
Accountant.
1.49 "Material Adverse Effect" means a material adverse effect on the
respective Person's business, property, assets, prospects, condition (financial
or otherwise) or results of operations, or on the rights of such Person
hereunder.
1.50 "Maturity Date" is defined in the Note attached hereto as Exhibit A.
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1.51 "Minutes" means all minutes, minutes of written action or reports
(including schedules and exhibits thereto) of a shareholder's meeting or actions
and all meetings or actions of the Board of Directors or any committee thereof
or appointed thereby of TNDE.
1.52 "Month" means a calendar month, and "Monthly" means each Month.
1.53 "Monthly Financial Statements" means, with respect to each Month the
consolidated Accounting Statements of TNDE and the Subsidiaries with respect to
such Month, which Accounting Statements shall be prepared and presented in the
manner customary for purposes of dissemination for management of TNDE and the
Subsidiaries.
1.54 "Net Worth" means at a particular date, the sum of any warrants
(including the Warrant Shares), preferred stock (including the Preferred
Shares), par value of common stock, capital in excess of par value of common
stock, and retained earnings less treasury stock (if any) determined on a
consolidated basis in accordance with GAAP.
1.55 "Negative Covenants" means the covenants of TNDE set forth in Section
10.
1.56 "Net Income" means for any period, the net income (or loss) of TNDE
and the Subsidiaries after allowance for taxes for such period, determined in
accordance with GAAP; provided that there shall be excluded from the calculation
of such net income (to the extent otherwise included therein) the following: (i)
the net income of any Person in which TNDE or the Subsidiaries has an interest
(which interest does not cause the net income of such other Person to be
consolidated with the net income of TNDE or the Subsidiaries in accordance with
GAAP), except to the extent of the amount of dividends or distributions actually
paid in such period by such other Person to TNDE or the Subsidiaries; (ii) the
net income (or loss) of any Person acquired in a pooling-of-interest transaction
for any period prior to the date of such transaction and any expenses incurred
by TNDE or the Subsidiaries with respect to such transaction; (iii) any
extraordinary gains or losses, including gains or losses attributable to
property sales not in the ordinary course of business; (iv) the cumulative
effect of a change in accounting principles; (v) any gains or losses
attributable to writeups or write downs of assets, and (vi) any expenses
relating to accretions associated with any warrants, preferred stock,
subordinated debt or other convertible securities.
1.57 "Note" means the $6,500,000.00 aggregate principal amount Senior
Subordinated Note issued and sold by Sellers to Purchaser pursuant to this
Agreement, due December 31, 2002. The Note is in the form of Exhibit A.
1.58 "Notice"means any notice required to be given to any Party under this
Agreement in accordance with Section 13(h).
1.59 "Parties" means TNDE, ProEco, NDE, Canada, Construction and Purchaser
collectively, and "Party" means any one of the Parties.
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1.60 "Permitted Indebtedness" means, as of any date of determination the
aggregate amount of all Indebtedness of TNDE and the Subsidiaries outstanding as
of such date of determination but only to the extent that the amount of such
Indebtedness does not exceed the amounts permitted under this Agreement.
1.61 "Permitted Liens" means:
(i) Liens incurred pursuant to this Agreement and the Related
Documents;
(ii) Liens securing the Senior Indebtedness as contemplated in the
Intercreditor Agreement;
(iii)Liens securing taxes, assessments or governmental charges or
levies or the claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like Persons;
(iv) Liens incurred or deposits made in the ordinary course of
business (a) in connection with workers' compensation,
unemployment insurance, social security and other like laws, or
(b) to secure the performance of letters of credit, bids,
tenders, sales contracts, leases, statutory obligations, surety,
appeal and performance bonds and other similar obligations not
incurred in connection with the borrowing of money, the obtaining
of advances or the payment of the deferred purchase price of
property;
(v) attachment, judgment and other similar Liens arising in
connection with court proceedings, provided the execution or
other enforcement of such Liens is effectively stayed and the
claims secured thereby are being actively contested in good faith
and by appropriate proceedings;
(vi) purchase money security interests granted to secure not more than
75% of the purchase price of assets, the purchase of which does
not violate this Agreement or any Related Document;
(vii)Liens securing indebtedness to BOCP which is extinguished upon
the Closing Date;
(viii)Liens specifically identified in Schedule 1; and
(ix) Liens securing performance bonds and payment bonds relating to
the business of Construction.
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1.62 "Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, governmental authority or any other form of entity.
1.63 "Pledge Agreement" means the Security Interest-Pledge of Subsidiary
Stock Agreement dated as of December 23, 1997 by and between TNDE and Purchaser.
1.64 "Preemptive Rights Agreement" means the Preemptive Rights Agreement
dated as of December 23, 1997 by and between TNDE and Purchaser.
1.65 "Preferred Shares" or "Preferred Stock" means TNDE's Series A
Redeemable Convertible Preferred Stock, par value $.01 per share, carrying the
rights, characteristics and obligations set forth in the Certificate of
Designation attached hereto as Exhibit B.
1.66 "Proceeds" means proceeds as such term is used in the Uniform
Commercial Code of the State of Delaware, as amended from time to time, together
with any successor law and as contemplated in the Pledge Agreement and in the
Subordinated Security Agreement.
1.67 "Purchaser" means DH Holdings Corp., a Delaware corporation, together
with its successors and assigns.
1.68 "Quarter" means each quarter annual period of the Fiscal Year, and
"Quarterly" means each Quarter. Each Quarter consists of three Months.
1.69 "Quarterly Financial Statements" means, with respect to each Quarter,
the consolidated Accounting Statements of TNDE and the Subsidiaries with respect
to such Quarter and the current Fiscal Year to date, presented with
corresponding Accounting Statements for the same Quarter and Fiscal Year to date
period for the preceding Fiscal Year, which Accounting Statements shall be
prepared in accordance with GAAP (subject to applicable year end adjustments)
and presented in reasonable detail (but omitting footnotes that would
substantially duplicate footnotes contained in the most recent Annual Financial
Statements). Accounting Statements prepared for and contained in TNDE's Form
10-Q filed with the SEC shall be deemed to constitute the Quarterly Financial
Statement.
1.70 "Registration Rights Agreement" means the Registration Rights
Agreement dated as of December 23, 1997 by and between TNDE and Purchaser.
1.71 "Related Documents" means the Note, the Subordinated Security
Agreement, the Pledge Agreement, the Preemptive Rights Agreement, the
Registration Rights Agreement, the Warrant Certificate, the Certificate of
Designation and the Co-Sale Agreement.
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1.72 "Representation(s) and Warranty(ies)" means the representations and
warranties of Sellers set forth in Section 6 and in any certificate of any of
the Sellers delivered pursuant to Section 5.
1.73 "Responsible Officer" means the chairman of the board, chief executive
officer, chief operating officer, chief financial officer or chief accounting
officer of TNDE or any other officer of TNDE involved principally in its
financial administration of its controllership function.
1.74 "Restricted Payments" means any of the following:
(i) any dividend on any class of TNDE's Capital Stock (other than
with respect to Purchaser's Preferred Stock);
(ii) any other distribution on account of any class of TNDE's Capital
Stock;
(iii)any redemption, purchase or other acquisition, direct or
indirect, of any shares of TNDE's Capital Stock (other than with
respect to Purchaser's Preferred Stock); and
(iv) any management, consulting and other fees paid to Proactive
Partners, L.P., Lagunitas Partners, L.P., their respective
partners and employees and their successors and assigns (other
than as provided for in this Agreement).
Notwithstanding the foregoing, Restricted Payments shall not include (A)
dividends paid, or distributions made, in Capital Stock of TNDE; or (B)
exchanges of Capital Stock of TNDE for another class of Capital Stock of TNDE,
except to the extent that cash or other non-stock value is involved in such
exchange.
1.75 "SEC" means the United States Securities and Exchange Commission (or
any governmental body or agency succeeding to its functions).
1.76 "Securities Act" means the Securities Act of 1933, as amended from
time to time.
1.77 "Security Agreements" mean collectively, the Senior Security
Agreement, the Subordinated Security Agreement and the Pledge Agreement.
1.78 "Sellers" means TNDE, ProEco, Canada and Construction.
1.79 "Senior Indebtedness" means the Senior Loans and Indebtedness incurred
pursuant to the terms of any agreement between TNDE, any of the Subsidiaries and
any bank or
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financial institution providing for revolving credit loans secured by the
Collateral; provided that, any other agreement shall be consented to in writing
by DH, which consent shall not be unreasonably withheld, and the lender with
respect thereto shall have been granted a first perfected security interest in
the Collateral on terms substantially equivalent to those set forth in the
Senior Security Agreement; further provided that, the term "Senior Indebtedness"
may include up to $11 million of Indebtedness incurred by TNDE or the
Subsidiaries to replace the indebtedness incurred with respect to the Senior
Loan Agreement and such debt replacement need not be consented to by DH;
provided further that, notwithstanding the foregoing, any such replacement of
Indebtedness by the Company on terms materially adverse to DH shall not be
undertaken without the prior written consent of DH.
1.80 "Senior Lender" means Bank One, Texas, N.A., as lender under the
Senior Loan Agreement, together with its successors and assigns in such capacity
or any substitutes or Persons acting in the same or similar capacity with
respect to Senior Indebtedness.
1.81 "Senior Loan Agreement" means the Loan Agreement, dated as of October
25, 1996, by TNDE, certain other parties and the Senior Lender, including all
extensions, renewals and refinancings thereof.
1.82 "Senior Loans" means the term loan and revolving line of credit
granted by the Senior Lender to TNDE and certain other parties pursuant to the
Senior Loan Agreement, including all extensions, renewals and refinancings
thereof.
1.83 "Senior Security Agreement" means the Security Agreement dated as of
October 25, 1996, by and among TNDE and the Senior Lender, as modified, amended
or restated from time to time, together with any other agreements securing the
payment of the obligations evidenced by the Senior Loans or under the Senior
Loan Agreement.
1.84 "Subordinated Debt" means Indebtedness of TNDE and the Subsidiaries
which is subordinated, in a manner satisfactory to and approved in writing by
Purchaser, to the Indebtedness of Sellers evidenced by the Note.
1.85 "Subordinated Security Agreement" means the Security
Agreement-Personal Property dated as of December 23, 1997 by and between Sellers
and Purchaser, as modified, amended or restated from time to time, together with
any other agreements securing the payment of the obligations evidenced by the
Note or under this Agreement.
1.86 "Subsidiary" or "Subsidiaries" means any corporation 50% or more of
the Capital Stock of which, except directors' qualifying shares, shall at the
time as of which any determination is being made, be owned by TNDE either
directly or through Subsidiaries.
1.87 "Subsidiary Stock" is defined in the Pledge Agreement.
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1.88 "Total Liabilities"of any Person shall mean, as of any date, all
amounts which would be included as liabilities on a balance sheet of such Person
as of such date prepared in accordance with GAAP.
1.89 "Transfer" means, with respect to any item, the sale, exchange,
conveyance, lease, transfer or other disposition of such item.
1.90 "UCC" means the Uniform Commercial Code as in effect in the State of
Delaware.
1.91 "Warrant Certificate" means the Warrant Certificate dated as of
December 23, 1997 issued by TNDE to Purchaser evidencing Warrants to purchase
4,500,000 Common Shares.
1.92 "Warrant Shares" shall have the meaning set forth in the recitals to
this Agreement.
1.93 "Warrants" shall have the meaning set forth in the recitals to this
Agreement.
Section 2. Purchase and Sale of the Note.
Upon the terms and subject to the conditions set forth in this Agreement,
Sellers shall issue and sell to Purchaser, and Purchaser shall purchase from
Sellers for a purchase price of $6,500,000.00, the Note, due December 31, 2002
and dated as of the Closing Date, made by Sellers to Purchaser in the principal
amount of $6,500,000.00. Such purchase and sale shall be consummated on the
Closing Date as provided for in this Agreement, and on such date Purchaser shall
make payment of the purchase price of the Note by wire transfer of immediately
available funds to an account designated by TNDE. The Note shall be in the form
attached hereto as Exhibit A.
Section 3. Purchase and Sale of Preferred Stock.
Upon the terms and subject to the conditions set forth in this Agreement,
TNDE shall issue and sell to Purchaser, and Purchaser shall purchase from TNDE,
the Preferred Shares for an aggregate purchase price of $1,500,000.00. Such
purchase and sale shall be consummated on the Closing Date as provided for in
this Agreement, and on such date Purchaser shall make payment of the purchase
price of the Preferred Shares by wire transfer of immediately available funds to
an account designated by TNDE. The Preferred Shares shall have the rights and
characteristics set forth in the Certificate of Designation attached hereto as
Exhibit B.
Section 4. Issuance of Warrants.
Upon the terms and subject to the conditions set forth in this Agreement,
TNDE shall issue and sell to Purchaser and Purchaser shall purchase from TNDE,
the Warrants evidenced by the
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Warrant Certificate dated as of the Closing Date in the form attached hereto as
Exhibit C. Such sale and purchase shall be consummated on the Closing Date as
provided for in this Agreement.
Section 5. Conditions to Closings.
The obligations of Purchaser to purchase the Note, the Preferred Shares and
the Warrants on the Closing Date is subject to the fulfillment in a manner
reasonably satisfactory to Purchaser and its counsel of each of the following
conditions precedent.
(a) Senior Loan Agreement. No event of default or event which with notice,
lapse of time or both would constitute an event of default under the Senior Loan
Agreement shall have occurred and be continuing and the Senior Lender and
Purchaser shall have executed and delivered the Intercreditor Agreement,
Amendment No. 3 to the Senior Loan, the Termination Agreement (as defined in
ss.9(j)) and the Post-Closing Agreement (as defined in ss.9(j)).
(b) Execution and Delivery of Related Documents. Each of the Related
Documents shall have been duly executed and delivered by all parties thereto,
each dated and effective as of the Closing Date.
(c) Certificates, Opinions, and Other Documents. The following
certificates, opinions and other documents shall be delivered by or on behalf of
Sellers:
(i) a certificate of TNDE executed by a Responsible Officer of TNDE
in the form of Exhibit D certifying compliance with the closing
conditions set forth in this section and any covenants to be
performed by Sellers at or prior to the Closing Date;
(ii) certified copies of the corporate resolutions of Sellers
authorizing the execution, delivery and performance of each of
Sellers obligations under this Agreement and all of the Related
Documents and any other documents to be delivered pursuant to
this Agreement or any of the Related Documents;
(iii)certified copies of TNDE's Certificate of Incorporation,
including any and all amendments thereto, and a certified copy of
the bylaws of TNDE as in effect on the Closing Date;
(iv) a certificate of the Secretary of TNDE certifying the names of
the officers of Sellers authorized to sign this Agreement, the
Related Documents and any other documents or certificates to be
delivered pursuant to this Agreement or any of the Related
Documents by TNDE, together with the true signatures of such
officers;
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(v) an opinion of counsel for TNDE, addressed to Purchaser, in the
form of Exhibit E;
(vi) UCC-ls with respect to the Collateral under the Subordinated
Security Agreement and Pledge Agreement in the forms and as
provided for herein;
(vii)UCC-3s with respect to any financing statements filed in
connection with TNDE's and the Subsidiaries indebtedness to BOCP;
(viii) the Warrant Certificate;
(ix) certificates evidencing 150 shares of Preferred Stock issued to
Purchaser pursuant to this Agreement; and
(x) such other opinions, certificates, affidavits, documents and
filings, including any and all UCC filings, as Purchaser may deem
reasonably necessary or appropriate.
(d) Disbursements and Deliveries. The following disbursement shall be made
out of the proceeds of the sale of the Note and the Preferred Shares:
$8,000,000 to BOCP to extinguish any and all indebtedness of TNDE
and the Subsidiaries to BOCP.
Section 6. Representations and Warranties of Sellers.
The representations and warranties of Sellers set forth in this Section 6
shall survive the purchase and sale of the Note, Preferred Shares and Warrants,
and any investigation made by Purchaser shall not diminish the right of
Purchaser to rely upon such representations and warranties. Each of the Sellers
jointly and severally represents and warrants to Purchaser as follows:
(a) Organization. TNDE is a corporation duly incorporated and validly
existing under the laws of the State of Delaware. The execution, delivery and
performance of this Agreement, each of the Related Documents and any instrument
or agreement required by this Agreement or any of the Related Documents are
within Sellers' powers, have been duly authorized and are not in conflict with
the terms of the charter, bylaws or other organizational documents of Sellers.
(b) Subsidiaries. Each Subsidiary is a corporation duly incorporated and
validly existing under the laws of its jurisdiction of incorporation.
Immediately after the date of Closing, neither TNDE nor any of the Subsidiaries
will own any Capital Stock, membership interest or other equity interest in or
of any other Person, other than Subsidiary Stock. As of the date hereof, none
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of the Subsidiaries other than ProEco, NDE, Canada and Construction own or hold
any assets or conduct any business.
(c) Good Standing. TNDE and the Subsidiaries are properly licensed and in
good standing in each state in which they are doing business, and TNDE and the
Subsidiaries have qualified under and, where required, complied with the
fictitious name statute of each state in which TNDE or any of the Subsidiaries
are doing business.
(d) Information Submitted. The audited consolidated Annual Financial
Statements and unaudited Quarterly Financial Statements of TNDE set forth on
Schedule 5 have been prepared in accordance with GAAP consistently applied and
fairly present the financial condition of TNDE and the Subsidiaries as of the
dates thereof and the results of its operations for the periods then ended.
(e) No Material Adverse Change. There has been no material adverse change
in the consolidated financial condition of TNDE since the later of (i) September
30, 1997 and (ii) the date of the most recent Financial Statements.
(f) Disclosure. Neither this Agreement nor any other document, opinion,
Accounting Statement, certificate or statement by an officer of any of the
Sellers furnished or made by or on behalf of any of the Sellers in connection
with the transactions contemplated in this Agreement, contains any untrue
statement of a material fact or omits to a state a material fact necessary in
order to make the statements contained therein not misleading. To the best
knowledge of Sellers, there is no fact peculiar to TNDE or the Subsidiaries
which materially and adversely affects or in the future may (so far as Sellers
can reasonably foresee) materially and adversely affect the business, property,
assets or financial condition of TNDE or the Subsidiaries which has not been
disclosed to Purchaser in this Agreement or in other documents, opinions,
Accounting Statements, certificates or statements furnished to or made by or on
behalf of Sellers to Purchaser in connection with the transactions contemplated
by this Agreement.
(g) No Conflicts. The execution, delivery and performance of this
Agreement, the Related Documents and any other instrument or agreement required
by this Agreement or any of the Related Documents are not in conflict with any
law or any indenture, agreement or undertaking to which any of the Sellers are a
party or by which any of the Sellers are bound or affected.
(h) Authorization and Consents. No approval, consent, compliance,
exemption, authorization or other action by, or notice to, or filing with, any
governmental authority or any other Person pursuant to applicable law, and no
lapse of the waiting period under the applicable law, is necessary or required
in connection with the execution, delivery and performance by any of the Sellers
or enforcement against any of the Sellers of this Agreement or the Related
Documents or the transactions contemplated hereby and thereby.
(i) Enforceability. This Agreement is a legal, valid and binding agreement
of each of the Sellers, enforceable against each of the Sellers in accordance
with its terms, and each Related
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Document, and any instrument or agreement required under this Agreement or any
of the Related Documents, when executed and delivered, will be similarly legal,
valid, binding and enforceable in accordance with their respective terms,
except, in either case, as enforcement thereof may be affected by bankruptcy,
moratorium, insolvency or similar laws affecting creditors' rights generally or
by the application by a court of equitable principles.
(j) Ownership of Collateral. All Collateral is owned, and all Collateral
acquired hereafter will be owned, legally and beneficially, by Sellers, free and
clear of all security interests, liens, encumbrances, adverse claims and rights
of others except for Permitted Liens and those consented to in writing by the
Senior Lender and Purchaser.
(k) Financing Statements. No financing statement, security agreement or
other Lien instrument covering all or any part of the Collateral is on file in
any public office, except as may have been filed in favor of the Senior Lender
or Purchaser pursuant to this Agreement and except as related to Permitted
Liens. Neither TNDE nor any of the Subsidiaries do business and none have done
business within the past five years under a trade name or any name other than
its respective legal name set forth at the beginning of this Agreement, except
as specified in Schedule 2.
(l) Perfected Security Interest in Collateral. Except for (i) the payment
of all outstanding indebtedness of TNDE and the Subsidiaries to BOCP under the
BOCP Agreement and the termination of all financing statements and the return of
all Collateral, if any, in the possession of BOCP in connection therewith and
(ii) the filing of financing statements (and continuation statements, where
appropriate) with respect to the Collateral and the delivery to Purchaser of any
Collateral as to which possession is the only method of perfecting a security
interest therein, no further action is necessary in order to establish and
perfect Purchaser's lien on or perfected security interest in the Collateral,
which lien shall be second only to the lien of the Senior Lender and any
Permitted Liens.
(m) Compliance with Laws. To the best knowledge of Sellers, each of the
Sellers has complied with all federal, state and local laws, rules and
regulations affecting the business, property or assets of TNDE or the
Subsidiaries.
(n) Environmental Compliance. TNDE and the Subsidiaries and all of their
respective properties and facilities have, at all times and in all respects,
complied with all Environmental Laws, except where the failure to comply would
not have a Material Adverse Effect, assuming all such instances of
non-compliance were brought to the attention of appropriate governmental
authorities.
(o) Labor and Employee Relations Matters.
(i) Neither TNDE nor any of the Subsidiaries is or expects to be the
subject of any union organizing activity or labor dispute, nor
has there been any strike of any kind called or, to the knowledge
of Sellers, threatened to be called against TNDE or the
Subsidiaries and neither
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TNDE nor any of the Subsidiaries have violated any applicable
federal or state law or regulation relating to labor or labor
practices.
(ii) No present or former employee of TNDE or the Subsidiaries has
advanced claims in writing against TNDE or the Subsidiaries
(whether under any foreign, federal, state or common law, through
a government agency, under an employment agreement, collective
bargaining agreement, personal service or independent contractor
agreement or otherwise) that are currently pending for (a)
overtime pay, other than overtime pay for the current payroll
period; (b) wages, salaries or profit sharing (excluding wages,
salaries or profit sharing for the current payroll period); (c)
vacations, time off (including, without limitation, potential
sick leave) or pay in lieu of vacation or time off, other than
vacation or time off (or pay in lieu thereof) earned in respect
of the current Fiscal Year; (d) any violation of any statute,
ordinance or regulation relating to minimum wages or maximum
hours of work; (e) discrimination against employees on any basis;
(f) unlawful employment or termination practices; (g) unfair
labor practices or alleged violations of collective bargaining
agreements; (h) any violation of occupational safety and/or
health standards; (i) benefits under any employee plans or
compensation arrangement; and (j) breach of any employment,
personal service or independent contractor agreement, except for
any such claims referred to in this Paragraph (a) thru (j) which,
in the aggregate, do not exceed $100,000.00.
(iii)There is not pending against TNDE or any of the Subsidiaries or,
to the knowledge of the Sellers threatened, any labor dispute,
strike or work stoppage that does or may materially affect or
materially interfere with the operations of TNDE or the
Subsidiaries.
(iv) There is not pending or, to the knowledge of Sellers, threatened
any charge or complaint against TNDE or any of the Subsidiaries
by or before the National Labor Relations Board, any
representative thereof, or any comparable foreign or state agency
or authority.
(v) All collective bargaining agreements to which TNDE or the
Subsidiaries is a party have been furnished to Purchaser.
(p) No Event of Default. No event has occurred and is continuing or would
result from the transactions described in this Agreement which constitutes a
Default or an Event of Default or which, upon a lapse of time or notice or both,
would become an Event of Default.
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(q) Litigation. There is no litigation, tax claim, proceeding or dispute
pending, or, to the knowledge of Sellers threatened, against or affecting TNDE
or any of the Subsidiaries or their property, or any officer, key employee or
principal shareholder of TNDE or any of the Subsidiaries, the adverse
determination of which would impair Sellers' ability to perform their
obligations hereunder or under any instrument or agreement required hereunder.
(r) Taxes. All tax returns required to be filed by TNDE and the
Subsidiaries in any jurisdiction have been filed or extended and all taxes,
assessments, fees and other governmental charges upon TNDE or the Subsidiaries
or upon any of their properties, income or franchises have been paid prior to
the time that such taxes could give rise to a lien thereon, unless protested in
good faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been established on the books of TNDE or the
Subsidiaries, as applicable. Sellers have no knowledge of any proposed tax
assessment against TNDE or the Subsidiaries.
(s) Securities Act. Neither TNDE nor the Subsidiaries have issued any
unregistered securities in violation of the registration requirements of the
Securities Act, any applicable state securities law or of any other requirement
of law, and none are violating any rule, regulation or requirement under the
Securities Act or the Exchange Act. TNDE and the Subsidiaries are not required
to qualify an indenture under the Trust Indenture Act of 1939, as amended, in
connection with their execution and delivery of the Note.
(t) Indebtedness. Immediately after the Closing Date, TNDE and the
Subsidiaries will not have any outstanding Indebtedness other than under the
Note, Related Documents, the Senior Loans, accounts payable and other
indebtedness incurred in the ordinary course of business, except as set forth in
Schedule 3.
(u) ERISA Plan. TNDE has no ERISA Affiliates and does not currently
maintain, contribute to, have any requirements to contribute to or have any
liability, whether absolute or contingent, with respect to any ERISA Plan.
(v) Reservation of Conversion Shares. The Common Shares to be issued upon
the conversion of the Preferred Shares and the exercise of the Warrants (the
"Conversion Shares") have been duly reserved for issuance upon conversion of the
Preferred Shares and/or the exercise of the Warrants and, when so issued, will
be duly authorized, validly issued, fully paid and non-assessable Common Shares
with no personal liability attaching to the ownership thereof, and will be free
and clear of all liens, charges, restrictions, claims and encumbrances imposed
by or through TNDE. Neither the issuance and delivery of the Preferred Shares or
the Conversion Shares is subject to any pre-emptive right of stockholders of
TNDE or to any right of first refusal or other right in favor of any person.
(w) Authorized Capital Stock. Immediately after the Closing, the authorized
Capital Stock of TNDE will consist of 50,000,000 shares of Common Stock, of
which 15,977,636 shares will be validly issued and outstanding, fully paid and
nonassessable with no personal liability
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attaching to the ownership thereof and 10,000 shares of preferred stock, of
which 150 shares will be validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof. The
holders of record of Capital Stock of TNDE and holders of subscriptions,
warrants, options, convertible securities and other rights (contingent or other)
to purchase or otherwise acquire Capital Stock of TNDE, and the number of shares
of Capital Stock, subscriptions, warrants, options, convertible securities and
other such rights held by each, are as set forth in the attached Schedule 6. The
designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of each class and series of authorized Capital Stock of
TNDE are as set forth in the Certificate of Incorporation ("Certificate"), a
copy of which is attached as Exhibit G, and the Certificate of Designation, and
all such designations, powers, preferences, rights, qualifications, limitations
and restrictions are valid, binding and enforceable and in accordance with all
applicable laws. Except as set forth in the attached Schedule 6, (i) no person
owns of record or is known to TNDE to own beneficially any share of Capital
Stock of TNDE, (ii) no subscription, warrant, option, convertible security, or
other right (contingent or other) to purchase or otherwise acquire Capital Stock
of TNDE is authorized or outstanding and (iii) there is no commitment by TNDE to
issue shares, subscriptions, warrants, options, convertible securities, or other
such rights or to distribute to holders of any of its Capital Stock any evidence
of indebtedness or asset. Except as provided for in the Certificate, the
Certificate of Designation, or as set forth in the attached Schedule 7, TNDE has
no obligation (contingent or other) to purchase, redeem or otherwise acquire any
of its equity securities or any interest therein or to pay any dividend or make
any other distribution in respect thereof. Other than pursuant to this Agreement
and the Related Documents, there are no voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights or proxies relating to any of the Capital Stock
of TNDE. All of the outstanding securities of TNDE were issued in compliance
with all applicable Federal and state securities laws.
(x) SEC Reports. Since January 1, 1994, TNDE has filed all forms, reports,
statements, and other documents required to be filed with the SEC, including
without limitation (i) all Annual Reports on Form 10-K, (ii) all Quarterly
Reports on Form 10-Q, (iii) all proxy statements relating to meetings of
shareholders (whether annual or special), (iv) all Current Reports on Form 8- K,
and (v) all other reports, schedules, registration statements, or other
documents required to be filed with the SEC (collectively, the "TNDE SEC
Reports"), except where the failure to file any such forms, reports, statements,
or other documents is not likely to have, individually or in the aggregate, a
Material Adverse Effect. The TNDE SEC Reports (a) were prepared in all material
respects in accordance with the requirements of the Securities Act or Exchange
Act, as the case may be, and (b) did not at the time they were filed contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(y) Financial Statements; No Undisclosed Liabilities. The audited
consolidated financial statements and unaudited consolidated interim financial
statements (including the related notes and schedules) of TNDE included or
incorporated by reference in the TNDE SEC Reports (the "Company Financial
Statements") were prepared in accordance with generally accepted accounting
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principles applied on a consistent basis (except as may be indicated in the
notes thereto) and fairly present the consolidated results of operations and
cash flows for the periods then ended, subject, in the case of any unaudited
interim financial statements, to normal year-end adjustments, none of which is
likely to have, individually or in the aggregate, a Material Adverse Effect
other than liabilities disclosed in the Schedules hereto or in the TNDE SEC
Reports or for which TNDE has made adequate reserves as reflected in TNDE's
Financial Statements.
(z) Securities Act. Neither Sellers, nor anyone acting on their behalf has
offered any of the Note, the Preferred Shares or the Warrants or similar
securities, or solicited any offers to purchase, or made any attempt by
preliminary conversation or negotiations to dispose of, the Note, the Preferred
Shares or the Warrants or similar securities, to any person other than
Purchaser. Neither Sellers nor anyone acting on their behalf has offered or will
offer to sell the Note, the Preferred Shares or the Warrants or similar
securities to, or solicit offers with respect thereto from, or enter into any
preliminary conversations or negotiations relating hereto with, any Person, so
as to bring the offer, sale or issuance of the Note, the Preferred Shares or the
Warrants to Purchaser within the registration provisions of the Securities Act
of 1933, as amended (the "Securities Act").
(aa) Registration Rights. Except as granted to Purchaser in connection with
the transactions contemplated by this Agreement, no Person has any right to
cause TNDE to file any registration statement under the Securities Act relating
to any securities of TNDE or any right to have any securities of TNDE in any
such registration statement.
Section 7. Representations and Warranties of Purchaser.
The representations and warranties of Purchaser set forth in this Section 7
shall survive the purchase and sale of the Note, Preferred Shares and Warrants,
and any investigation made by Sellers shall not diminish the right of Sellers to
rely upon such representations and warranties; provided that, such
representations and warranties are made only with respect to items and events
which may have a Material Adverse Effect on the rights of Sellers hereunder.
Purchaser represents and warrants to Sellers as follows:
(a) Organization. Purchaser is a corporation duly incorporated and validly
existing under the laws of the state of its formation. The execution, delivery
and performance of this Agreement, each of the Related Documents and any
instrument or agreement required by this Agreement or any of the Related
Documents are within Purchaser's powers, have been duly authorized and are not
in conflict with the terms of the charter, bylaws or other organizational
documents of Purchaser.
(b) No Conflicts. The execution, delivery and performance of this
Agreement, the Related Documents and any other instrument or agreement required
by this Agreement or any of the Related Documents are not in conflict with any
law or any material indenture, agreement or undertaking to which Purchaser is a
party or by which Purchaser is bound or affected.
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(c) Enforceability. This Agreement is a legal, valid and binding agreement
of Purchaser, enforceable against Purchaser in accordance with its terms, and
each Related Document, and any instrument or agreement required under this
Agreement or any of the Related Documents, when executed and delivered, will be
similarly legal, valid, binding and enforceable in accordance with their
respective terms, except, in either case, as enforcement thereof may be affected
by bankruptcy, moratorium, insolvency or similar laws affecting creditors'
rights generally or by the application by a court of equitable principles.
(d) Authorization and Consents. No approval, consent, compliance,
exemption, authorization or other action by, or notice to, or filing with, any
governmental authority or any other Person pursuant to applicable law, and no
lapse of the waiting period under the applicable law, is necessary or required
in connection with the execution, delivery and performance by Purchaser or
enforcement against Purchaser of this Agreement or the Related Documents or the
transactions contemplated hereby and thereby.
(e) Experience. Purchaser is an accredited investor within the meaning of
Rule 501(a) of Regulation D promulgated under the Securities Act and has
substantial experience in evaluating and investing in securities of companies
similar to TNDE and the Subsidiaries and has made investments in securities
other than those of TNDE and the Subsidiaries. Purchaser acknowledges that by
reason of its business or financial experience and financial condition, it has
the ability to analyze and bear the entire risk of its investment pursuant to
this Agreement.
(f) Investment Intent. Purchaser is acquiring the Note, Preferred Shares
and the Warrants for investment for its own account, not as a nominee or agent
of any other Person and not with a view to, or for resale in connection with,
any distribution thereof. Purchaser understands that the issuance and sale of
such securities purchased by it hereunder (and the issuance to Purchaser of
Warrant Shares upon the conversion of the Warrants and the issuance of shares of
Common Stock upon the conversion of Purchaser's Preferred Shares) have not been
and will not be subject to a registration statement filed under the Securities
Act or any applicable state securities law by reason of a specific exemption
from the registration provisions of the Securities Act and such state securities
laws which depend upon, among other things, the bona fide nature of the
investment intent and the accuracy of Purchaser's representation as expressed
herein.
(g) Rule 144. Purchaser acknowledges that the securities acquired and which
could be acquired hereunder are restricted securities within the meaning of Rule
144 promulgated under the Securities Act and may not be sold unless subsequently
registered under the Securities Act and applicable state securities laws or
unless an exemption from such registration is available. Purchaser is aware of
the provisions of Rule 144 promulgated under the Securities Act which permits
the limited resale of securities purchased in a private placement subject to the
satisfaction of certain conditions including, without limitation, the existence
of a public market for the securities, the availability of certain current
public information about TNDE and the Subsidiaries, the resale occurring not
less than one year after a party has purchased and paid for any security to be
sold, the sale being effected through a "broker's transaction" or a transaction
directly with a "market maker"
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as provided by Rule 144(f) and the number of securities being sold during any
three-month period not exceeding specified limitations.
(h) Knowledge of Purchaser. Purchaser is aware of and has investigated the
business, management and financial condition of TNDE and the Subsidiaries, has
had the opportunity to inspect their respective facilities and has had access to
such other information about TNDE and the Subsidiaries as Purchaser has deemed
necessary and desirable to reach an informed and knowledgeable decision to
acquire the securities to be purchased by it hereunder. The purchase of such
securities is not a result of an advertisement or an offering in connection with
the sale of such securities.
Section 8. Financial Reporting.
The obligations and covenants of Sellers set forth in this Section 8
shall terminate upon the later of (i) the date on which Purchaser is no longer
the holder of the Note and (ii) the date upon which the Purchaser is no longer
the holder of at least 50% of the Preferred Shares issued pursuant to this
Agreement.
8.1 Financial Reports.
Sellers shall deliver, or shall cause to be delivered, to Purchaser the
following financial reports within the applicable time periods.
(a) Annual Financial Statements. The Annual Financial Statements shall be
delivered within 90 days (or 120 days if the filing deadline is extended by the
SEC) after the end of each Fiscal Year and shall be accompanied by the
applicable Audit Report, Accountant's Statement, CFO Certificate and Compliance
Certificate.
(b) Quarterly Financial Statements. The Quarterly Financial Statements
shall be delivered within 45 days (or 60 days if the filing deadline is extended
by the SEC) after the end of each Quarter (other than the fourth Quarter) of
each Fiscal Year and shall be accompanied by the applicable CFO Certificate and
Compliance Certificate.
(c) Monthly Financial Statements. The Monthly Financial Statements shall be
delivered promptly upon their dissemination to management of TNDE.
(d) Projected Financial Statements. The projected Financial Statements with
respect to each succeeding Fiscal Year shall be delivered within 60 days after
the end of the preceding Fiscal Year.
(e) Securities Reports. Any reports required by the Securities and Exchange
Commission shall be delivered promptly upon their delivery to shareholders,
securities holders or the SEC.
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(f) Lender Reports and Management Letters. Any Lender Reports and
Management Letters shall be delivered promptly upon their delivery to any lender
or note holder.
(g) Notice of Default. As soon as possible and in any event within five (5)
days after the occurrence of each Event of Default or each event which, with the
giving of notice or lapse of time or both, would constitute an Event of Default,
the statement of the chief financial officer of TNDE setting forth details of
such Event of Default or event and the action which TNDE proposes to take with
respect thereto.
8.2 Other Information.
Promptly upon reasonable written request therefor, Sellers shall furnish
(or cause to be furnished) to Purchaser other financial information with respect
to TNDE and the Subsidiaries available in the books, records and files of TNDE
and the Subsidiaries; provided, however, that if such information cannot be
furnished without undue expense, Sellers may require Purchaser to reimburse it
for all reasonable out-of-pocket expenses incurred in connection with furnishing
such information.
8.3 Preparation of Annual and Quarterly Financial Statements in Accordance
with GAAP.
TNDE and the Subsidiaries shall maintain adequate books, accounts and
records and shall prepare all Annual Financial Statements, Quarterly Financial
Statements and Monthly Financial Statements required to be delivered to
Purchaser pursuant to this Section in accordance with GAAP applied in a manner
consistent with the practices, policies and procedures applied in connection
with the preparation of the Financial Statements of TNDE initially delivered to
Purchaser, except for any changes in such practices, policies and procedures
permitted or approved in the manner provided for in this Section.
8.4 Changes in GAAP and in Practices, Policies and Procedures.
(a) Notice of Proposed Change. In the event that TNDE or the Subsidiaries
proposes to make any material change in any of the practices, policies or
procedures applied in connection with the preparation of its Annual Financial
Statements or Quarterly Financial Statements, Sellers shall:
(i) notify Purchaser in writing of such proposed change at least 45
days prior to the required delivery date of the first Annual
Financial Statements or Quarterly Financial Statements that will
be effected by such proposed change;
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(ii) state in reasonable detail in such notice the reason for such
change, including, if applicable, a description of any change in
GAAP that occasions such change;
(iii)submit with such notice a written statement by the Chief
Financial Officer of TNDE and the Accountants describing the
anticipated effect, if any, of the proposed change to the
computation of the Financial Tests, or stating that in their
opinion such proposed change will have no material effect on the
computation of such Financial Tests; and
(iv) in the event such proposed change will have a material effect on
the computation of such Financial Tests, submit with each
Compliance Certificate a written reconciliation in reasonable
detail demonstrating the computation of the Financial Tests as if
such change had not been made.
(b) Consent to Change. Unless such change in practices, policies or
procedures is required by a change in GAAP, TNDE or the Subsidiaries shall not
adopt any such proposed change without the written consent of Purchaser, which
consent shall not be unreasonably withheld by Purchaser.
(c) Effect of Change on Financial Tests. In the event that any such change
in policies, practices or procedures would materially affect the computation of
any Financial Test, and unless this Agreement is amended to make appropriate
modifications to such Financial Test, compliance with all such Financial Tests
shall be determined on a pro forma basis without giving effect to any such
change.
8.5 Notice of Certain Events.
Sellers shall give prompt written notice to Purchaser of the occurrence of
any of the following events:
(a) a Default;
(b) the occurrence of any event which, with notice, lapse of time or both,
would constitute an event of default under any Senior Indebtedness;
(c) all litigation affecting TNDE or any of the Subsidiaries where the
amount or equivalent value claimed is equal to $250,000.00 or more;
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(d) any substantial dispute which may exist between TNDE or any of the
Subsidiaries and any governmental regulatory body or law enforcement
authority;
(e) the loss or destruction of any asset of TNDE or the Subsidiaries which
loss or destruction would result in a Material Adverse Effect; and
(f) any other matter which has resulted or is likely to result in a
Material Adverse Effect.
8.6 Inspections.
(a) Books, Records, Audits and Inspections. TNDE and the Subsidiaries shall
(i) maintain adequate books, accounts and records and prepare all Financial
Statements required hereunder in accordance with GAAP consistently applied, and
in compliance with the regulations of any governmental regulatory body having
jurisdiction over TNDE or the Subsidiaries or TNDE's or the Subsidiaries'
business and (ii) permit employees or agents of Purchaser at any reasonable time
upon reasonable notice to inspect TNDE's and the Subsidiaries' properties and to
examine or audit TNDE's and the Subsidiaries' books, accounts and records and
make copies and memoranda thereof. In the event any properties, books, accounts
or records are in the possession of or under the control of a third party, TNDE
shall direct and hereby authorizes such third party to permit access to
Purchaser's employees or agents for the purpose of performing the inspections,
appraisals, examinations or audits permitted under this Section, and to respond
to any reasonable requests from Purchaser for information concerning the amount,
status or condition of any assets in a third party's possession or control.
Section 9. Affirmative Covenants.
Until payment in full of the Note, TNDE shall and shall cause each of the
Subsidiaries to, unless Purchaser waives compliance therewith in writing:
(a) Insurance. Insure and maintain insurance upon all of its assets and
properties with responsible and reputable insurers of such character and in such
amounts as are usually maintained by companies engaged in like businesses in the
same general area in which TNDE or the Subsidiaries operate.
(b) Payment of Taxes and Claims. Pay (i) all taxes, assessments and other
governmental charges imposed upon any of its properties or assets or in respect
of any of its franchises, business, income or profits before any penalty or
interest accrues thereon, (ii) all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums which have become due and
payable and which by law have or might become due and payable or become a lien
or charge upon any of their properties or assets, and (iii) all lease
obligations, all trade debt, and all other indebtedness incident to the
operations of TNDE or the Subsidiaries, provided that (unless any
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material item of property would be lost, forfeited or materially damaged as a
result thereof) no such charge, tax, assessment or claim need be paid if the
amount, applicability or validity thereof is currently being contested in good
faith and if a reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor.
(c) Compliance with Laws. Comply in all material respects with all
applicable statutes, laws, ordinances and governmental rules, regulations and
orders including, but not limited to, all Environmental Laws, to which it is
subject or which are applicable to its business, properties or assets if
noncompliance therewith could have a Material Adverse Effect.
(d) Preservation of Existence. Except as expressly permitted in Section
10(f), (g) or (h), preserve and maintain its corporate existence, as the case
may be, and its rights, franchises and privileges in the jurisdiction of its
incorporation and qualify and remain qualified as a foreign corporation in each
jurisdiction in which the failure to do so would have a Material Adverse Effect.
TNDE and the Subsidiaries shall preserve and maintain all licenses and other
rights to use patents, processes, licenses, trademarks, trade names, inventions,
intellectual property rights or copyrights owned or used by and necessary to the
conduct of its business.
(e) Maintenance of Tangible Assets. Maintain its tangible assets and
properties in good condition and repair in accordance with the requirements of
its business and not permit any action or omission which might materially impair
the value thereof, normal wear and tear excepted.
(f) Performance of Contracts. Perform and comply with, in accordance with
its terms, all material provisions of each and every contract, agreement or
instrument now or hereafter binding upon it, except to the extent it may contest
the provisions thereof in good faith and by proper proceedings.
(g) Punctual Payment. Sellers shall pay the dividends on the Preferred
Stock and the principal of and interest on the Note at the times and place and
in the manner provided in the Note and herein.
(h) Access to Information. At any reasonable time and from time to time,
TNDE and the Subsidiaries shall permit Purchaser or any representatives thereof
to examine and make copies of and extracts from the records and books of account
of, and visit and inspect the properties of, TNDE and the Subsidiaries, and to
discuss the affairs, finances and accounts of TNDE and the Subsidiaries with any
of their officers or directors and independent accountants.
(i) Compliance. TNDE shall comply, and cause each Subsidiary to comply,
with all applicable laws of the United States and of each other applicable
jurisdiction relating to employee safety and workplace practices under OSHA,
Environmental Laws and equal employment opportunity, and any rules, regulations,
administrative orders and Executive Orders relating thereto and the applicable
terms, of any government contract relating thereto; and keep, maintain or file
all necessary permits, filings, reports, plans and forms required to be kept,
maintained or filed, pursuant
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to any such applicable law or the terms of any such government contract if the
failure to comply would have a Material Adverse Effect; provided, however, TNDE
shall not be considered to have failed to comply with the foregoing during any
period that any matter relating to TNDE or the Subsidiaries' practices is being
contested by TNDE or the Subsidiaries in appropriate proceedings in good faith,
or thereafter if TNDE and the Subsidiaries comply with any final determination
issued in such proceedings.
(j) Termination and Post-Closing Agreement. Deliver to Purchaser, within
five (5) days of TNDE's receipt thereof, notice and a copy of any proposed
modification, amendment, waiver, consent or other change of the rights of any
party under, as well as a copy of any modification, amendment, waiver, consent
or other change of the rights of any party granted under (i) the Termination
Agreement dated December __, 1997, by and among TNDE, ProEco, NDE, Canada and
BOCP (the "Termination Agreement"), or (ii) the Post-Closing Agreement dated
December __, 1997, by and between TNDE and BOCP (the "Post-Closing Agreement").
Section 10. Negative Covenants.
Until payment in full of the Note, TNDE shall not and shall not permit any
of the Subsidiaries to, unless the prior written consent of Purchaser is
obtained:
(a) Other Indebtedness. Create or incur, contract, assume, have
outstanding, guarantee or otherwise be or become directly or indirectly liable
in respect of any Indebtedness; provided however, that this Section shall not be
deemed to prohibit:
(i) The Senior Indebtedness;
(ii) Up to $750,000.00 of Indebtedness (exclusive of Indebtedness
referred to in this Section 10(a)(i), (iii), (iv), (v), (vi) and
(vii) hereof);
(iii)Capitalized lease financing or purchase money for equipment
which is secured by the equipment so leased or purchased;
(iv) Indebtedness of any Subsidiary to TNDE or another Subsidiary;
(v) Existing indebtedness identified in Schedule 3;
(vi) Indebtedness incurred with respect to BOCP pursuant to the BOCP
Agreement which is extinguished at Closing;
(vii)Operating leases entered into by TNDE or the Subsidiaries (to
the extent that such leases would otherwise be included in the
definition of "Indebtedness").
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(b) Prepayments. Pay any Indebtedness prior to its scheduled maturity or
scheduled payment date other than the Note or the Senior Loans or indebtedness
incurred under the BOCP Agreement which will be extinguished at Closing.
(c) Liens. Grant, create, incur, assume, permit or suffer to exist any
Lien, upon any of its properties or assets, whether now owned or hereafter
acquired; provided however, that this section shall not be deemed to prohibit:
(i) other Liens incidental to the conduct of its business or the
ownership of its property and assets which do not secure
Indebtedness and which do not in the aggregate materially detract
from the value of its property or assets or materially impair the
use thereof in the operation of its business;
(ii) Liens on property or assets of a Subsidiary to secure obligations
of such Subsidiary to TNDE or another Subsidiary; and
(iii) Permitted Liens.
(d) Leases. Enter into or permit to remain in effect any operating lease as
lessee, other than operating leases entered into in the ordinary course of TNDE
or the Subsidiaries' business; provided that this section shall not be deemed to
prohibit leases described on Schedule 4 hereof.
(e) Loans, Advances and Investments. Make or have outstanding any loan,
advance or capital contribution to, or investment in (including any investment
in any Person), or purchase or otherwise acquire any of the Capital Stock,
securities or evidences of indebtedness of any Person (collectively
"Investment"), or otherwise acquire any interest in, or control of, another
Person, except for the following:
(i) Cash Equivalents;
(ii) Any acquisition of securities or evidences of indebtedness of
others when acquired by TNDE or the Subsidiaries in settlement of
accounts receivable or other debts arising in the ordinary course
of its business, so long as the aggregate amount of any such
securities or evidences of indebtedness is not material to the
business or condition (financial or otherwise) of TNDE and the
Subsidiaries;
(iii)Travel and other advances to officers and employees of TNDE or a
Subsidiary in the ordinary course of business;
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(iv) Other loans, advances and investments, provided that the
aggregate principal and interest amount thereof which is
outstanding at no time exceeds $250,000.00; and
(v) TNDE or Construction may operate a general contracting service to
provide outsourcing and project management related to
construction projects for customers of TNDE or the Subsidiaries;
provided that, the equity investment in, or loans to Construction
may not exceed $250,000.00.
(f) No Acquisition or Merger. Acquire by purchase or otherwise all or
substantially all of the assets or Capital Stock of any Person or merge or
consolidate with or into any Person, except that:
(i) Any Subsidiary may merge or consolidate with or into TNDE,
provided that TNDE is the continuing or surviving corporation;
(ii) Any Subsidiary may merge or consolidate with or into another
Subsidiary; and
(iii)Subject to the provisions of ss.3 of the Warrant Certificate,
TNDE may merge with any other solvent corporation, provided that
(a) TNDE shall be the continuing or surviving corporation and (b)
no Event of Default then exists or would exist immediately after
giving effect to such merger.
(g) Sale of Stock or Indebtedness of Subsidiaries. Sell or otherwise
dispose of, or part with control of, any shares of Capital Stock or Indebtedness
of any Subsidiary, except to TNDE or another Subsidiary, and except that all
shares of Capital Stock and Indebtedness of any Subsidiary at the time owned by
or owed to TNDE and all Subsidiaries may be sold as an entirety for a cash
consideration which represents the fair value (as determined in good faith by
the Board of Directors of TNDE) at the time of sale of the shares of Capital
Stock and Indebtedness sold; provided that (A) such sale or other disposition,
if treated as a transfer of assets of such Subsidiary, would be permitted by
Section 10(j) and (B) at the time of such sale, such Subsidiary shall not own,
directly or indirectly, any shares of Capital Stock or Indebtedness of any other
Subsidiary (unless all of the shares of stock and Indebtedness of such other
Subsidiary owned directly or indirectly, by TNDE and all Subsidiaries are
simultaneously being sold as permitted by this Section 10(g)).
(h) Sales and Lease Backs. Dispose of any of its assets except for full,
fair and reasonable consideration, or enter into any sale and leaseback
agreement covering any of its fixed or capital assets.
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<PAGE>
(i) Restrictions on Dividends. Directly or indirectly declare or make or
incur any liability to make any Dividend other than Dividends with respect to
securities owned by Purchaser.
(j) Transfers, Liquidations and Dispositions of Substantial Assets.
Dissolve or liquidate or sell, transfer, lease or otherwise dispose of any
material portion of its property or assets or business, other than in the
ordinary course of business, except that:
(i) any Subsidiary may Transfer assets to TNDE or another Subsidiary;
(ii) TNDE or any Subsidiary may sell inventory in the ordinary course
of business; and
(iii)TNDE or any Subsidiary may otherwise Transfer assets, provided
that the aggregate assets Transferred by TNDE and the
Subsidiaries combined shall not exceed $250,000.00 in any
twelve-Month period.
(k) Restricted Payments. Make, pay or declare, or commit to make, pay or
declare, any Restricted Payment, other than payments made with respect to
dividends or securities owned by Purchaser, without the prior written consent of
Purchaser except that so long as no Event of Default shall have occurred and be
continuing, or would result therefrom, TNDE may repurchase Common Shares from
employees of TNDE or the Subsidiaries upon termination of employment pursuant to
arrangements approved by the Board of Directors.
(l) Business Activities. Engage in any business activities or operations
substantially different from or unrelated to its present business; provided that
TNDE or the Subsidiaries may engage in the operation of a construction business
pursuant to Paragraph 10(e)(v) hereof.
(m) Transactions with Affiliates. Enter into any transaction, including
without limitation, the purchase, sale or exchange of property or the rendering
of any services, with any Affiliate or any partner, officer or director thereof,
enter into, assume or suffer to exist any employment or consulting contract with
any Affiliate or any partner, officer or director thereof or any former or
current officer or director of TNDE, except any transaction or contract which is
in the ordinary course of TNDE's or the Subsidiaries' business or which is
permitted pursuant to Paragraph 10(e)(v) hereof, and which is upon fair and
reasonable terms no less favorable to TNDE or the Subsidiaries than they would
obtain in a comparable arms-length transaction with a person not an Affiliate.
(n) ERISA Plans. Adopt or agree to maintain or contribute to any ERISA Plan
without the prior written consent of Purchaser, which consent shall not be
unreasonably withheld. TNDE shall promptly notify Purchaser in writing in the
event an ERISA Affiliate adopts an ERISA Plan.
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(o) Change in Principal Office. Move its principal office, executive office
or principal place of business without prior written notice to Purchaser.
(p) Termination Agreement and Post-Closing Agreement. Without the prior
written consent of Purchaser, modify, amend, grant any consent or waiver or
otherwise agree to change any party's rights under the Termination Agreement or
the Post-Closing Agreement, which would or may adversely affect the rights or
interests of Purchaser.
Section 11. Financial Tests.
Until payment in full of the Note, TNDE and the Subsidiaries shall, unless
Purchaser waives compliance therewith in writing, meet the following Financial
Tests.
(a) Total Liabilities to Net Worth Ratio. TNDE and the Subsidiaries shall
maintain, at all times, a ratio of Total Liabilities less Subordinated Debt
(including any preferred stock, warrants or other subordinated debt) to Net
Worth plus Subordinated Debt (including any preferred stock, warrants or other
subordinated debt) of not greater than the ratio set forth opposite the
applicable period below:
Period Ending Ratio
Closing Date through December 31, 1997 2.50:1.0
Thereafter through June 30, 1998 2:25:1.0
Thereafter through December 31, 1998 2.00:1.0
Thereafter through December 31, 1999 1.75:1.0
Thereafter through December 31, 2000 1.75:1.0
Thereafter through December 31, 2001 1.75:1.0
Thereafter through the Maturity Date 1.75:1.0
(b) Net Worth. TNDE and the Subsidiaries shall maintain a total Net Worth
of not less than the Net Worth of TNDE and the Subsidiaries as of December 31,
1997 less $1 Million, calculated cumulatively as of the end of each year
beginning with the year ending December 31, 1998. In addition, TNDE and the
Subsidiaries shall maintain, as of the end of each Fiscal Quarter other than the
Fiscal Quarter ending on December 31 of any fiscal year, a total Net Worth of
not less than the Net Worth of TNDE and the Subsidiaries as of December 31, 1997
less $1.8 Million.
(c) Debt Service Coverage Ratio. TNDE and the Subsidiaries shall maintain a
Debt Service Coverage Ratio of 0.30 to 1.0 for the three (3) months ending March
31, 1998; 0.60 to 1.0 for the six (6) months ending June 30, 1998; 1.10 to 1.0
for the nine (9) months ending September 30, 1998; 1.35 to 1.0 for the twelve
(12) months ending December 31, 1998; and 1.50 to 1.0 thereafter, calculated on
a rolling four quarter basis.
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<PAGE>
Section 12. Events of Default.
The Events of Default are as stated in the Note a form of which is attached
as Exhibit A.
Section 13. Miscellaneous.
(a) No Implied Rights or Waivers. No notice to or demand on Sellers shall
entitle Sellers to any other or further notice or demand in the same, similar or
other circumstances except as required by this Agreement. Neither any failure
nor any delay on the part of Purchaser in exercising any right, power or
privilege hereunder or under the Note, the Preferred Shares or the Warrant
Certificate shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise of the same or the
exercise of any other right, power or privilege.
(b) Modifications, Amendments or Waivers. TNDE and Purchaser may from time
to time enter into written agreements amending or changing any provision of this
Agreement or the rights hereunder or give waivers or consents to a departure
from the due performance of their obligations hereunder, with such waivers or
consents not to be unreasonably withheld, provided that no departure from
Sellers' due performance of its obligations hereunder shall be effective unless
agreed to in writing by Purchaser; provided further that, the terms of this
Agreement may not be modified or changed except by a writing executed by both
TNDE and the Purchaser.
(c) Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(e) Severability. If any provision of this Agreement is held to be invalid,
void or unenforceable, the remaining provisions of this Agreement shall
nevertheless continue in full force and effect.
(f) Third Party Beneficiaries. The obligations of each Party under this
Agreement shall inure solely to the benefit of the other Parties, and no other
person or entity shall be a third party beneficiary of this Agreement.
(g) Rules of Construction. Unless otherwise specified, the following rules
shall be applied in construing the provisions of this Agreement and the Related
Documents:
(i) Terms that imply gender shall be construed to apply to all
genders.
(ii) References to Paragraphs, Sections, Schedules and Exhibits refer
to the numbered Paragraphs of, Sections of, the Schedules of and
the
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Exhibits attached to this Agreement or any Related Documents (as
applicable).
(iii)Headings to the various Sections of this Agreement or any
Related Documents (as applicable) are included solely for
purposes of reference and shall be ignored in construing the
provisions of this Agreement or any Related Documents (as
applicable).
(iv) The Exhibits and Schedules attached to this Agreement and the
attached Related Documents are incorporated herein by reference.
(v) "Herein", "hereto", "hereof" and words of similar import refer to
this Agreement.
(vi) The word "and" connotes "each and every", and the word "or"
connotes "any one or more".
(vii)The word "including" connotes "including without limitation".
(viii) Any reference to any law or regulation refers to that law or
regulation as amended from time-to-time after the date of this
Agreement or any Related Documents (as applicable) and to the
corresponding provision of any successor law or regulation.
(ix) Any reference to any agreement or other document in this
Agreement or any Related Documents (as applicable) refers to that
agreement or other document as amended from time-to-time after
the date of this Agreement or any Related Documents (as
applicable).
(x) The recitals included in this Agreement or any Related Documents
(as applicable) are the mutual representations of the Parties and
are a part of this Agreement or any Related Documents (as
applicable).
(h) Notices. Any notice or other communication required or permitted to be
made or given under this Agreement shall be in writing and shall be deemed to
have been given to the Party to whom it is addressed: (i) on the date indicated
on the certified mail return receipt if sent by certified mail return receipt
requested; (ii) on the business day actually received if hand delivered or if
transmitted by telefax or if delivered or transmitted on a day that is not a
business day, then the next business day; or (iii) one business day after such
notice was delivered to an overnight delivery service, addressed, delivered or
transmitted in each case as follows:
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<PAGE>
Purchaser:
DH Holdings Corp.
1250 24th Street, N.W.
Suite 800
Washington, D.C. 20037
ATTENTION: Vice President
Telephone: (202) 828-0850
Telefax: (202) 828-0860
With a Courtesy Copy (not required for effective Notice) to:
Veeder-Root Company
125 Powder Forest Drive
Simsbury, Connecticut 06070
ATTENTION: Steven H. Sigmon, President
Telephone: (860) 651-2735
Telefax: (860) 651-2727
If to any Seller, a single notice to:
Tanknology-NDE International, Inc.
8900 Shoal Creek Blvd.
Building 200
Austin, Texas 78758
ATTENTION: President
Telephone: (512) 451-6334
Telefax: (512) 459-1459
With a Courtesy Copy (not required for effective Notice) to:
Tanknology-NDE International, Inc.
712 Main Street, Suite 1700
Houston, Texas 77002
ATTENTION: Jay Allen Chaffee
Telephone: (713) 223-5730
Telefax: (713) 223-5379
A Party's address for notice may be changed from time-to-time only by
written notice given to each of the other Parties in accordance with this
Section.
(i) Assignment. Except as otherwise provided in this Agreement and the
Related Documents, neither this Agreement nor any of the rights or duties
hereunder may be assigned by any
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Party without the prior written consent of each of the other Parties, and any
assignment attempted without such prior consent shall be null and void; provided
that the rights and obligations of DH Holdings Corp. under this Agreement and
the Related Documents may be transferred or assigned to Danaher Corporation or
to any Affiliate of Danaher Corporation.
(j) Further Acts and Documents. Each of the parties hereby agrees to
execute and deliver such further instruments and to do such further acts and
things as may be necessary or desirable to carry out the purposes of this
Agreement.
(k) Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original and all of which shall
constitute one and the same agreement.
(l) Payments. All payments by Seller to Purchaser hereunder or under the
Note should be made to an account in Delaware designated by the Purchaser.
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
Sellers:
TANKNOLOGY-NDE INTERNATIONAL, INC.
//s// JAY ALLEN CHAFFEE
By: Jay Allen Chaffee
Its: Chairman of the Board
PROECO, INC.
//s// JAY ALLEN CHAFFEE
By: Jay Allen Chaffee
Its: Chairman
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TANKNOLOGY/NDE CORPORATION
//s// JAY ALLEN CHAFFEE
By: Jay Allen Chaffee
Its: Chairman
236862 CANADA, INC.
//s// JAY ALLEN CHAFFEE
By: Jay Allen Chaffee
Its: President
TANKNOLOGY-NDE CONSTRUCTION
SERVICES, INC.
//s// JAY ALLEN CHAFFEE
By: Jay Allen Chaffee
Its: Chairman
Purchaser:
DH HOLDINGS CORP.
By: //s// DANIEL L. COMAS
Its: Vice President
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Exhibit A - Senior Subordinated Note
<PAGE>
Exhibit B - Certificate of Designation
<PAGE>
Exhibit C - Warrant Certificate
<PAGE>
Exhibit D - Certificate of Responsible Party
<PAGE>
Exhibit E - Opinion of TNDE Counsel
<PAGE>
Exhibit F - Preemption Agreement
<PAGE>
Exhibit G - Certificate of Incorporation
<PAGE>
Exhibit H - Opinion of DH Counsel
<PAGE>
Schedule 1 - Liens
<PAGE>
Schedule 2 - Trade Names
<PAGE>
Schedule 3 - Indebtedness
<PAGE>
Schedule 4 - Leases
<PAGE>
Schedule 5 - Financial Statements
<PAGE>
Schedule 6 - Shareholder Information
<PAGE>
Schedule 7 - TNDE Obligations
<PAGE>
EXHIBIT 10.46
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SENIOR SUBORDINATED NOTE
-------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions, Rules of Construction and Notice.............................2
1.1 Accelerated.......................................................2
1.2 Affiliate.........................................................2
1.3 Affirmative Covenants.............................................2
1.4 Applicable Law....................................................2
1.5 Business Day......................................................2
1.6 Collateral........................................................2
1.7 Company...........................................................2
1.8 Financial Tests...................................................2
1.9 Indebtedness......................................................2
1.10 Insolvency Proceeding.............................................3
1.11 Insolvency Law....................................................3
1.12 Insolvency Relief.................................................3
1.13 Insolvency Order..................................................3
1.14 Intercreditor Agreement...........................................3
1.15 Interest..........................................................3
1.16 Lien..............................................................3
1.17 Litigation.......................................................3
1.18 Negative Covenants................................................3
1.19 Notice............................................................4
1.20 Quarter...........................................................4
1.21 Related Documents.................................................4
1.22 Reporting Covenants...............................................4
1.23 Representation(s) and Warranty(ies)...............................4
1.24 Security Documents................................................4
1.25 Senior Indebtedness...............................................4
1.26 Senior Loans......................................................4
1.27 Senior Loan Agreement.............................................4
1.28 UCC...............................................................4
2. Maturity and Pay Off......................................................5
3. Interest..................................................................5
4. Principal Amount..........................................................6
5. Prepayments...............................................................6
6. Late Payments.............................................................6
i
<PAGE>
7. Payments and Wiring Instructions..........................................6
8. Events of Default.........................................................7
(a) Enumeration of Defaults............................................7
(b) Payment Default....................................................7
(c) Affirmative Covenant Default.......................................7
(d) Reporting Covenant Default.........................................7
(e) Negative Covenant Default..........................................7
(f) Warranty Default...................................................7
(g) Financial Test Default.............................................7
(h) Cross Default......................................................8
(i) Subordination Default..............................................8
(j) Security Default...................................................8
(k) Voluntary Insolvency Default.......................................8
(l) Insolvency Order...................................................8
(m) Fraudulent Conveyance Default......................................9
9. Remedies and Acceleration.................................................9
(a) Remedies...........................................................9
(b) Acceleration of Payment............................................9
(c) Waiver of Default..................................................9
10. Waivers by Maker.........................................................10
11. Security for Payment.....................................................10
12. Intercreditor Agreement..................................................10
13. Collection for Costs.....................................................10
14. Amendment................................................................10
15. Governing Law............................................................11
16. Waiver of Jury Trial.....................................................11
17. Consent to Jurisdiction, Venue and Service of Process....................11
18. Non Negotiability; Non Assignability; Non-Transferability................11
ii
<PAGE>
SENIOR SUBORDINATED NOTE
Date December 23, 1997
Maker Tanknology-NDE International, Inc., a Delaware
corporation, ProEco, Inc., a Delaware corporation,
Tanknology/NDE Corporation, a Delaware
corporation, 2368692 Canada, Inc., a Canadian
Federal corporation and Tanknology-NDE
Construction Services, Inc., a Delaware
corporation.
Payee DH Holdings Corp., a Delaware corporation.
Principal Amount $6,500,000
Stated Interest Rate 10% per annum
Default Interest Rate 14% per annum
Payment Date Payments to be made in 12 quarterly
installments commencing on March 31, 2000 with the
final installment due on December 31, 2002.
Maturity Date December 31, 2002
This is the Senior Subordinated Note due December 31, 2002 (the Note)
provided for in that certain Note, Preferred Stock and Warrant Purchase
Agreement, dated as of December 23, 1997, as amended, restated, supplemented or
otherwise modified from time to time (the Purchase Agreement) by and among DH
Holdings Corp., a Delaware corporation (DH), as Purchaser, and Tanknology-NDE
International, Inc. (TNDE), a Delaware corporation, ProEco, Inc. (ProEco), a
Delaware corporation, Tanknology/NDE Corporation (NDE), a Delaware
corporation, 2368692 Canada, Inc. (Canada), a Canadian Federal corporation,
and Tanknology-NDE Construction Services, Inc. (Construction), a Delaware
corporation, as Sellers. DH, together with its successors and assigns, is
referred to herein as Payee. TNDE, ProEco, NDE, Canada and Construction,
together with their respective successors and assigns, are each individually and
collectively referred to herein as Maker.
FOR VALUE RECEIVED, each Maker hereby jointly and severally PROMISES TO PAY
TO THE ORDER of Payee the principal amount of SIX MILLION FIVE HUNDRED THOUSAND
DOLLARS ($6,500,000), together with Interest (as defined herein), upon the terms
and subject to the conditions set forth in this Note.
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1. Definitions, Rules of Construction and Notice
As used herein, the following terms have the following meaning, unless the
context otherwise requires:
1.1 Accelerated (and correlative terms such as Acceleration,
Accelerating and Accelerated) means with respect to this Note that the
entire unpaid Principal Amount, together with all accrued but unpaid Interest,
becomes immediately due and payable prior to the Maturity Date, without, except
as expressly provided for in this Note, notice of intent to accelerate, notice
of acceleration of maturity, presentment, demand, protest, notice of protest or
other notice of default or dishonor of any type whatsoever, all of which are
expressly waived by Maker.
1.2 Affiliate means any person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with
respect to the specified person or entity.
1.3 Affirmative Covenants means the covenants of TNDE set forth in
Section 9 of the Purchase Agreement.
1.4 Applicable Law means, with respect to any person, any and all
federal, national, state, regional, local, municipal or foreign laws, statutes,
rules, regulations, guidelines, ordinances, licenses, permits, judicial or
administrative decisions of any country, or any political subdivision, agency,
commission, official or court thereof having jurisdiction over such person.
1.5 Business Day means any day other than a Saturday, Sunday or day upon
which banking institutions are authorized or required by law or executive order
to be closed in the City of Wilmington, Delaware.
1.6 Collateral is the collateral defined in the Pledge Agreement by and
between TNDE and DH and the Subordinated Security Agreement by and among TNDE,
ProEco, NDE, Canada, Construction and DH both dated as of December 23, 1997.
1.7 Company means Tanknology-NDE International, Inc., a Delaware
corporation, together with its Subsidiaries (as defined in the Purchase
Agreement).
1.8 Financial Tests means the financial tests with respect to the Company
set forth in Section 11 of the Purchase Agreement.
1.9 Indebtedness means with respect to the Company, as of any date of
determination, (i) all indebtedness of the Company for borrowed money or for the
deferred purchase price of property or services or which is evidenced by a note,
bond, debenture, or similar instrument, reflected on the most recent financial
statements, (ii) all obligations of the Company under any financing lease, (iii)
all obligations of the Company in respect of letters of credit, acceptances, or
similar obligations issued or created for the account of the Company, (iv) all
guaranty obligations of the Company, and (v) all liabilities secured by any lien
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on any property owned by the Company, whether or not the Company has assumed or
otherwise become liable for the payment thereof; provided that, the term
Indebtedness shall not include any obligations incurred with regard to
obtaining performance bonds and payment bonds relating to the business of
Construction.
1.10 Insolvency Proceeding means a proceeding before a court of competent
jurisdiction or other duly authorized authority under any Insolvency Law seeking
Insolvency Relief.
1.11 Insolvency Law means Title 11 of the United States Code (or any
successor law) or any similar Applicable Law providing for bankruptcy,
insolvency, conservatorship, receivership or other similar debtor's relief.
1.12 Insolvency Relief means discharge of indebtedness, liquidation,
reorganization or arrangement, appointment of a receiver, trustee, conservator,
custodian or liquidator or the granting of any stay or restraining order against
creditors under any Insolvency Law or other similar debtor's relief under any
Insolvency Law.
1.13 Insolvency Order means any order, judgment or decree entered in any
Insolvency Proceeding granting any Insolvency Relief.
1.14 Intercreditor Agreement means the Intercreditor and Subordination
Agreement dated as of December 23, 1997, by and between DH and Bank One, Texas,
N.A., as modified, amended or restated from time to time.
1.15 Interest has the meaning set forth in ss. 3 hereof.
1.16 Lien means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (whether statutory or otherwise), or preference,
priority or other security agreement or similar preferential arrangement of any
kind or nature whatsoever (including, without limitation, any conditional sale
or other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement under the uniform commercial code or comparable law of any
jurisdiction in respect of any of the foregoing).
1.17 Litigation means any litigation based upon or arising out of this
Note or any Related Documents or any related instrument or agreement or any of
the transactions contemplated by the Purchase Agreement, this Note or any course
of conduct, dealing, statements (whether oral or written) or actions of any of
the parties.
1.18 Negative Covenants mean the covenants of TNDE set forth in Section
10 of the Purchase Agreement.
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1.19 Notice means notice given in accordance with Section 13(h) of the
Purchase Agreement.
1.20 Quarter means each quarter annual period of the Fiscal Year, and
Quarterly means each Quarter. Each Quarter consists of three Months.
1.21 Related Documents means the Purchase Agreement, Note, the
Subordinated Security Agreement, the Pledge Agreement, the Preemptive Rights
Agreement, the Registration Rights Agreement, the Co-Sale Agreement, the
Certificate of Designation and the Warrant Certificate entered into pursuant to
the Purchase Agreement.
1.22 Reporting Covenants mean the covenants of Maker set forth in Section
8 of the Purchase Agreement.
1.23 Representation(s) and Warranty(ies) means the representations and
warranties of each Maker set forth in Section 6 of the Purchase Agreement and in
any certificate of Maker delivered pursuant to Section 5 of the Purchase
Agreement.
1.24 Security Documents means the Subordinated Security Agreement between
TNDE, ProEco, NDE, Canada, Construction and DH and the Pledge Agreement between
TNDE and DH both dated as of December 23, 1997.
1.25 Senior Indebtedness means the Senior Loans and Indebtedness incurred
pursuant to the terms of any agreement between the Company and any bank or
financial institution providing for revolving credit loans secured by the
Collateral; provided that, any other agreement shall be consented to in writing
by DH, which consent shall not be unreasonably withheld, and the lender with
respect thereto shall have been granted a first perfected security interest in
the Collateral on terms substantially equivalent to those set forth in the
Senior Security Agreement (as defined in the Purchase Agreement); further
provided that, the term Senior Indebtedness may include up to $11 million of
Indebtedness incurred by the Company to replace the indebtedness incurred with
respect to the Senior Loan Agreement and such debt replacement need not be
consented to by DH; provided further that, notwithstanding the foregoing, any
such replacement of Indebtedness by the Company on terms materially adverse to
DH shall not be undertaken without the prior written consent of DH.
1.26 Senior Loans means the term loan and revolving line of credit
granted by Bank One, Texas, N.A. to TNDE and certain of its subsidiaries
pursuant to the Senior Loan Agreement, including all extensions, renewals and
refinancings thereof.
1.27 Senior Loan Agreement means the Loan Agreement, dated as of October
25, 1996, by TNDE, certain of its subsidiaries and Bank One, Texas, N.A.,
including all amendments, extensions, renewals and refinancings thereof.
1.28 UCC means the Uniform Commercial Code as in effect in the State of
Delaware.
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The rules of construction set forth in ss.13(g) of the Purchase Agreement
and the notice provisions set forth in ss.13(h) of the Purchase Agreement shall
be applicable to this Note.
2. Maturity and Pay Off
The unpaid principal amount of this Note (the Principal Amount), together
with all accrued but unpaid Interest shall be due and payable in full on the
Maturity Date (specified above). Payment of the Principal Amount and all accrued
but unpaid Interest may be Accelerated upon the occurrence of an Event of
Default as provided for in ss.9 of this Note.
The date upon which the Principal Amount and all accrued but unpaid
Interest is paid or discharged in full is referred to as the Pay Off Date.
Upon written Notice by Maker to Payee, Payee will furnish to Maker a pay off
letter setting forth the amount of the payment of Principal Amount and Interest
required to pay this Note in full as of a specified Pay Off Date.
3. Interest
Interest shall accrue from the date of this Note through and including the
Pay Off Date on the unpaid Principal Amount at the Interest Rate (defined in
this Section) (Interest). All accrued but unpaid Interest shall be paid
Quarterly in arrears on each Payment Date (specified above), commencing with the
first Payment Date after the date of this Note.
The Interest Rate shall be a fixed rate per annum equal to the Stated
Interest Rate (specified above) unless the Default Interest Rate (specified
above) is in effect. Upon the occurrence of an Event of Default and the election
by Payee, in the sole exercise of its discretion, to impose the Default Interest
Rate by giving Notice of that election to Maker (the Default Rate Election),
the Interest Rate shall be a fixed rate per annum equal to the Default
Interest Rate, and the Default Interest Rate shall continue to be the Interest
Rate until the first Payment Date after the Default Rate Election at which such
Event of Default has been remedied or waived by Purchaser in writing and no
other Default or Event of Default is continuing unremedied or unwaived, provided
that the Note has not been Accelerated.
Notwithstanding any provision of this Note to the contrary: (i) in no event
shall the Interest Rate be a rate per annum in excess of the maximum interest
rate permissible under Applicable Law and (ii) to the extent that Interest or
other amounts paid with respect to this Note which are deemed to be interest
under Applicable Law result in interest payments in excess of those permitted
under Applicable Law, such excess payments shall be applied to the payment of
the unpaid Principal Amount or, if the Principal Amount has been paid in full,
shall be refunded to Maker.
Interest shall be calculated based upon: (i) the actual number of days
elapsed over each Quarter, including any additional days elapsed because the
scheduled Payment Date fell on a non- Business Day; (ii) Quarters consisting of
three months; and (iii) Quarterly compounding of any Interest accrued but unpaid
as of each Payment Date.
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4. Principal Amount
The Principal Amount shall be paid in 12 installments of $541,666.67 of
Principal Amount each, payable Quarterly on each Payment Date, commencing on
March 31, 2000, and continuing until the earlier of the Pay Off Date or the
Maturity Date. In the event of any partial prepayment of Principal Amount, each
such partial prepayment shall be applied to pay the scheduled installments of
Principal Amount in inverse order of the Payment Dates on which such
installments are due and payable.
5. Prepayments
Maker may prepay the Principal Amount in whole at any time or in part from
time to time; provided, that (i) each partial payment of Principal Amount shall
be in an amount equal to $250,000 or an integral multiple thereof and (ii) each
partial prepayment of Principal Amount shall be applied to pay the scheduled
installments of Principal Amount in inverse order of the Payment Dates on which
such installments are due and payable.
All prepayments of Principal Amount shall be accompanied by the payment of
all Interest accrued but unpaid through the date of prepayment with respect to
the Principal Amount prepaid.
6. Late Payments
A payment of Principal Amount or Interest shall be deemed to be in default
if such payment is not made in the manner provided for in ss.7 of this Note
prior to 2:00 p.m. on the fifth calendar day following Notice by Payee to Maker
of such default.
7. Payments and Wiring Instructions
All payments of Principal Amount and Interest shall be made by wire
transfer of immediately available funds to the account of Payee at or before
2:00 p.m. Wilmington, Delaware time on the Business Day that such payment is
due. Any wire transfer received by Payee after 2:00 p.m. Wilmington, Deleware
time on any Business Day shall be deemed to have been received by Payee prior to
such time on the next Business Day.
Unless payment is otherwise specified in a Notice by Payee to Maker to be
made to another account in the State of Delaware, all such payments shall be
wired in accordance with the following instructions:
Wilmington Trust Company
ABA#
Account No.
Account Name: Danaher Corporation
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In the event that any scheduled Payment Date falls on a non-Business Day,
such Payment Date shall be deemed to be the next Business Day following such
scheduled Payment Date, and such additional days shall be deemed to have elapsed
for purposes of computing the accrued Interest payable on such Payment Date.
8. Events of Default
(a) Enumeration of Defaults. Each of the following events shall be an
Event of Default for the purposes of this Note. An Event of
Default shall be deemed to continue until such default is waived
by written Notice by Payee to Maker or remedied by action of
Maker, and, in the case of any Event of Default requiring Notice
by Payee to Maker, if the Default is not cured within the grace
period provided for herein following such Notice, until
rescission of such Notice by the further written Notice of Payee
to Maker. The term Default means any event which is not an
Event of Default as of a specified date, but which with the lapse
of time, notice or both would constitute an Event of Default.
(b) Payment Default. Maker defaults in the payment when due of any
installment of Principal Amount or Interest, and such default is
not remedied in the manner and within the grace period provided
for in ss.6 of this Note (a Payment Default). A Payment Default
shall be deemed to have occurred notwithstanding the fact that
the default in payment resulted from compliance with or
enforcement of the Intercreditor Agreement.
(c) Affirmative Covenant Default. Maker fails to observe or perform
any Affirmative Covenant and such default is not remedied within
30 calendar days after Notice is given by Payee to Maker of such
default.
(d) Reporting Covenant Default. Maker fails to observe or perform any
Reporting Covenant and such default is not remedied within 30
calendar days after Notice is given by Payee to Maker of such
default.
(e) Negative Covenant Default. Maker fails to observe or perform any
Negative Covenant and such default is not remedied within 30
calendar days after Notice is given by Payee to Maker of such
default.
(f) Warranty Default. Any Representation or Warranty proves to have
been untrue, incomplete or misleading in any material respect
when made or when deemed to have been made and such breach is not
completely remedied within 30 calendar days after Notice is given
by Payee to Maker of such default.
(g) Financial Test Default. As of any applicable date of
determination, Maker fails to satisfy any of the Financial Tests
and such failure remains uncured for a period of 30 consecutive
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calendar days after Notice is given by Payee to Maker of such
default; provided that, the 30 day cure period of this Section
8(g) shall not apply to Section 11(c) of the Purchase Agreement.
(h) Cross Default. Maker defaults in the payment of any Indebtedness
with an unpaid principal amount in excess of $25,000, but
specifically excluding (A) the $300,000 principal amount Gilbarco
Patent Note identified in the Purchase Agreement, and (B) any
purchase money obligation, the payment of which is being actively
contested in good faith by Maker (as guarantor, surety or
principal) regardless of whether (i) such default is waived by
the obligee unless such waiver constitutes full satisfaction of
all amounts then due and payable, (ii) payment of any
Indebtedness of Maker is accelerated, (iii) the contractual right
of Maker to borrow money under any loan, credit or similar
agreement or arrangement is suspended as a result of any default
by Maker with respect to such agreement or arrangement or (iv)
any action to enforce payment of any Indebtedness of Maker is
commenced against Maker or with respect to any collateral
securing such Indebtedness, unless such default, acceleration or
action is remedied or rescinded within a period of 10 days after
Notice is given by Payee to Maker of such default.
(i) Subordination Default. Any agreement with respect to the Senior
Indebtedness is amended or modified in violation of the
Intercreditor Agreement, the blocking period provided for in the
Intercreditor Agreement is commenced, payment of any amount due
under this Note is prevented due to compliance with or the
enforcement of the Intercreditor Agreement or any amount
previously paid with respect to this Note are repaid or held in
constructive trust by Payee due to compliance with or the
enforcement of the Intercreditor Agreement or Maker seeks
forbearance with respect to the payment of any amounts due under
the Senior Indebtedness.
(j) Security Default. Maker defaults in the observance or performance
of any covenant or agreement required under the Security
Documents and such default continues for a period of 30 calendar
days after Notice is given by Payee to Maker of such default.
(k) Voluntary Insolvency Default. Maker: (i) discontinues the conduct
of its business; (ii) applies for or consents to the imposition
of any Insolvency Relief; (iii) voluntarily commences or consents
to the commencement of an Insolvency Proceeding; (iv) files an
answer admitting the material allegations of any involuntary
commencement of an Insolvency Proceeding; (v) makes a general
assignment for the benefit of its creditors; or (vi) is unable or
admits in writing its inability to pay its debts as they become
due (a Voluntary Insolvency Default).
(l) Insolvency Order. Any Insolvency Order is entered against Maker
and such Insolvency Order is not dismissed within 30 calendar
days of its entry (an Involuntary Insolvency Default).
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(m) Fraudulent Conveyance Default. Maker: (i) conceals, removes or
permits to be concealed or removed all or any part of its
property with the intent to hinder, delay or defraud any of its
creditors; (ii) makes or permits any conveyance of its material
properties that would be deemed fraudulent to creditors under any
Insolvency Law or fraudulent conveyance provision of Applicable
Law; (iii) engages in a bulk transfer of any of its property
without complying with the bulk transfer provisions of Applicable
Law; (iv) has, while it is insolvent, caused or permitted any of
its creditors to obtain a Lien on any of its property by legal
proceedings or otherwise which is not vacated within 30 calendar
days.
9. Remedies and Acceleration
(a) Remedies. After payment of this Note is Accelerated, Payee shall have
(i) all rights and remedies granted to it under this Note, the Purchase
Agreement and the Security Documents and continue to have the rights and
remedies granted to it under the other Related Documents and (ii) all rights of
a creditor under Applicable Law (including the UCC). All such rights and
remedies and the exercise thereof shall be cumulative. No exercise of any such
rights and remedies shall be deemed to be exclusive or constitute an election of
remedies.
(b) Acceleration of Payment. Upon the occurrence of a Voluntary
Insolvency Default or an Involuntary Insolvency Default, payment
of this Note shall be Accelerated. Upon the occurrence and during
the continuation of any other Event of Default, Payee may, in the
sole exercise of its discretion, elect to cause payment of this
Note to be Accelerated by giving written Notice of such election
to Maker (the Acceleration Notice). Once payment of this Note
has been properly Accelerated as provided for in this section,
such Acceleration may be revoked only by Payee, in the sole
exercise of its discretion, giving written Notice of revocation
to Maker, regardless of whether the Event of Default giving rise
to such Acceleration has been remedied by action of Maker.
(c) Waiver of Default. No Default or Event of Default may be waived
nor shall be deemed to have been waived except by an express
written Notice by Payee to Maker, and any such grant of waiver
shall be applicable only to the specific Defaults or Events of
Default expressly identified in such Notice and shall not be
deemed to apply to any other or subsequent Default or Event of
Default. Payee may grant or withhold any such waiver in the sole
exercise of its discretion, which may be conditioned upon the
payment by Maker of a premium, the grant of additional collateral
to secure the payment of this Note or the acceptance of other
terms and conditions under this Note or the Purchase Agreement.
No course of dealing by Payee or its agents and employees,
failure, forbearance or delay by Payee in exercising any of its
rights or remedies under this Note, the Purchase Agreement, the
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Security Documents or any other Related Documents shall operate
as a waiver of any Default or Event of Default or of any right of
Payee under this Note.
10. Waivers by Maker
To the fullest extent permitted by Applicable Law, Maker waives with
respect to this Note: presentment, protest and demand, notice of protest, demand
and dishonor, and diligence in collection. Maker agrees that: Payee may release
(i) all or any part of the collateral securing the payment of this Note or (ii)
any guarantor or surety with respect to this Note, all without notice to Maker
and without affecting in any way the obligation of Maker under this Note.
11. Security for Payment
Payment of this Note is secured under the terms and subject to the
conditions of the Security Documents. Nothing in this Note shall be deemed to
preclude Payee from obtaining other or additional security for the payment of
this Note or to require Payee to elect remedies or proceed against any
collateral or guarantee before Accelerating payment of this Note or taking any
legal or other action to collect payment of this Note.
12. Intercreditor Agreement
Payee and Bank One, Texas, N.A. (BOT) are parties to the Intercreditor
Agreement, pursuant to which certain of Payee's rights under this Note and the
Security Documents are subordinated to BOT. Nothing in this Note, the Purchase
Agreement or such Intercreditor Agreement shall grant to Maker any rights as a
beneficiary under such Intercreditor Agreement nor any right to enforce against
Payee any provision of such Intercreditor Agreement.
13. Collection for Costs
Maker shall reimburse Payee for all reasonable costs and expenses
(including legal fees and disbursements) incurred by Payee in connection with
the collection or attempted collection of the payment of this Note through legal
proceedings or otherwise.
14. Amendment
This Note may not be amended, restated, supplemented or otherwise modified
except by an express written agreement executed and delivered by Maker and
Payee. Compliance with the covenants and other provisions of this Note may not
be waived except by an express written waiver signed and delivered by Payee.
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15. Governing Law
This Note and the rights and obligations of Payee and Maker under this Note
shall be governed by and construed under the laws of the State of Delaware.
16. Waiver of Jury Trial
Payee and Maker, after consulting or having had the opportunity to consult
with legal counsel, knowingly, voluntarily and intentionally waive any right any
of them may have to a trial by jury in any Litigation. Neither Payee nor Maker
shall seek to consolidate, by counterclaim or otherwise, any action in which a
jury trial has been waived with any other action in which a jury trial cannot be
or has not been waived. These provisions shall not be deemed to have been
modified in any respect or relinquished by either Payee or Maker except by
written instrument executed by both of them.
17. Consent to Jurisdiction, Venue and Service of Process
Payee and Maker, each after having consulted or having had the opportunity
to consult with legal counsel, hereby knowingly, voluntarily and intentionally:
(i) consents to the jurisdiction of the Delaware State Court sitting in New
Castle County, Delaware and the United States District Court with jurisdiction
over New Castle County, Delaware with respect to any Litigation; (ii) waives any
objections to the venue of any Litigation in either such court; (iii) agrees not
to commence any Litigation except in one or the other of such courts and agrees
not to contest the removal of any Litigation commenced in any other court to one
or the other of such courts; (iv) agrees not to seek to remove, by consolidation
or otherwise, any Litigation commenced in either of such courts to any other
court; and (v) waives personal service of process in connection with any
Litigation and consents to service of process by registered or certified mail in
accordance with Applicable Law. These provisions shall not be deemed to have
been modified in any respect or relinquished by either Payee or Maker except by
written instrument executed by all of them.
18. Non Negotiability; Non Assignability; Non-Transferability
This Note shall be non-negotiable, non-assignable and non-transferable and
any attempted negotiation, assignment, or transfer shall be void and of no
effect, without the express written consent of the Maker; provided that DH
Holdings Corp. may negotiate, assign, or transfer this Note without the consent
of the Maker to Danaher Corporation or to any Affiliate of Danaher Corporation.
IN WITNESS WHEREOF, this Note has been executed and delivered by and on
behalf of Maker by its duly authorized officer, effective as of the Date of Note
(set forth above).
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TANKNOLOGY-NDE INTERNATIONAL, INC.
By: //s// JAY ALLEN CHAFFEE
Name: Jay Allen Chaffee
Title: Chairman
PROECO, INC.
By: //s// JAY ALLEN CHAFFEE
Name: Jay Allen Chaffee
Title: Chairman
TANKNOLOGY/NDE CORPORATION
By: //s// JAY ALLEN CHAFFEE
Name: Jay Allen Chaffee
Title: Chairman
2368692 CANADA, INC.
By: //s// JAY ALLEN CHAFFEE
Name: Jay Allen Chaffee
Title: President
TANKNOLOGY-NDE CONSTRUCTION SERVICES, INC.
By: //s// JAY ALLEN CHAFFEE
Name: Jay Allen Chaffee
Title: Chairman
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EXHIBIT 10.47
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DISTRIBUTION, SERVICES AND MARKETING AGREEMENT
- --------------------------------------------------------------------------------
Dated as of December 23, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
SPIRIT OF AGREEMENT; COOPERATION..........................................1
1.1 Spirit of Agreement.........................................1
1.2 Cooperation.................................................1
1.3 Type of Agreement...........................................1
1.4 Transaction.................................................1
ARTICLE 2
DEFINITIONS...............................................................1
2.1 "Agreement".................................................1
2.2 "Agreement Term"............................................1
2.3 [reserved]..................................................2
2.4 [reserved]..................................................2
2.5 "Authorized Distributor"....................................2
2.6 "Authorized Service Company"................................2
2.7 "Auxiliary Leak Detection Retrofit System"..................2
2.8 "Claim".....................................................2
2.9 "CMS".......................................................2
2.10 "Compliance Management Services"............................2
2.11 "Confidential Information"..................................2
2.12 "Demand"....................................................2
2.13 "Dispute"...................................................2
2.14 "Distribution Territory"....................................2
2.15 "Effective Date"............................................2
2.16 "Indemnitee"................................................2
2.17 "Indemnitor"................................................2
2.18 "Installation Services".....................................3
2.19 "JAMS"......................................................3
2.20 "Level III Certification"...................................3
2.21 "Litigation"................................................3
2.22 "Losses"....................................................3
2.23 "National Account Pricing"..................................3
2.24 [reserved]..................................................3
2.25 "Parties"...................................................3
2.26 "Party".....................................................3
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2.27 "Remote Monitoring".........................................3
2.28 "Simplicity Petroleum Data Services"........................3
2.29 "Third Party"...............................................3
2.30 "TNDE"......................................................4
2.31 "TNDE Standard Price(s)"....................................4
2.32 "Value Added Reseller"......................................4
2.33 "VR"........................................................4
2.34 "VR Products"...............................................4
ARTICLE 3
TERM; RENEWAL.............................................................4
3.1 Term........................................................4
3.2 Renewal.....................................................4
3.3 Termination for Cause ......................................4
3.4 Survival....................................................5
ARTICLE 4
DISTRIBUTION AGREEMENT....................................................5
4.1 Appointment.................................................5
4.2 Authorized Service Company..................................5
4.3 Non-Compete.................................................5
4.4 VR Products.................................................6
4.5 Distribution Territory......................................6
4.6 Purchases of VR Products by TNDE............................6
4.7 Orders and Delivery.........................................6
4.8 Shipment Obligations........................................6
4.9 Designation of TNDE as a "Value Added Reseller".............7
4.10 Prices for VR Products......................................7
ARTICLE 5
INSTALLATION SERVICES.....................................................7
5.1 Purchases of Installation Services..........................7
5.2 Price of Installation Services..............................7
5.3 Installation Preferences and Obligations....................7
ARTICLE 6
COMPLIANCE MANAGEMENT SERVICES............................................8
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6.1 VR's Grant of Exclusive Right to Perform
Compliance Management Services to TNDE......................8
6.2 Non-Compete.................................................8
6.3 Consents....................................................8
6.4 Listing of Customers........................................8
6.5 Purchase of CMS by VR.......................................8
ARTICLE 7
SIMPLICITY PETROLEUM DATA SERVICES........................................9
7.1 Grant of Non-Exclusive Right to Sell Simplicity
Petroleum Data Services.....................................9
7.2 Purchase of Simplicity Petroleum Data Services..............9
7.3 Allocation of Revenues......................................9
ARTICLE 8
REMOTE MONITORING SERVICES AND RELATIONSHIPS..............................9
8.1 Transfer of Remote Monitoring Relationships to VR...........9
8.2 Acknowledgment..............................................9
8.3 Non-Compete.................................................9
8.4 Access to Facilities.......................................10
8.5 Allocation of Revenues.....................................10
ARTICLE 9
AUXILIARY LEAK DETECTION RETROFIT........................................10
9.1 Auxiliary Leak Detection Retrofit License Agreement........10
ARTICLE 10
MARKETING AND SALES......................................................10
10.1 Commercially Reasonable Efforts of TNDE....................10
10.2 Commercially Reasonable Efforts of VR......................10
10.3 Facilities and Staff-TNDE..................................11
10.4 Facilities and Staff-VR....................................11
10.5 Promotional Literature-TNDE................................11
10.6 Promotional Literature-VR..................................11
10.7 Technical Sales Support-TNDE...............................11
10.8 Technical Sales Support-VR.................................12
10.9 Marketing and Sales Coordination; Standards of Performance.12
10.10 Performance Target Reports.................................12
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ARTICLE 11
ACCESS TO INFORMATION....................................................13
11.1 Technical Support-TNDE.....................................13
11.2 Technical Support-VR.......................................13
ARTICLE 12
CONFIDENTIALITY OF INFORMATION...........................................13
12.1 Confidentiality Provisions.................................13
12.2 Return of Information......................................14
12.3 Remedies...................................................14
ARTICLE 13
DISPUTE RESOLUTION.......................................................14
13.1 Informal Dispute Resolution................................14
13.2 Institution of Formal Resolution Proceedings...............15
13.3 Arbitration................................................15
13.4 Immediate Injunctive Relief................................16
13.5 Continued Performance......................................16
ARTICLE 14
AUDITS...................................................................16
14.1 Audit Rights...............................................16
ARTICLE 15
LIMITATIONS ON RECRUITING................................................17
15.1 Limitations on Recruiting..................................17
ARTICLE 16
INDEMNIFICATION..........................................................17
16.1 Indemnification of TNDE....................................17
16.2 Indemnification of VR......................................17
16.3 Infringement Indemnity of TNDE.............................18
16.4 Infringement Indemnity of VR...............................18
16.5 Exclusive Remedy for Infringement Claims...................18
16.6 Indemnification for Third Party Claims.....................18
16.7 Contractual Statute of Limitations.........................19
16.8 Allocation of Risks........................................20
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ARTICLE 17
MUTUAL REPRESENTATIONS AND WARRANTIES....................................20
17.1 Mutual Representations and Warranties......................20
17.2 Warranties.................................................20
ARTICLE 18
TAXES....................................................................21
18.1 Resale Certificates........................................21
ARTICLE 19
ASSIGNMENTS..............................................................21
19.1 No Assignment Without Consent..............................21
19.2 Procedures for Assignment..................................21
ARTICLE 20
MISCELLANEOUS............................................................21
20.1 No Implied Rights or Waivers...............................21
20.2 Modifications, Amendments or Waivers.......................21
20.3 Accounting Terms...........................................21
20.4 Entire Agreement...........................................22
20.5 Severability...............................................22
20.6 Third Party Beneficiaries..................................22
20.7 Rules of Construction......................................22
20.8 Notices....................................................23
20.9 Further Acts and Documents.................................24
20.10 Counterparts...............................................24
20.11 Force Majeure..............................................24
20.12 Governing Law..............................................24
20.13 Waiver of Jury Trial.......................................24
20.14 [reserved].................................................25
20.15 Joint Customers............................................25
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DISTRIBUTION, SERVICES AND MARKETING AGREEMENT
This Distribution, Services and Marketing Agreement (the "Agreement"),
dated as of December __, 1997 (the "Effective Date"), is by and between
Tanknology-NDE International, Inc., a Delaware corporation ("TNDE"), and
Veeder-Root Company, a Delaware corporation ("VR").
ARTICLE 1
SPIRIT OF AGREEMENT; COOPERATION
1.1 Spirit of Agreement. TNDE and VR recognize that optimum performance of
this Agreement requires a cooperative working environment established upon good
communications and a good faith working relationship between both Parties. It is
within this cooperative spirit that TNDE and VR agree to interact in the
performance of this Agreement.
1.2 Cooperation. The Parties will cooperate with each other in good faith
in the performance of the activities contemplated by this Agreement through,
among other things, making available, as reasonably requested, such management
decisions, information, approvals, authorizations and acceptances so that each
Party may fulfill its obligations hereunder in a timely and efficient manner.
1.3 Type of Agreement. This Agreement is not a partnership agreement and
shall not be construed as creating any duties, obligations or rights which are
independent of this Agreement and which would otherwise arise in the context of
a partnership.
1.4 Transaction. This Agreement is being entered into in consideration of
and as a condition to DH Holdings Corp.'s execution, delivery and performance of
that certain Note, Preferred Stock and Warrant Purchase Agreement between TNDE,
certain of its subsidiaries, and DH Holdings Corp. (the "Purchase Agreement").
ARTICLE 2
DEFINITIONS
For the purposes of this Agreement, the following definitions shall apply
to the respective capitalized terms:
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2.1 "Agreement" means this Distribution, Services and Marketing Agreement
dated as of the Effective Date by and between TNDE and VR.
2.2 "Agreement Term" is defined in Section 3.2.
2.3 [reserved]
2.4 [reserved]
2.5 "Authorized Distributor" means a non-exclusive, independent
organization selling to the retail and wholesale petroleum industry of
which the customers would include independent gas station owners,
major oil companies and certain direct consumers of gasoline and
related fuel oil products in accordance with a marketing plan mutually
acceptable to such distributor and VR.
2.6 "Authorized Service Company" means a independent organization
servicing petroleum equipment owned or operated by petroleum
marketers, such as major and independent oil companies, retail service
stations, oil equipment jobbers, tank builders and fuel oil
distributors.
2.7 "Auxiliary Leak Detection Retrofit System" means a device that
enhances the capabilities of existing tank gauges by adding data
logging, data storage, and communications capabilities that TNDE is
developing in conjunction with a data logger manufacturer and outside
contractors.
2.8 "Claim" is defined in Section 16.6.
2.9 "CMS" means Compliance Management Services.
2.10 "Compliance Management Services" means those services that facilitate
regulatory compliance for storage tank owners, including but not
limited to, the services described on Exhibit A.
2.11 "Confidential Information" is defined in Section 12.1.
2.12 "Demand" is defined in Section 13.3.
2.13 "Dispute" is defined in Section 13.1.
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2.14 "Distribution Territory" is defined in Section 4.5.
2.15 "Effective Date" means the date first written above.
2.16 "Indemnitee" is defined in Section 16.6.
2.17 "Indemnitor" is defined in Section 16.6.
2.18 "Installation Services" means the common activities conducted on a
customer's site to install gauge systems and their components.
2.19 "JAMS" is defined in Section 13.3.
2.20 "Level III Certification" means installation checkout, startup
training and line leak detection, programming and operations training,
system troubleshooting, service techniques and warranty dispatch
program training in connection with all VR underground storage tank
monitoring systems.
2.21 "Litigation" is defined in Section 20.13.
2.22 "Losses" means losses, liabilities, damages, actions, claims, costs
and expenses (including reasonable attorneys' fees and disbursements).
2.23 "National Account Pricing" means, as to each Party, the prices and
pricing terms customarily charged by such Party to its significant,
national customers for products and/or services of the nature to be
provided hereunder.
2.24 [reserved]
2.25 "Parties" means TNDE and VR collectively.
2.26 "Party" means any one of the Parties.
2.27 "Remote Monitoring" means the monitoring via modem of gauge systems 24
hours per day/ 365 days per year by technically trained and competent
personnel to ensure that the gauges are functioning properly, to
ensure compliance with the leak detection requirements as set forth in
40 CFR 280, and to minimize environmental liability associated with
storage tanks.
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2.28 "Simplicity Petroleum Data Services" means a remote monitoring and
data collection service that connects trained technicians to line and
tank monitoring equipment installed at customer sites, as more
particularly described on Exhibit B.
2.29 "Third Party" means a person other than TNDE, VR, any officer,
director or employee of TNDE or VR, any Affiliate of TNDE or VR and
any officer, director or employee of any Affiliate of TNDE or VR,
where the term "Affiliate" means any person directly or indirectly
controlling, controlled by, or under direct or indirect common control
with the specified person, where a person shall be deemed to control
another person if such person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies
of such person, whether through the ownership of voting securities, by
contract or otherwise.
2.30 "TNDE" means Tanknology-NDE International, a Delaware corporation.
2.31 "TNDE Standard Price(s)" means the then current list pricing of TNDE
gauge installation services and Compliance Management Services for US
customers or any other pricing the Parties mutually agree to.
2.32 "Value Added Reseller" means a person who is limited to selling VR
products or services only in conjunction with the sale of such
person's own products or services.
2.33 "VR" means Veeder-Root Company, a Delaware corporation.
2.34 "VR Products" is defined in Section 4.4.
ARTICLE 3
TERM; RENEWAL
3.1 Term. The initial term of this Agreement will commence on the Effective
Date and will continue until December 31, 2000, unless earlier terminated by the
mutual consent of the Parties or in accordance with Section 3.3 or 3.5 below.
3.2 Renewal. Upon expiration of the initial term of this Agreement, the
term of this Agreement will automatically be renewed for successive one-year
periods unless either Party gives written notice to the other Party, at least
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thirty days before the scheduled date of expiration of the initial term or any
renewal term, that the term of this Agreement will not be so extended. The
initial term of this Agreement, together with any such renewal terms, is
referred to herein as the "Agreement Term."
3.3 Termination for Cause. Subject to the provisions of this Section 3.3,
either Party may terminate this Agreement at any time after the first
anniversary of the Effective Date for cause. A Party shall only have the right
to terminate this Agreement for cause upon the determination of a panel of
arbitrators, pursuant to the procedures set forth in Article 13 that are not
initiated until after the first anniversary of the Effective Date, that the
other Party failed to use "commercially reasonable efforts" in performing its
obligations hereunder where such Party was required to do so pursuant to the
terms of this Agreement. In the event one Party (the "Terminating Party")
terminates this Agreement for cause, all of the rights and obligations of each
Party set forth herein shall terminate except (i) as provided in Section 3.4
below and (ii) that if the Terminating Party is VR all of the non-competition
provisions applicable to TNDE shall continue in full force and effect until the
expiration of the Agreement Term. Such termination shall be effective
immediately upon notice by the Terminating Party to the non-Terminating Party
following completion of the procedures set forth in Article 13.
3.4 Survival. Following the expiration or termination of all or any portion
of this Agreement, whether for cause or otherwise, the rights and obligations
relating to Confidential Information pursuant to Article 12 shall survive for a
period of five years from the date of termination or expiration and the rights
and obligations relating to indemnification pursuant to Article 13 for any
Losses incurred prior to the date of such termination or expiration shall
survive as provided in Section 16.7.
3.5 Failure to Make Payment Under Purchase Agreement. In the event that
TNDE is in default under the Note or Preferred Stock (as defined in the Purchase
Agreement) for failure to make payments of principal or interest on the Note or
dividends on the Preferred Stock, and all applicable notice and cure periods, if
any, have lapsed, (a) VR may give notice to terminate this Agreement which
termination shall be effective as set out in such notice and (b) TNDE may not
terminate the Agreement for cause under Section 3.3 until such default is cured.
ARTICLE 4
DISTRIBUTION AGREEMENT
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4.1 Appointment. Subject to the terms and conditions of this Agreement, VR
hereby grants to TNDE, and TNDE hereby accepts from VR, the non-exclusive right
to market, sell, install, maintain and support the products and services
referred to in Section 4.4 (the "VR Products") within the territory referred to
in Section 4.5 (the "Distribution Territory"). Except upon the prior, written
consent of VR, TNDE shall be prohibited from appointing or otherwise authorizing
any subdistributors, dealers, agents or other resellers under this Article 4 or
otherwise assigning any of its duties or obligations hereunder. If TNDE appoints
or otherwise authorizes any subdistributors, dealers, agents or other resellers
with the consent of VR under this Agreement, a copy of the appointment or
authorization shall be delivered to VR. In the event of termination or
expiration of this Agreement, VR shall have the right, without any obligation
whatsoever to TNDE, directly or indirectly, to enter into an agreement with any
such Third Party appointed by TNDE or to cause TNDE to assign any such
agreement, at VR's option, to VR or its designee.
4.2 Authorized Service Company. Subject to the terms and conditions of this
Agreement, VR hereby appoints TNDE as an Authorized Service Company for VR
Products, on the most favorable terms and conditions as any other Authorized
Service Company for VR Products has been or in the future is appointed. A sample
of such terms and conditions as of the date hereof is attached hereto as Exhibit
C. VR further agrees to provide advertising and sales incentives, credits and
rebates which are consistent with the most favorable incentives, credits and
rebates which are offered to any other Authorized Service Company, Authorized
Distributor, or Value Added Reseller. TNDE agrees to use its commercially
reasonable efforts to enable its service technicians to achieve and maintain
Level III Certification.
4.3 Non-Compete. TNDE covenants and agrees that it shall not, during the
Agreement Term, without the express prior written consent of VR (which consent
may be withheld in the sole discretion of VR), manufacture, distribute, market,
promote or sell, directly or indirectly, any products or services that compete
directly with VR Products and Simplicity Petroleum Data Services within the
Distribution Territory; provided that nothing set forth herein shall be deemed
to limit or restrict TNDE from installing products that compete directly with VR
Products or providing any of its currently existing services, field services,
construction services or compliance management services and its maintenance
management services (as currently planned by TNDE) to customers utilizing
products or services that compete directly with VR. In no event shall TNDE
provide Remote Monitoring.
4.4 VR Products. The term "VR Products" means gauging systems consisting of
in-tank level and various sensors operating in conjunction with a dedicated site
computer and line leak equipment that are manufactured and/or marketed by VR and
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installed permanently at a site in order to meet the leak detection regulations
as set forth in 40 CFR 280 and Simplicity Petroleum Data Services, which are
described on Exhibits B and D. Upon reasonable notice to TNDE, VR may add new
products to or delete existing products from Exhibit D, with such additions and
deletions becoming effective under this Agreement upon such notice. Upon consent
of TNDE (which consent may be withheld in the sole discretion of TNDE), VR may
add new services to Exhibit B. Any changes to exhibits B and D shall apply to
the Non-Compete provided in section 4.3 above.
4.5 Distribution Territory. The term "Distribution Territory" means the
United States of America and its Territories.
4.6 Purchases of VR Products by TNDE. In consideration of the foregoing,
TNDE agrees to use commercially reasonable efforts to purchase, either directly
or indirectly through the sale of TNDE services which include the sale of VR
Products to customers of TNDE, from VR, VR Products in each of the calendar
years 1998, 1999 and 2000.
4.7 Orders and Delivery. Orders for VR Products by TNDE pursuant to this
Agreement will be placed through VR's regular distribution channel, unless
otherwise agreed in writing on a case-by-case basis. All orders will be placed
in writing in accordance with the then current standard VR order form terms and
conditions, an example (as of the date hereof) of the terms and conditions are
attached hereto as Exhibit E ("Terms and Conditions"). The terms and conditions
of all orders for VR Products by TNDE pursuant to this Agreement, including
without limitation all shipment, delivery, inspection and cancellation terms,
shall be governed by the then current, standard VR Terms and Conditions.
4.8 Shipment Obligations. VR shall supply VR Products to TNDE in a timely
fashion which is consistent with the then current industry lead times. If at any
time, VR is unable to supply such VR Products to TNDE in a timely fashion which
is consistent with the then current industry lead times, then VR shall so notify
TNDE and TNDE may purchase substitute products of similar like and kind from a
vendor of its choosing, until such time as VR notifies TNDE in writing that it
is capable of supplying such products in a timely fashion consistent with the
then current industry lead times. Notwithstanding any provision herein to the
contrary, the provisions of Section 4.3 shall not apply to purchases and sales
of products that compete directly with VR Products in accordance with this
Section 4.8.
4.9 Designation of TNDE as a "Value Added Reseller". Subject to the terms
and conditions of this Agreement, VR hereby appoints TNDE as a Value Added
Reseller. TNDE agrees that it will sell VR Products and Simplicity Petroleum
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Data Services only in conjunction with TNDE Compliance Management Services,
field services and construction services.
4.10 Prices for VR Products. For purposes of this Agreement, the amount
payable by TNDE for any VR Product sold, either directly or indirectly through
the sale of such products to customers of TNDE, to TNDE will conform to the VR
National Account Pricing; provided that, such National Account Pricing schedules
may be adjusted from time to time in accordance with the then current market
conditions.
ARTICLE 5
INSTALLATION SERVICES
5.1 Purchases of Installation Services. In consideration of the mutual
promises and terms of this Agreement, VR agrees to use commercially reasonable
efforts to purchase from TNDE, either directly or indirectly through the sale of
Installation Services to VR customers, Installation Services in each of the
calendar years 1998, 1999 and 2000.
5.2 Price of Installation Services. For purposes of this Agreement, the
amount payable for any Installation Services sold to VR by TNDE, directly or
indirectly, will conform to the TNDE National Account Pricing. TNDE agrees to
establish and maintain current National Account Pricing schedules for
Installation Services based on common site configurations; provided that, such
current National Account Pricing schedules may be adjusted from time to time in
accordance with the then current market conditions.
5.3 Installation Preferences and Obligations. TNDE agrees that it will use
commercially reasonable efforts to accommodate a request for Installation
Services from VR in a timely fashion. In this regard, TNDE will not give any
other customer's request for Installation Services priority over a prior request
for Installation Services by VR; provided that, TNDE shall not be required to
grant priority to VR's request for Installation Services over another customer's
prior request for Installation Services. TNDE and VR may mutually agree to give
certain requests for Installation Services by VR priority over certain of TNDE's
customers on a case by case basis. If at any time, TNDE is unable to supply such
Installation Services in a timely fashion which is consistent with the then
current industry lead times, then VR may purchase substitute services of similar
like and kind from an installer of its choosing, until such time as TNDE
notifies VR in writing that it is capable of supplying such Installation
Services in a timely fashion consistent with then current industry lead times.
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ARTICLE 6
COMPLIANCE MANAGEMENT SERVICES
6.1 VR's Grant of Exclusive Right to Perform Compliance Management Services
to TNDE. Subject to the terms and conditions of this Agreement, VR hereby grants
to TNDE, and TNDE hereby accepts from VR, the exclusive right to perform
Compliance Management Services for direct customers of VR within the
Distribution Territory (provided that this exclusive right shall not apply to
customers of VR for whom Compliance Management Services are provided by a
distributor of VR which is not an Affiliate of VR) who consent to TNDE's
performance of Compliance Management Services or from whom consent is not
required under any applicable contract or law. In the event that TNDE is unable
to provide Compliance Management Services directly to customers of VR pursuant
to the above grant, VR agrees to use commercially reasonable efforts to
subcontract to TNDE as necessary to enable TNDE to perform and be paid for such
services. TNDE shall not be prohibited from appointing or otherwise authorizing
any subcontractors, agents or other resellers under this Article 6 or otherwise
assigning any of its rights, duties or obligations hereunder.
6.2 Non-Compete. VR covenants and agrees that it shall not, during the
Agreement Term without the express prior written consent of TNDE (which consent
may be withheld in the sole discretion of TNDE), perform, either directly,
indirectly or in conjunction with any other person or entity, any Compliance
Management Services for any person or entity within the Distribution Territory
(provided that this non-compete shall not apply to distributors of VR that are
no Affiliates of VR). The non-competition covenant set forth in this Section 6.2
shall terminate upon the first to occur of VR's termination of this Agreement
pursuant to Section 3.3 or 3.5 or upon the expiration of the Term hereof.
6.3 Consents. VR will use commercially reasonable efforts to (i) obtain all
consents necessary to enable TNDE to perform and be paid for Compliance
Management Services for both current customers of VR and future customers of VR
and (ii) market and sell Compliance Management Services of TNDE to both its
existing and future customers.
6.4 Listing of Customers. Periodically as agreed to by the Parties, VR
shall provide TNDE with a current version of a complete list of VR's customers
for purposes of determining compliance with Section 6.1 hereof.
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6.5 Purchase of CMS by VR. VR agrees to use commercially reasonable efforts
to purchase from TNDE, either directly or indirectly through the sale of such
services to customers of VR, Compliance Management Services in each of the
calendar years, 1998, 1999 and 2000.
6.6 Fees for Compliance Management Services. Fees payable to TNDE for its
performance of Compliance Management Services shall be determined by reference
to the TNDE National Account Pricing for such services; provided that, such
National Account Pricing schedules may be adjusted from time to time in
accordance with the then current market conditions.
ARTICLE 7
SIMPLICITY PETROLEUM DATA SERVICES
7.1 Grant of Non-Exclusive Right to Sell Simplicity Petroleum Data
Services. Subject to the terms and conditions of this Agreement, VR hereby
grants to TNDE, and TNDE hereby accepts from VR, the non-exclusive right to sell
Simplicity Petroleum Data Services within the Distribution Territory. Except
upon the prior, written consent of VR, TNDE shall be prohibited from appointing
or otherwise authorizing any subdistributors, dealers, agents or other resellers
under this Article 7 or otherwise assigning any of its duties or obligations
hereunder.
7.2 Purchase of Simplicity Petroleum Data Services. TNDE agrees to use
commercially reasonable efforts to purchase from VR, either directly or
indirectly through the sale of such services to TNDE customers, Simplicity
Petroleum Data Services in each of the calendar years 1998, 1999 and 2000.
7.3 Allocation of Revenues. Allocation of revenues with respect to the sale
of Simplicity Petroleum Data Services will be determined by mutual agreement of
the Parties.
ARTICLE 8
REMOTE MONITORING SERVICES AND RELATIONSHIPS
8.1 Transfer of Remote Monitoring Relationships to VR. Within 30 days of
the Effective Date of this Agreement, TNDE agrees to use commercially reasonable
efforts to facilitate the transfer of all Remote Monitoring obligations and
Remote Monitoring rights with regard to all existing and future customers of
TNDE during the Agreement Term to VR, provided that, TNDE shall retain all
rights and obligations with regard to such customers other than Remote
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Monitoring obligations and Remote Monitoring rights. VR agrees to assume any and
all obligations arising after the transfer thereof with respect to Remote
Monitoring obligations and Remote Monitoring rights transferred by TNDE to VR.
In this regard, VR's obligations will include providing customers with remote
monitoring, maintenance and service which is available 24 hours a day, 365 days
per year. In the event that VR is unable to provide such services and for the
duration of such inability, TNDE may assume such obligations and any associated
rights.
8.2 Acknowledgment. VR acknowledges that some of the Remote Monitoring
obligations and Remote Monitoring rights transferred may require VR to monitor
non-VR gauge systems unless or until such gauge systems are replaced in
conformity with the terms of the applicable contracts.
8.3 Non-Compete. TNDE covenants and agrees that it shall not, without the
express prior written consent of VR (which consent may be withheld in the sole
discretion of VR), perform any Remote Monitoring services for any person or
entity within the Distribution Territory; provided that, to the extent and for
the time period that VR is unable to perform its obligations pursuant to Section
8.1 hereof, TNDE may perform such Remote Monitoring services.
8.4 Access to Facilities. VR shall provide TNDE with reasonable access to
its Remote Monitoring facilities for purposes of fulfilling TNDE's obligations
pursuant to the terms and provision of this Agreement.
8.5 Allocation of Revenues. Allocation of revenues with respect to the sale
of Remote Monitoring services will be determined by mutual agreement of the
Parties.
ARTICLE 9
AUXILIARY LEAK DETECTION RETROFIT
9.1 Auxiliary Leak Detection Retrofit License Agreement. Following the
execution and delivery of this Agreement, the Parties shall enter into good
faith negotiations in an effort to enter into a License Agreement relating to
TNDE's Auxiliary Leak Detection Retrofit System, a form of which is attached
hereto as Exhibit F. TNDE covenants and agrees that during the Term of this
Agreement, it shall not make, have made, use, sell, reproduce, modify, license,
sublicense or otherwise exploit in any manner, in any country in the world, in
any media, whether now known or hereafter developed, that relate to the
Auxiliary Center Detection Retrofit system and the technology underlying such
system.
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ARTICLE 10
MARKETING AND SALES
10.1 Commercially Reasonable Efforts of TNDE. During the Agreement Term,
TNDE will use commercially reasonable efforts throughout the Distribution
Territory to diligently (i) promote, solicit and obtain orders for VR Products,
(ii) promote, solicit and obtain orders for Simplicity Petroleum Data Services
and Remote Monitoring services, (iii) perform its installation, maintenance and
support services in a timely and professional manner and (iv) develop the
goodwill and reputation of VR. TNDE further agrees to give strong preference in
the use of, and to promote the sale and use of VR Products and Simplicity
Petroleum Data Services and Remote Monitoring services. TNDE represents that it
possesses the experience, skills and resources required to carry out these
marketing and service activities.
10.2 Commercially Reasonable Efforts of VR. During the Agreement Term, VR
will use commercially reasonable efforts throughout the Distribution Territory
to diligently (i) promote, solicit and obtain orders for Installation Services,
Compliance Management Services and such other products and services offered by
TNDE, as may be mutually agreed upon by the Parties, (ii) perform its Remote
Monitoring obligations and Simplicity Petroleum Data Services in a timely and
professional manner and (iii) develop the goodwill and reputation of TNDE. With
consideration given to the preferences of VR distributors and customers of VR
distributors, VR further agrees to give strong preference in the use of, and to
promote the sale and use of TNDE's Compliance Management Services, Installation
Services and other services and products of TNDE as may be mutually agreed upon
by the Parties. VR represents that it possesses the experience, skills and
resources required to carry out these marketing and service activities.
10.3 Facilities and Staff-TNDE. TNDE represents that it has or will possess
and maintain facilities and staff sufficiently trained to market the VR Products
and Simplicity Petroleum Data Services effectively throughout the Distribution
Territory during the Agreement Term. TNDE agrees that, without limitation, such
sufficient training will include the attendance of at least one reasonably
appropriate member of staff of TNDE at a three day training conference that VR
shall organize and that shall be relevant to any VR Products or Simplicity
Petroleum Data Services being sold pursuant to this Agreement. TNDE also agrees
to send such staff to participate in such additional training programs and
distributor meetings as VR may hold from time to time.
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10.4 Facilities and Staff-VR. VR represents that it has or will possess and
maintain facilities and staff sufficiently trained to market the Compliance
Management Services, Installation Services and other products and services
offered by TNDE as may be mutually agreed upon by the Parties effectively
throughout the Distribution Territory during the Agreement Term. VR agrees that,
without limitation, such sufficient training will include the attendance of at
least one reasonably appropriate member of staff of VR at a three day training
conference that TNDE shall organize and that shall be relevant to any of the
Compliance Management Services, Installation Services or other products and
services of TNDE as may be mutually agreed upon by the Parties being offered or
sold pursuant to this Agreement. VR also agrees to send such staff to
participate in such additional training programs as TNDE may hold from time to
time. All persons that VR uses to market the Compliance Management Services,
Installation Services or other products and services of TNDE as may be mutually
agreed upon by the Parties will be employees or authorized distributors of VR
unless otherwise agreed on a case-by-case basis in writing.
10.5 Promotional Literature-TNDE. TNDE may use the brochures and other
promotional literature describing VR Products and Simplicity Petroleum Data
Services in the English language that VR may provide to TNDE (the "VR
Promotional Literature"). TNDE will affix VR's copyright notice to all
reproductions thereof. VR will bear all reproduction costs with respect to such
material.
10.6 Promotional Literature-VR. VR may use the brochures and other
promotional literature describing the Compliance Management Services and other
products and services of TNDE in the English language that TNDE may provide to
VR (the "TNDE Promotional Literature"). VR will affix TNDE's copyright notice to
all reproductions thereof. TNDE will bear all reproduction costs with respect to
such material.
10.7 Technical Sales Support-TNDE. TNDE agrees to provide sufficient
technical sales support to aid VR in the sale of Compliance Management Services,
Installation Services, and such other services and products of TNDE as may be
mutually agreed upon by the Parties for the purposes of (i) facilitating the
terms and conditions of this Agreement, (ii) developing the business
contemplated by this Agreement and (iii) enhancing the business relationship of
the Parties. Such support will include making available at least one qualified
employee of TNDE to assist VR by providing technical sales support upon the
reasonable request of VR.
10.8 Technical Sales Support-VR. VR agrees to provide sufficient technical
sales support to aid TNDE in the sale of VR Products and Simplicity Petroleum
Data Services for the purposes of (i) facilitating the terms and conditions of
this Agreement, (ii) developing the business contemplated by this Agreement and
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(iii) enhancing the business relationship of the Parties. Such support will
include making available at least one qualified employee of VR to assist TNDE by
providing technical sales support upon the reasonable request of TNDE. VR
further agrees to provide TNDE with all of VR's standard list prices, standard
pricing reports, product specifications, service protocols, warranty
descriptions, and any applicable technical manuals related to VR Products to be
distributed or services to be rendered pursuant to this Agreement upon the
reasonable request of TNDE.
10.9 Marketing and Sales Coordination; Standards of Performance. The
Parties agree to have periodic sales coordination and planning sessions. Each of
the parties hereto agrees and covenants to perform the services and/or to supply
products as required under this Agreement in accordance with the standards and
levels of quality adhered to by the leading industry providers of such services
and/or products. The parties hereto expressly agree that a party's performance
of services and/or supply of products pursuant to this Agreement below standards
and levels of quality adhered to by the leading industry providers of such
services and/or products shall constitute cause for termination of this
Agreement by the other party pursuant to Section 3.3 hereof.
10.10 Performance Target Reports. Each Party hereby agrees to provide to
the other, on a quarterly and annual basis commencing with the second quarter of
calendar 1998, confidential reports setting forth targeted performance goals of
products and services to be purchased or provided pursuant to this Agreement
based on such Party's reasonable good faith belief of the performance level such
Party will obtain within the specified period. Such reports will be prepared and
delivered by the senior executives of each of the Parties as provided in Section
13.1(a) (initially Daniel Sharplin for TNDE and Steven Sigmon for VR). Such
reports shall be non-binding indications of performance expectations hereunder,
and the Parties hereby agree that in the event that one Party should claim the
other is not utilizing its commercially reasonable efforts in accordance with
the terms of this Agreement, such reports may be submitted in any arbitration
proceedings relating to such claim. Notwithstanding the foregoing, the Parties
expressly recognize and agree that any reports prepared pursuant to this Section
10.10 shall be forward-looking statements and information based upon beliefs of
the Parties as well as assumptions made by and information available to each
Party. Such reports and targets are subject to numerous risks and uncertainties
and the attainment of such targets are beyond the control of the Parties. Should
the underlying risks materialize or should the underlying assumptions prove
incorrect, actual results may vary materially from those described in the
reports. Accordingly, such reports shall be only one factor in any such
arbitration, and the failure by a Party to perform in accordance with the
expectations set forth in such reports will not be exclusively determinative as
to whether such Party's performance was consistent with commercially reasonable
efforts.
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ARTICLE 11
ACCESS TO INFORMATION
11.1 Technical Support-TNDE. TNDE agrees to provide sufficient technical
support to aid VR in accessing TNDE's information systems for the purposes of
facilitating the terms and conditions of this Agreement. Such support will
include making available at least one qualified employee of TNDE to assist VR in
accessing TNDE's information systems upon the reasonable request of VR.
11.2 Technical Support-VR. VR agrees to provide sufficient technical
support to aid TNDE in accessing VR's information systems for the purposes of
facilitating the terms and conditions of this Agreement. Such support will
include making available at least one qualified employee of VR to assist TNDE in
accessing VR information systems upon the reasonable request of TNDE.
ARTICLE 12
CONFIDENTIALITY OF INFORMATION
12.1 Confidentiality Provisions. Each of TNDE and VR acknowledges and
agrees that, in order to perform this Agreement, it may disclose to the other
Party information that it considers proprietary and confidential, which (i)
relates to its business operations, services or technical knowledge and (ii) has
been designated as such, either in writing or orally and confirmed in writing
(the "Confidential Information"). All Confidential Information communicated to
the receiving party by the disclosing party in connection with the negotiation,
preparation and performance of this Agreement was and shall be received in
confidence, and was and shall be used only for purposes of this Agreement and
protected in the same manner as the receiving party protects its own
Confidential Information, but in any event not less than a reasonable manner.
The receiving party shall not disclose any Confidential Information to a Third
Party except (a) as may be necessary by reason of legal or regulatory
requirements applicable to the receiving party or disclosing party, (b) in
respect of a validly initiated judicial or administrative process, including
pursuant to a subpoena or request for documents, provided that if either party
receives a subpoena, request for documents, or other judicial or administrative
process requiring the disclosure of Confidential Information of the disclosing
party, then the receiving party shall promptly notify the disclosing party of
the receipt of process, and, except to the extent that the receiving party deems
necessary to avoid suffering civil or criminal sanctions, permit the disclosing
party an opportunity to respond to such process, (c) to the extent such
Confidential Information is or becomes generally available to the public other
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than as a result of improper disclosure by or through the receiving party, (d)
to the extent such Confidential Information becomes available to the receiving
party from a Third Party who received such information on a non-confidential
basis, (e) to the extent such Confidential Information was known by the
receiving party at the time of its receipt and was not the subject of a
pre-existing confidentiality obligation, (f) is independently developed by the
receiving party without the use of the disclosing party's Confidential
Information, or (g) as TNDE and VR may agree from time to time.
12.2 Return of Information. The Parties hereby covenant and agree that upon
the termination of this Agreement, each Party will return promptly to the other
all copies of Confidential Information of the other Party then in such Party's
possession or in the possession of any of their representatives or affiliates,
and any copies, notes or extracts thereof, without retaining any copy thereof,
except that the Parties may destroy promptly (in lieu of returning) all copies
of any analyses, compilations, studies or other documents, records or data
prepared by such Party or their representatives which contain or otherwise
reflect or are generated from the Confidential Information, and each Party will
certify to the other that such destruction has been accomplished. The Parties
further covenant and agree that, for a period of five years after the date of
the termination of this Agreement, they shall not in any way use or communicate
the Confidential Information of the other Party unless and except such
Confidential Information would be permitted to be disclosed pursuant to clauses
(a) through (g) of Section 12.1.
12.3 Remedies. The Parties recognize and agree that money damages would not
be a sufficient remedy for any breach of the provisions of this Article 12 and
that a non- breaching Party shall be entitled to equitable relief, including
injunction and specific performance, in the event of any breach of the
provisions of this agreement, in addition to all other remedies available to
such Party at law or in equity. Each Party also agrees to reimburse the other
for all reasonable costs and expenses, including reasonable attorneys' fees,
incurred by a Party to enforce its rights under this Article 12.
ARTICLE 13
DISPUTE RESOLUTION
13.1 Informal Dispute Resolution. Prior to the initiation of formal dispute
resolution procedures, the parties will first attempt to resolve any dispute,
interpretation, accounting, controversy or claim arising under this Agreement
("Dispute") informally, as follows:
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(a) Upon the request of either party, the Dispute will be referred to
a senior executive of each party. Initially, such senior executives
shall be Daniel Sharplin for TNDE and Steven H. Sigmon for VR. Other
senior executives may be substituted for the initial senior executives
upon written notice by the party replacing its representative. Such
senior executives shall use reasonable efforts to resolve such Dispute
or, if appropriate, to negotiate a modification or amendment to this
Agreement.
(b) Such senior executives shall meet as often, for a duration, and as
promptly as the parties reasonably deem necessary to discuss the
Dispute and negotiate in good faith in an effort to resolve the
Dispute without the necessity of any formal proceeding.
(c) During the course of these discussions, all reasonable requests made
by one party to another for non-privileged and non-confidential
information, reasonably related to the Dispute, will be honored in
order that each of the parties may be fully advised of the other's
position.
(d) The specific format for the discussions will be left to the discretion
of the senior executives, but may include the preparation of
agreed-upon statements of fact or written statements of position.
(e) If, after the expiration of 15 days from the referral of such Dispute
to the senior executives, such dispute has not been resolved, the
Dispute will be referred to the top management officials of TNDE and
VR. Initially, such top management officials shall be Jay Allen
Chaffee for TNDE and Lawrence Culp, Jr. for VR. Other top management
officials may be substituted for the initial top management officials
upon written notice by the party replacing its representative. Such
parties shall negotiate in the manner previously specified in this
Section 13.1.
13.2 Institution of Formal Resolution Proceedings. Formal proceedings for
the resolution of a Dispute may not be commenced until the earlier of:
(a) The good faith determination by the top management officials that
amicable resolution through continued negotiation of the matter does
not appear likely; or
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(b) 30 days following the date that the Dispute was first referred to the
senior executives.
13.3 Arbitration. A Dispute which cannot be resolved as provided in Section
13.1, shall be settled by binding arbitration administered by the
JAMS/Endispute, Inc. ("JAMS") under the Commercial Arbitration Rules of the
American Arbitration Association. The arbitration proceedings shall be conducted
in Washington, D.C. and the laws of the State of Delaware shall apply to such
proceedings. Any Dispute submitted for arbitration shall be referred to a panel
of three arbitrators. The party or parties submitting the intention to arbitrate
(the "Demand") shall nominate one arbitrator, who shall be independent of the
party or parties nominating him. The party or parties required to answer the
Demand shall nominate one arbitrator, who shall be independent of the party or
parties nominating him. If the arbitrator chosen by the party or parties
submitting the Demand and the arbitrator chosen by the party or parties
answering the Demand can agree upon a neutral arbitrator within seven days of
submission to the JAMS of the answer to the Demand, then such individual shall
serve as the third arbitrator. If no such agreement is reached or if the Party
required to answer the Demand fails to nominate an arbitrator, the arbitrator or
arbitrators shall be appointed by the JAMS. The arbitration shall consist of one
hearing, which shall last for only one day and which shall take place within 45
days after the submission of the Dispute to arbitration. Each Party will be
permitted to submit a maximum of two pre-hearing briefs and one post-hearing
brief. The arbitration award shall be made within 15 days of the date of the
hearing, shall be final and binding on the parties and shall be enforced in
accordance with its terms. The arbitration award shall be enforceable by any
court having jurisdiction over the party against which the award has been
rendered. Unless otherwise set forth in the final determination of the
arbitrators, all costs and expenses of any arbitration proceeding shall be
shared equally by the Parties, and each Party shall be responsible for the
payment of all attorneys' fees incurred by such Party. In Disputes regarding
whether a party is entitled to terminate this Agreement for cause due to the
other Party's failure to use commercially reasonable efforts in performing its
obligations under this Agreement, the decision of the panel of arbitrators shall
be limited to a determination of whether a Party has failed to use commercially
reasonable efforts and that the other party is entitled to terminate this
Agreement as a result thereof. The panel of arbitrators shall have no right to
award any damages or other awards in connection with such a Dispute.
13.4 Immediate Injunctive Relief. The only circumstances in which Disputes
between the parties will not be subject to the provisions of this Article 13 are
(i) breaches of the terms of Article 12 and (ii) where a party makes a good
faith determination that a breach of this Agreement by the other party is such
that the damages resulting from the breach will be so immediate, so large or
severe, and so incapable of adequate redress after the fact that a temporary
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restraining order or other immediate injunctive relief is the only adequate
remedy.
13.5 Continued Performance. Subject to any right to terminate this
Agreement in accordance with the terms hereof, each party agrees to continue
performing its obligations under this Agreement while any dispute is being
resolved unless and until such obligations are concluded by the termination or
expiration of this Agreement.
ARTICLE 14
AUDITS
14.1 Audit Rights. No more than once during any calendar year and on at
least five days' prior written notice, either Party may audit and inspect the
other Party's records maintained in connection with this Agreement including all
transactions and procedures related thereto to the extent necessary to perform
audits (including any audits necessary to enable either Party to meet any
applicable regulatory requirements) and inspections to confirm the other Party's
compliance with this Agreement. Such audits and inspections may be carried out
by such Party or its authorized representatives (which representatives shall be
reasonably acceptable to the other Party) and may be undertaken at such time as
such Party reasonably requests (after a reasonable period following the date of
this Agreement). Each Party agrees not to use any competitor of the other Party
to conduct such audits or inspections. The Parties shall use all reasonable
endeavors to conduct any such audits and inspections in a manner that will
result in a minimum of inconvenience and that will maintain the confidentiality
of the other Party's records. Any auditors or inspectors will execute and
deliver such confidentiality and non-disclosure agreements and adhere to such
other customary confidentiality and security requirements as may reasonably be
requested in connection with such audits and inspections. The Parties shall
provide such auditors and inspectors with routine assistance in connection with
such audits and inspections. Within 30 days after a Party's receipt of any audit
findings or exceptions, such Party shall respond and address any identified
issues. Any amounts found to have been incorrectly billed by either Party shall
be corrected in the next regular payment submitted by such Party with interest
at 8% per annum.
ARTICLE 15
LIMITATIONS ON RECRUITING
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15.1 Limitations on Recruiting. During the Agreement Term and for two years
thereafter, neither Party shall solicit for employment or otherwise retain
(whether as an employee, officer, agent, consultant, advisor or in any capacity
whatsoever) any employee of the other Party, without the prior written consent
of such Party.
ARTICLE 16
INDEMNIFICATION
16.1 Indemnification of TNDE. VR shall release, indemnify, defend and hold
harmless TNDE and its respective officers, directors, employees, agents,
successors and assigns, from and against any and all Losses of TNDE or its
respective officers, directors, employees, agents, successors or assigns,
whether based in whole or in part in contract, tort, negligence, statute or
otherwise, arising from any of the following:
(a) Any claim arising from the death of or personal injury to any employee
of VR, excluding any such claim based upon an indemnitee's negligence,
recklessness or intentional misconduct;
(b) Any claim arising from the loss of or damage to the real or personal
tangible property (whether owned or leased) of VR or any of its
respective employees, excluding any such claim based upon an
indemnitee's negligence, recklessness or intentional misconduct; and
(c) The failure of VR to perform any obligations under this Agreement or
any license, lease or other agreement between VR and a Third Party.
16.2 Indemnification of VR. TNDE shall release, indemnify, defend and
hold harmless VR and its respective officers, directors, employees, agents,
successors and assigns, from and against any and all Losses of VR or its
respective officers, directors, employees, agents, successors or assigns,
whether based in whole or in part in contract, tort, negligence, statute or
otherwise, arising from any of the following:
(a) Any claim arising from the death of or personal injury to any employee
of TNDE, excluding any such claim based upon an indemnitee's
negligence, recklessness or intentional misconduct;
(b) Any claim arising from the loss of or damage to the real or personal
tangible property (whether owned or leased) of TNDE or any of its
respective employees, excluding any such claim based upon an
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indemnitee's negligence, recklessness or intentional misconduct; and
(c) The failure of TNDE to perform any obligations under this Agreement or
any license, lease or other agreement between TNDE and a Third Party.
16.3 Infringement Indemnity of TNDE. VR will defend any action brought or
threatened against TNDE to the extent that such action is based on a claim that
any portion of the products and services provided by VR and delivered to or on
behalf of TNDE pursuant to this Agreement (i) infringes a copyright enforceable
in the United States, (ii) infringes a United States patent or (iii) constitutes
misappropriation or unlawful disclosure or use of a Third Party's trade secrets.
VR will bear the expense of such defense and pay all damages and attorneys' fees
finally awarded by a court of competent jurisdiction which are attributable to
such claim, provided that TNDE has complied with Section 16.6.
16.4 Infringement Indemnity of VR. TNDE will defend any action brought or
threatened against VR to the extent that such action is based on a claim that
any products or services provided by TNDE and delivered to or on behalf of VR
pursuant to this Agreement (i) infringes a copyright enforceable in the United
States, (ii) infringes a United States patent or (iii) constitutes
misappropriation or unlawful disclosure or use of a Third Party's trade secrets.
TNDE will bear the expenses of such defense and pay all damages and attorneys'
fees finally awarded by a court of competent jurisdiction which are attributable
to such claim, provided that VR has complied with Section 16.6.
16.5 Exclusive Remedy for Infringement Claims. NOTWITHSTANDING ANY
PROVISIONS OF THIS AGREEMENT TO THE CONTRARY, THE FOREGOING REMEDIES CONTAINED
IN SECTIONS 16.3 AND 16.4 HEREOF CONSTITUTE THE PARTIES' SOLE AND EXCLUSIVE
REMEDIES AND EACH PARTY'S ENTIRE LIABILITY, WITH RESPECT TO INFRINGEMENT CLAIMS
DESCRIBED IN SUCH SECTIONS.
16.6 Indemnification for Third Party Claims. The following procedures shall
apply with respect to indemnification for Third Party claims arising in
connection with this Agreement:
(a) Promptly after receipt by a Party entitled to indemnification
hereunder (an "Indemnitee") of written notice of the assertion or the
commencement of any claim, demand, action, cause of action or other
proceeding by a Third Party, whether by legal process or otherwise (a
"Claim"), with respect to any matter within the scope of Section 16.1,
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16.2, 16.3 or 16.4 the Indemnitee shall give written notice thereof
(the "Notice") to the Party from whom indemnification is sought
pursuant hereto (the "Indemnitor") and shall thereafter keep the
Indemnitor reasonably informed with respect thereto; provided,
however, that the failure of the Indemnitee to give the Indemnitor
prompt written notice as provided herein shall not relieve the
Indemnitor of its obligations hereunder unless such failure results in
a default judgment, the expiration of the time to answer a complaint
or material prejudice to Indemnitor's defense of such Claim. In case
any such Claim is brought against any Indemnitee, the Indemnitor will
be entitled to assume the defense thereof, by written notice of its
intention to the Indemnitee within 30 days after receipt of the
Notice, with counsel reasonably satisfactory to the Indemnitee at the
Indemnitor's own expense. If the Indemnitor assumes the defense of
such Claim, it shall not settle such Claim without the prior written
consent of the Indemnitee which consent shall not be unreasonably
withheld or delayed. Notwithstanding the assumption by the Indemnitor
of the defense of any Claim as provided in this Section 16.6, the
Indemnitee shall be permitted to join in the defense of such Claim and
to employ counsel at its own expense.
(b) If the Indemnitor fails to notify the Indemnitee of its desire to
assume the defense of any such Claim within the prescribed period of
time, or notifies the Indemnitee that Indemnitor will not assume the
defense of any such Claim, then the Indemnitee shall assume the
defense of any such Claim, in which event it may do so in such manner
as it may deem appropriate, provided that it shall not settle any
Claim that would give rise to the Indemnitor's liability under Section
16.1, 16.2, 16.3 or 16.4, as the case may be, without the Indemnitor's
prior written consent which consent shall not be unreasonably withheld
or delayed. The Indemnitor shall be permitted to join in the defense
of such Claim and to employ counsel at its own expense.
(c) The Indemnitee shall provide reasonable assistance to the Indemnitor
(at the Indemnitor's expense), including reasonable assistance from
the Indemnitee's employees, agents, independent contractors and
Affiliates, as applicable.
16.7 Contractual Statute of Limitations. With respect to any claim brought
pursuant to this Article 16, the indemnity provisions of this Article 16 shall
survive for a period of two years following the expiration or termination of
this Agreement, provided, however, that, any Claim that is pending on the
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expiration of such two-year period shall continue to be indemnified hereunder
until such Claim is finally resolved.
16.8 Allocation of Risks. The parties expressly acknowledge that the
limitations contained in this Article 16 represent the express agreement of the
parties with respect to the allocation of risks between the parties under this
Agreement. Each Party fully understands and irrevocably accepts such
limitations.
ARTICLE 17
MUTUAL REPRESENTATIONS AND WARRANTIES
17.1 Mutual Representations and Warranties. Each Party hereby represents
and warrants to the other Party as follows:
(a) Organization; Power. Such Party is a corporation duly organized,
validly existing and in good standing under the laws of the state of
its incorporation. Such Party has all requisite corporate power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder.
(b) Authority; Enforceability. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all requisite action on the part of such
Party. This Agreement constitutes the legal, valid and binding
agreement of such Party, enforceable against such Party in accordance
with its terms (except insofar as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally, or by principles
governing the availability of equitable remedies).
(c) Noncontravention. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (i)
conflict with or result in any violation of any provision of the
charter or bylaws of such Party, each as amended to date; (ii)
conflict with, result in any violation or breach of, constitute a
default under, give rise to any right of termination or acceleration
(with or without notice or the lapse of time or both) pursuant to, or
result in being declared void or voidable, any term or provision of
any note, bond, mortgage, indenture, lease, license, contract or other
instrument to which such Party is a party or by which any of its
properties or assets are or may be bound; or (iii) violate any order,
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writ, injunction, decree, statue, rule or regulation applicable to
such Party.
17.2 Warranties. The Parties hereby agree that all products and services
provided by a Party pursuant to this Agreement will be subject to and governed
by all warranties customarily provided by such Party in connection with such
product or service, subject to such instructions and information as may be
provided by the other Party. In the event of any breach of any such warranty,
the breaching Party shall take any and all actions customarily performed by such
Party following the breach of the applicable warranty.
ARTICLE 18
TAXES
18.1 Resale Certificates. Items purchased by TNDE from VR hereunder are
meant ultimately and primarily for resale to TNDE's customers. TNDE will supply
VR with a resale certificate for such items purchased as VR shall reasonably
request.
ARTICLE 19
ASSIGNMENTS
19.1 No Assignment Without Consent. Except as otherwise expressly provided
in this Agreement, neither Party may assign this Agreement or any part thereof
without the express written consent of the other Party.
19.2 Procedures for Assignment. In the event of any assignment of this
Agreement by either Party, the designated assignee shall assume, in writing (in
form and substance reasonably satisfactory to the other Party), the rights and
obligations of the assigning Party under this Agreement. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors and permitted assigns.
ARTICLE 20
MISCELLANEOUS
20.1 No Implied Rights or Waivers. No notice to or demand on a Party shall
entitle the other Party to any other or further notice or demand in the same,
similar or other circumstances. Neither any failure nor any delay on the part of
a Party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall a single or partial exercise thereof preclude any
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other or further exercise of the same or the exercise of any other right, power
or privilege.
20.2 Modifications, Amendments or Waivers. The Parties may from time to
time enter into written agreements amending or changing any provision of this
Agreement or the rights hereunder or give waivers or consents to a departure
from the due performance of their obligations hereunder, with such waivers or
consents not to be unreasonably withheld, provided that no departure from a
Party's due performance of its obligations hereunder shall be effective unless
agreed to in writing by the other Party.
20.3 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with generally accepted accounting principles,
as previously and consistently applied by the relevant person.
20.4 Entire Agreement. This Agreement, including the License Agreement and
the other Exhibits hereto, constitutes the entire agreement relating to the
subject matter hereof among the Parties hereto. Each Party acknowledges that no
representation, inducement, promise or agreement has been made, orally or
otherwise, by any other Party, or anyone acting on behalf of any other Party,
unless such representation, inducement, promise or agreement is embodied in this
Agreement, including the License Agreement and the other Exhibits hereto,
expressly or by incorporation.
20.5 Severability. If any provision of this Agreement is held to be
invalid, void or unenforceable, the remaining provisions of this Agreement shall
nevertheless continue in full force and effect.
20.6 Third Party Beneficiaries. Except as provided for in Article 16 the
obligations of each Party under this Agreement shall inure solely to the benefit
of the other Parties, and no other person or entity shall be a Third Party
beneficiary of this Agreement.
20.7 Rules of Construction. Unless otherwise specified, the following rules
shall be applied in construing the provisions of this Agreement:
(a) Terms that imply gender shall be construed to apply to all
genders.
(b) References to Exhibits refer to the Exhibits attached to this
Agreement.
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(c) Headings to the various Articles and Sections of this Agreement
are included solely for purposes of reference and shall be
ignored in construing the provisions of this Agreement.
(d) The Exhibits attached to this Agreement are incorporated herein
by reference.
(e) "Herein", "hereto", "hereof" and words of similar import refer to
this Agreement.
(f) The word "including" connotes "including without limitation".
(g) Any reference to any law or regulation refers to that law or
regulation as amended from time-to-time after the date of this
Agreement and to the corresponding provision of any successor law
or regulation.
(h) In determining whether a Party has used "commercially reasonable
efforts" in performing its obligations hereunder, such Party's
performance will be measured by weighing the economic costs of
such performance to it versus the economic benefits to be gained
as a result of such performance by it.
20.8 Notices. Any notice or other communication required or permitted to be
made or given under this Agreement shall be in writing and shall be deemed to
have been given to the Party to whom it is addressed: (i) on the date indicated
on the certified mail return receipt if sent by certified mail return receipt
requested; (ii) on the business day actually received if hand delivered or if
transmitted by telefax or if transmitted or delivered on a day that is not a
business day, the next business day; or (iii) one business day after such notice
was delivered to an overnight delivery service, addressed, delivered or
transmitted in each case as follows:
VR:
Veeder-Root Company
125 Power Forest Drive
Simsbury, Connecticut 06070
ATTENTION: Steven H. Sigmon, President
Telephone: (860) 651-2735
Telefax: (860) 651-2727
With a Courtesy Copy (not required for effective Notice) to:
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Danaher Corporation 1250 24th Street, N.W.
Suite 800
Washington, D.C. 20037
ATTENTION: Daniel Comas, Vice President
Telephone: (202) 828-0850
Telefax: (202) 828-0860
Company:
Tanknology-NDE International, Inc.
8900 Shoal Creek Blvd.
Building 200
Austin, Texas 78758
ATTENTION: President
Telephone: (512) 451-6334
Telefax: (512) 459-1459
With a Courtesy Copy (not required for effective Notice) to:
Tanknology-NDE International, Inc.
712 Main Street, Suite 1700
Houston, Texas 77002
ATTENTION: Jay Allen Chaffee
Telephone: (713) 223-5730
Telefax: (713) 223-5379
A Party's address for notice may be changed from time to time only by
written notice given to each of the other Parties in accordance with this
Section.
20.9 Further Acts and Documents. Each of the parties hereby agrees to
execute and deliver such further instruments and to do such further acts and
things as may be necessary or desirable to carry out the purposes of this
Agreement.
20.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one in the same agreement.
20.11 Force Majeure. "Force Majeure" occurrence shall mean an occurrence
beyond the control and without the fault or negligence of the Party affected.
"Force Majeure" occurrences shall include, for example and without limitation,
(i) acts of God, (ii) acts of war (declared or undeclared), acts of terrorism,
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(insurrection, rebellion or sabotage (iii) acts of federal, state, local or
foreign governmental authorities or courts, (iv) labor disputes, strikes or
other industrial action, whether direct or indirect and whether lawful or
unlawful, (v) explosion, fires, flood, earthquakes, catastrophic weather
conditions, or other natural physical disaster, (vi) failures or fluctuations in
electrical power, heat, light, air conditioning or telecommunications service or
equipment and (vii) delays caused by the other Party, Third Party nonperformance
or other such causes beyond a Party's control.
(a) If either Party is prevented from, or delayed in performing any of its
obligations under this Agreement by Force Majeure, it shall promptly
notify the other Party of the circumstances constituting the Force
Majeure and of the obligations, the performance of which are thereby
delayed or prevented.
(b) Each Party will be excused from performance under this Agreement
(other than obligations to make payments that have become due and
payable pursuant to this Agreement) for any period to the extent that
it is prevented from performing any obligations pursuant to this
Agreement, in whole or in part, as a result of Force Majeure.
20.12 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware.
20.13 Waiver of Jury Trial. The Parties, after consulting or having had the
opportunity to consult with legal counsel, knowingly, voluntarily and
intentionally waive any right either of them may have to a trial by jury in any
litigation based upon or arising out of this Agreement, or any of the
transactions contemplated by this Agreement, or any course of conduct, dealing,
statements (whether oral or written) or actions of any of them ("Litigation").
Neither Party shall seek to consolidate, by counterclaim or otherwise, any
action in which a jury trial has been waived with any other action in which a
jury trial cannot be or has not been waived. These provisions shall not be
deemed to have been modified in any respect or relinquished by either Party
except by written instrument executed by either of them. This provision shall
only be applicable to the extent that Article 13 hereof is inapplicable.
20.14 [reserved]
20.15 Joint Customers. The Parties recognize that it is in their best
interest to cooperate and to coordinate their efforts with respect to the
solicitation and sale of products and services covered by this Agreement to
those persons and entities who are currently both customers of TNDE and
28
<PAGE>
customers of VR. In recognition of the inherent difficulties in attempting to
delineate the rights and obligations with respect to such customers, the Parties
have agreed to separately negotiate the Parties' rights and obligations with
respect to such customers on a case by case basis. Accordingly, the Parties
agree that this Agreement shall be inapplicable with regard to the sale of
services and products to such customers unless otherwise agreed in writing by
the Parties. In this regard, the Parties agree to use their commercially
reasonable efforts to agree upon the terms and conditions governing the sales of
the products and services otherwise covered by this Agreement and to coordinate
their efforts with respect to developing and implementing a mutually desirable
sales plan and customer service plan with regard to such customers within 60
days of the Effective Date of this Agreement. In the event that the Parties are
unable to agree upon the mutual terms and conditions governing the sales of the
products and services otherwise covered by this Agreement and to coordinate
their efforts with respect to developing and implementing a mutually desirable
sales plan and customer service plan with regard to such customers, the Parties
agree that this Agreement shall be wholly inapplicable with regard to any such
customers. For purposes of this Section 20.15, a customer shall be considered a
current customer of a Party if such Party has either performed services or sold
products to such customer within the one year prior to this Agreement.
The parties acknowledge that it may be in the respective best interests of
both parties to jointly provide or apply (i) invoicing and other administrative
services, and/or (ii) pricing provisions and other sales terms and conditions,
with respect to certain customers for whom the parties both supply products
and/or services. The parties therefore agree to exercise commercially reasonable
efforts to mutually indemnify customers for whom application of such joint
efforts would benefit both parties, and to enter into agreements to provide or
apply certain joint services and/or joint sales terms for such customers. The
parties further agree that, in the event they enter into any joint invoicing
arrangements with respect to such customers, such arrangements shall expressly
provide that each party shall have the sole and exclusive right to that portion
of the invoiced payment reasonably allocable to the services and/or products
supplied by such party, and that upon the insolvency, bankruptcy, reorganization
under bankruptcy or similar laws or assignment for the benefit of the creditors
of either party, or the termination of this Agreement, each party shall have the
express right to receive from the customer such party's allocable portion of the
invoiced payment.
20.16 Public Announcements. Except as may be required by applicable laws or
regulatory requirements, neither Party shall issue any press release or
information to the public or the industry relating to the subject matter of this
Agreement unless such press release or information disclosure has been mutually
29
<PAGE>
release or information disclosure has been mutually agreed to, in advance, by
the parties as to form, content and timing.
30
<PAGE>
The Parties have caused this Agreement to be executed and delivered
effective as of the date first written above.
TNDE:
TANKNOLOGY-NDE INTERNATIONAL, INC.
By: By: //s// A. DANIEL SHARPLIN
Name: A. Daniel Sharplin
Title: President / CEO
VR:
VEEDER-ROOT COMPANY
By: //s// STEVEN H. SIGMON
Name: Steven H. Sigmon
Title: President North America
31
<PAGE>
EXHIBIT A
Compliance Management Services
A. WORK TO BE PERFORMED
1. Storage Tank Permitting - Agency notification, permit modification, invoice
processing, and the interaction with other Client departments and the governing
agencies.
The Service Provider is to apply for, maintain, renew and pay applicable fees
for all storage tank, environmental-related approvals, certificates and permits
required to be secured to operate subject client sites. These permits come in
the form of notifications, registrations, invoices, and renewals. All permit
activity should be tracked on a database by location. This includes, but is not
limited to
Regulated underground storage tank systems
- - Stage I
- - Stage II
- - Emissions
- - Air Toxics
- - Operating
- - Hazardous Material/Flammable Liquid
2. SARA Title III Reporting for storage tanks - Tier Two Emergency and Hazardous
Chemical Inventory Reporting
The Service Provider is to complete all SARA Title III, Tier II annual reporting
on Hazardous Chemical Inventory and pay appropriate fees. Client will reimburse
fees. Some states which include: ME, NJ, RI, VT and WI, (and any other states
now or in the future) require the applicant to complete a state-specific form
and/or submit fees (reimbursable by Client) based typically on weight of
petroleum or chemical stored.
3. Financial Responsibility Certification/Reporting: complete the annual report
required to demonstrate financial responsibility for underground petroleum
storage tanks as specified in 40 CFR 280.96 (b).
The Service Provider is to submit Financial Responsibility Certificates in
conjunction with a state-specific service station summary to the appropriate
agencies.
A-1
<PAGE>
4. Compliance Assessment Reporting: The annual compliance assessment report is
furnished to Client's Engineering department and used as a capital budget
forecasting tool. The report is formatted to provide location-specific
information as well as a summary of the required equipment upgrades remaining to
be installed for each state/market.
The Service Provider is to prepare and submit to Client's Engineering Department
an annual compliance assessment summary. All corrections made to the report are
to be updated in the Service Provider's database.
This report is internal to the Client organization and is not provided to any
government agencies or authorities. To maintain data integrity/security however,
the Service Provider is expected to incorporate all changes/corrections into the
central database.
5. Environmental Incident Hotline/Reporting/Investigation: Service Provider will
manage a 24-hour telephone hot-line for environmental incident reporting
(spills: suspected/confirmed leak detection equipment alarms, inventory losses,
etc.), make all agency and Client contacts within the allowable time frame and
include incident documentation, reporting and tracking.
The Service Provider is to establish an 800 Hotline manned 24 hours/day to
receive reports of environmental incidents in support of Client's sites.
Operator should be able to determine whether the incident is reportable and make
all required contacts and report filings with the governing agencies.
Environmental incidents should be categorized by nature of problem (such as):
- - Operator Responsibility (Negligence)
- - Contractor Responsibility (Negligence)
- - Aboveground Equipment Leaks
- - Vapor Detected and confirmed to be Client source
- - Inventory Variation
- - Leak Detection Alarm
- - Customer Responsibility
- - Contamination Discovered
- - Delivery Overfill/Spill
- - Underground Leaks
- - Free Product/Contamination in Wells
A-2
<PAGE>
Make all agency and Client contacts within the allowable time frame, this also
includes incident documentation, reporting and tracking.
6. Hazardous Waste Management Reporting: track all hazardous waste manifests
from the marketing facility to the waste disposal destination. Follow-up to
ensure that all paperwork is complete within the allowable time frames, detailed
quarterly/annual state reporting and payment of required fees.
The Service Provider is to track and close-out all hazardous waste manifests
from generator site to TSD (cradle to grave) for Client sites. Also included in
this work activity is the maintenance of EPA ID#'s for all marketing facilities
if required, and the periodic state- specific activity reporting and payment of
fees. All marketing hazardous waste manifest activity is to be monitored and
reported by the Service Provider.
7. Notice of Violation "NOV" Resolution: resolve notices of violation received
from regulatory agencies for environmental-related matters. Work closely with
other Client personnel and the government agencies to reach resolution.
The Service Provider is to receive, document, and track through resolution all
NOV's received from Client's sites. This work activity involves close
coordination with several Client internal and external resources as well as
governmental agencies. Service Provider is to pay for all fines/penalties and
administrative fees to resolve NOV's on behalf of Client and will be reimbursed
for those fines except where the NOV/penalty was the result of Service
Provider's failure to perform its duties under the terms of the contract. All
steps toward NOV resolution are to be well-documented.
8. Monitoring Plan Reporting (CA,NJ): Complete the required monitoring plans for
California and New Jersey, and any other states in the future. Plans are
required to be submitted for new sites or any changes in the monitoring plan
(CA/NJ) and annually in NJ.
The Service Provider is to complete all monitoring plans which detail the method
of release detection as required by the NJ and CA state, county and municipal
regulations. Any change to the monitoring plan requires that the regulatory
authorities be notified. The NJ plan is required to be completed annually. The
CA regulations require that the plan be reviewed and signed by the operator
before submission to the governing agencies.
9. Business Plans (CA): In CA a Chemical Inventory Disclosure is required under
this plan.
A-3
<PAGE>
The Service Provider is to complete all business plans which includes a
hazardous inventory disclosure, emergency response plan and site map as required
by all CA state, county and municipal regulations, and for all states now and in
the future that require it.
10. Tank/Equipment Testing/Certification. Test and/or certify UST, Leak
Detection, Electronic Monitoring, and Stage II equipment.
The Service Provider is to provide oversight and management to the UST/equipment
testing and certification program. Provide the testing contractor with the
required tests to be performed in accordance with the UST system/equipment
requirements and all applicable state/local regulation. Record all testing
results into the central computer database and maintain the testing records on
file.
A-4
<PAGE>
EXHIBIT B
Simplicity Petroleum Data Services
B-1
<PAGE>
EXHIBIT C
Authorized Service Company
Terms and Conditions
C-1
<PAGE>
EXHIBIT D
VR Products
See attached list.
D-1
<PAGE>
EXHIBIT E
Standard Terms and Conditions
E-1
<PAGE>
EXHIBIT F
Auxiliary Leak Detection Retrofit License Agreement
F-1
<PAGE>
<PAGE>
EXHIBIT 10.48
------------------------------------------------------------------
CERTIFICATE OF DESIGNATION OF
PREFERENCES AND RIGHTS OF SERIES A
REDEEMABLE CONVERTIBLE PREFERRED STOCK OF
TANKNOLOGY-NDE INTERNATIONAL, INC.
------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. Designation and Amount....................................................1
2. Dividends.................................................................1
3. Preference on Liquidation or Sale.........................................1
4. Redemption................................................................2
5. Conversion Rights.........................................................3
a. Conversion Right.....................................................3
b. Conversion Price.....................................................3
c. Mechanics of Conversion..............................................3
d. Fractional Shares....................................................4
e. Adjustment For Change in Capital Stock...............................4
f. Adjustment for Other Distributions...................................5
g. Preservation of Conversion Rights Upon Reclassification,
Consolidation, etc...................................................5
h. When Adjustment May Be Deferred......................................6
i. When Adjustment Is Not Required......................................6
j. Notice of Adjustments and Certain Transactions.......................6
k. Reservation of Stock Issuable Upon Conversion........................7
l. Payment of Taxes.....................................................8
m. No Reissuance of Preferred Stock.....................................8
6. Authorization of Additional Classes of Shares.............................8
7. Reissuance of Shares......................................................8
8. Preemptive Rights.........................................................8
9. Voting Rights.............................................................8
(a) General..............................................................8
(b) Class Voting.........................................................9
(c) Removal and Vacancy..................................................9
10. Sale, Transfer and Assignment.............................................9
-i-
<PAGE>
CERTIFICATE OF DESIGNATION OF
PREFERENCES AND RIGHTS OF SERIES A
REDEEMABLE CONVERTIBLE PREFERRED STOCK OF
TANKNOLOGY-NDE INTERNATIONAL, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
We, the undersigned, Jay Allen Chaffee, Chairman of the Board, and David G.
Osowski, Secretary, respectively, of Tanknology-NDE International, Inc., a
Delaware corporation (the "Corporation"), pursuant to the provisions of Section
151 of the General Corporation Law of the State of Delaware, do hereby make this
Certificate of Designation and do hereby state and certify that, pursuant to the
authority expressly vested in the Board of Directors of the Corporation by the
Certificate of Incorporation of the Corporation, the Board of Directors at a
meeting held on December 22, 1997, unanimously adopted the following resolutions
providing for the issuance of a series of Preferred Stock designated as the
Series A Redeemable Convertible Preferred Stock:
RESOLVED, that the Board of Directors of the Corporation, pursuant to the
authority expressly vested in it by the Certificate of Incorporation, does
hereby provide for the issue of a series of the Corporation's Preferred Stock,
par value of $.0001 per share, and does hereby fix and herein state the
preferences and relative and other special rights and the qualifications,
limitations and restrictions thereof, as follows (all terms used herein that are
defined in the Certificate of Incorporation to have the meanings provided
therein):
1. Designation and Amount. There shall be a series of Preferred Stock
designated as "Series A Redeemable Convertible Preferred Stock" ("Series A
Preferred"), and the number of shares constituting such series shall initially
be 150.
2. Dividends. The holders of shares of Series A Preferred shall be entitled
to receive annual dividends of $1000.00 per share payable beginning on June 30,
1998, semi-annually in arrears on June 30 and December 31.
3. Preference on Liquidation or Sale. In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, whether voluntary
or involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation, the holders of Series A Preferred shall be
entitled to receive, in preference to all shares of any class, series or issue
of capital stock of the Corporation ranking junior to the Series A Preferred in
payments upon liquidation (the "Common Stock"), an amount in cash for each share
of Series A Preferred equal to $10,000.00 (the "Liquidation Preference), before
any distribution shall be made to the holders of the Common Stock upon the
liquidation, dissolution or winding up of the Corporation. The currently
outstanding capital stock of the Corporation is junior to the Series A
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<PAGE>
Preferred. If upon any liquidation, dissolution or winding up of the
Corporation, the assets distributable among the holders of Series A Preferred
shall be insufficient to permit the payment in full of the Liquidation
Preference to all the holders of the then outstanding shares of Series A
Preferred, then the entire assets of the Corporation thus distributable shall be
distributed ratably among the holders of the Series A Preferred in proportion to
the respective aggregate amounts otherwise payable with respect thereto. A
consolidation or merger of the Corporation with or into one or more corporations
or the sale or transfer of all or substantially all of the assets of the
Corporation shall not be deemed to be a liquidation, dissolution or winding up
of the Corporation, if, as a result of such consolidation, merger, sale or
transfer, the holders of Series A Preferred retain the liquidation preference
set forth in this Section 3.
4. Redemption. At any time after the later of (i) June 30, 2001 and (ii)
the date upon which all principal and interest on the $6,500,000.00 note payable
to DH Holdings Corp. and dated December 23, 1997, is paid in full, the
Corporation may redeem either (i) all, or (ii) in any single redemption or
series of redemptions, an aggregate not exceeding 49% of, the outstanding shares
of Series A Preferred at the redemption price per share, payable in cash, of
$10,000.00 (the "Redemption Price"). Any shares of Series A Preferred which are
outstanding at December 31, 2004, shall be redeemed by the Corporation at the
Redemption Price.
Notice of any proposed redemption of shares of Series A Preferred shall be
made by means of certified mail return receipt requested, addressed to the
holders identified in the records of the Corporation (the "Registered Holders")
of the Series A Preferred to be redeemed, at their respective addresses then
appearing on the books of the Corporation, not less than thirty (30) nor more
than sixty (60) days prior to the date fixed for such redemption (herein
referred to as the "Redemption Date"). Each such notice shall specify (i) the
Redemption Date, (ii) the Redemption Price, (iii) the place for payment and for
delivering the stock certificate(s) and transfer instruments(s) in order to
collect the Redemption Price, (iv) the shares of Series A Preferred to be
redeemed and (v) the then effective Conversion Price (as defined below in
Section 5(b)) and that the right of holders of Series A Preferred being redeemed
to exercise their conversion right shall terminate as to such shares at the
close of business on the fifth business day prior to (and exclusive of) the
Redemption Date.
The Registered Holder of any shares of Series A Preferred redeemed upon any
exercise of the Corporation's redemption right shall not be entitled to receive
payment of the Redemption Price until such holder shall cause to be delivered to
the place specified in the notice given with respect to such redemption (i) the
certificate(s) representing such Series A Preferred and (ii) transfer
instrument(s) satisfactory to the Corporation and sufficient to transfer such
Series A Preferred to the Corporation free of any adverse interest. No interest
shall accrue on the Redemption Price of any Series A Preferred after its
Redemption Date. Any redemption of less than all outstanding shares of Series A
Preferred shall be pro rata in proportion to each Registered Holder's ownership
percentage of all outstanding Series A Preferred.
-2-
<PAGE>
At the close of business on the Redemption Date for any Series A Preferred,
such stock shall be deemed to cease to be outstanding and all rights of any
person other than the Corporation in such stock shall be extinguished on the
Redemption Date for such stock except for the right to receive the Redemption
Price, without interest, for such stock in accordance with the provisions of
this Section 4, subject to applicable escheat laws.
In the event that any Series A Preferred shall, pursuant to Section 5, be
converted into Common Stock, (i) the Corporation shall not have the right to
redeem such stock and (ii) any funds which shall have been deposited for the
payment of the Redemption Price for such stock shall be returned to the
Corporation immediately after such conversion.
5. Conversion Rights. Each share of Series A Preferred shall be convertible
into Common Stock as follows:
a. Conversion Right. Subject to, and upon compliance with, the
provisions of this Section 5, at the option of the registered
holder, the shares of Series A Preferred may be converted into
the number of fully paid and nonassessable shares of Common Stock
set forth in paragraph (b) of this Section 5 at any time after
December 31, 1997.
b. Conversion Price. Each share of Series A Preferred may be
converted into such number of shares of Common Stock as is
determined by dividing the sum of $10,000.00 by the Conversion
Price in effect on the Conversion Date, with the resulting amount
rounded to the nearest whole share. The Conversion Price (the
"Conversion Price") at which shares of Common Stock shall be
issuable upon conversion of shares of the Series A Preferred
initially shall be $0.50. The Conversion Price shall be subject
to adjustment as set forth in paragraphs (e) through (g) of this
Section 5.
c. Mechanics of Conversion. The holder of any shares of Series A
Preferred may exercise the conversion right specified in
paragraph (a) of this Section 5 as to all or any part thereof by
surrendering to the Corporation or to such other person as the
Board of Directors may have designated, the certificate or
certificates for the shares to be converted, duly endorsed and
assigned to the Corporation or in blank, accompanied by written
notice stating that the holder elects to convert all or a
specified portion of the shares represented thereby. Conversion
shall be considered to have been effected at the close of
business on the date when delivery of notice of an election to
convert and certificates for the shares to be converted is made
in accordance with this Section 5(c), and such date is referred
to herein as the "Conversion Date." Subject to the provisions of
paragraphs (e) through (g) of this Section 5, as promptly as
practicable thereafter (and after surrender of the certificate or
certificates representing shares of Series A Preferred), the
Corporation shall issue and deliver to a converting holder or,
upon the written order of such holder, to another person so
designated, subject to any applicable securities laws, a
certificate or certificates for the number of whole shares of
Common Stock to which such holder is entitled. The person in
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<PAGE>
whose name the certificate or certificates for Common Stock are
to be issued shall be considered to have become a holder of
record of such Common Stock as of the close of business on the
applicable Conversion Date. Upon conversion of only a portion of
the number of shares covered by a certificate representing shares
of Series A Preferred surrendered for conversion, the Corporation
shall issue and deliver to the holder, or, upon the written order
of the holder of the certificate so surrendered for conversion,
to another person at the expense of the Corporation, a new
certificate covering the number of shares of Series A Preferred
representing the unconverted portion of the certificate so
surrendered.
d. Fractional Shares. The Corporation shall not be required to issue
fractional shares of Common Stock on the conversion of the Series
A Preferred. The record holder and any subsequent holder of
Series A Preferred by the acceptance thereof expressly waives his
right to receive any fractional shares upon conversion of any
shares of Series A Preferred.
e. Adjustment For Change in Capital Stock. The Conversion Price
shall be subject to adjustment from time to time in case the
Corporation shall (i) declare a dividend or make a distribution
payable in Common Stock on any class or series of capital stock
of the Corporation other than the Series A Preferred, (ii)
subdivide or reclassify its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, (iv) make
a distribution on its Common Stock in shares of its capital stock
other than Common Stock or (v) issue by reclassification of its
Common Stock any shares of its capital stock. The Conversion
Price in effect at the time of the record date for such dividend
or distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately reduced
in the case of any increase in the number of shares of Common
Stock outstanding, and increased in the case of any reduction in
the number of shares of Common Stock outstanding, so that the
holder of any Series A Preferred surrendered for conversion after
such time shall be entitled to receive the kind and number of
shares of Common Stock that he or she would have owned or have
been entitled to receive had such Series A Preferred been
converted into Common Stock immediately prior to such time and
had such Common Stock received such dividend or other
distribution or participated in such subdivision, combination or
reclassification. Such adjustment shall be effective as of the
record date for such dividend or distribution or the effective
date of such combination, subdivision or reclassification and
shall be made successively whenever any event listed above shall
occur.
If after an adjustment a holder of Series A Preferred upon its
conversion may receive shares of two or more classes of capital
stock of the Corporation, the Board of Directors shall determine
the allocation of the adjusted Conversion Price between or among
the classes of capital stock. After such allocation, the
Conversion Prices of the classes of capital stock shall
thereafter be subject to adjustment on terms comparable to those
applicable to Common Stock herein in this Section 5.
-4-
<PAGE>
f. Adjustment for Other Distributions. If the Corporation
distributes to all holders of its Common Stock any of its assets
or debt securities or any rights or warrants to purchase assets,
debt securities or other securities of the Corporation
(including, without limitation, by way of dividend or spin-off,
reclassification, recapitalization or similar rearrangement), the
Conversion Price shall be adjusted in accordance with the
following formula:
M - F
C' = C x --------
M
where
C' = the adjusted Conversion Price.
C = the then current Conversion Price.
M = the fair market value (as reasonably determined by the Board of
Directors in good faith) of each share of Common Stock
outstanding on a fully diluted basis on the record date mentioned
below.
F = the fair market value on the record date of the assets,
securities, rights or warrants distributed which are applicable
to one share of Common Stock (as reasonably determined by the
Board of Directors in good faith).
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of stockholders entitled to receive
the distribution. This paragraph does not apply to (a) dividends or
distributions in cash or in property paid out of consolidated current
or retained earnings as shown on the books of the Corporation and
determined in accordance with generally accepted accounting principles
or (b) any distributions requiring an adjustment under any other
provision of this Section 5.
g. Preservation of Conversion Rights Upon Reclassification,
Consolidation, etc. In case of (i) any reclassification or change
of outstanding Common Stock or other securities issuable upon
conversion of the Series A Preferred (other than a change in par
value or as a result of a subdivision or combination of shares of
Common Stock), (ii) any consolidation or merger of the
Corporation with another corporation (other than a consolidation
or merger in which the Corporation is the surviving corporation
and which does not result in any reclassification of or change in
the outstanding shares of Common Stock) or (iii) any sale or
conveyance to another corporation of the property of the
Corporation, then the Corporation or such successor or purchasing
corporation, as the case may be, shall be required to provide
that subject to the obligations and rights of the Corporation in
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<PAGE>
Sections 3 and 4, (a) a holder of Series A Preferred shall have
the right thereafter to receive upon conversion of the Series A
Preferred the kind and amount of shares and other securities and
property that such holder would have owned or have been entitled
to receive after the happening of such reclassification,
consolidation, merger, sale or conveyance had such Series A
Preferred been converted immediately prior to such action and (b)
such right shall be subject to adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments
provided for in this Section 5. The provisions of this Section
5(g) shall similarly apply to successive reclassifications,
consolidations, mergers, sales or conveyances.
h. When Adjustment May Be Deferred. No adjustment in the Conversion
Price need be made unless the adjustment would require an
increase or decrease of at least $.02 in the Conversion Price.
Any adjustments which are not made shall be carried forward and
taken into account in any subsequent adjustment. All calculations
of the Conversion Price shall be made to the nearest cent.
i. When Adjustment Is Not Required. Unless this Section 5 provides
otherwise, no adjustment in the Conversion Price shall be made
because the Corporation issues, in exchange for cash, property or
services, Common Stock, or any securities convertible into or
exchangeable for Common Stock, or securities carrying the right
to purchase Common Stock or such convertible or exchangeable
securities. Furthermore, no adjustment in the Conversion Price
need be made under this Section 5 in the event the par value of
the Common Stock is changed; provided, however, that in no event
shall the Corporation increase the par value of the Common Stock
to an amount greater than the Conversion Price that would be in
effect subsequent to the transaction in which the par value would
be increased.
j. Notice of Adjustments and Certain Transactions.
1. Whenever the number of shares of Common Stock purchasable
upon the conversion of the Series A Preferred or the
Conversion Price of such shares is adjusted, as herein
provided, the Corporation shall within 15 days after the
effective date of such adjustment, notify each record holder
of Series A Preferred of such adjustment or adjustments
setting forth the number of shares of Common Stock
purchasable upon the conversion of the Series A Preferred
and the Conversion Price after such adjustment and setting
forth the computation by which such adjustment was made.
2. In case at any time (i) there shall be any capital
reorganization or reclassification of the capital stock of
the Corporation, or a sale of all or substantially all of
the assets of the Corporation, or a consolidation or merger
of the Corporation with another corporation (other than a
merger in which the Corporation is the continuing
corporation, and which does not result in any
reclassification or change of the then outstanding shares of
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Common Stock or other capital stock issuable upon conversion
of the Series A Preferred other than a change in par value
or a subdivision or combination of such shares); (ii) there
shall be a distribution of Corporation non-cash assets to
all of the holders of Common Stock; (iii) there shall be a
subscription offer made to all holders of Common Stock; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; then, in any
one or more of said cases, the Corporation shall cause to be
sent by certified mail return receipt requested, facsimile
or telex to each of the Registered Holders, at the earliest
practicable time (and in any event not less than 15 days
before any record date or other date set for definitive
action), written notice of the date on which the books of
the Corporation shall close or a record shall be taken or
such distribution, reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation or winding
up shall take place, as the case may be. Such notice shall
also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the
date of such notice) on the kind and amount of the shares of
stock and other securities and property deliverable upon
conversion of the Series A Preferred. Such notice shall also
specify the date as of which the record holders of the
shares of Common Stock shall be entitled to exchange their
shares of Common Stock for securities or other property
deliverable upon such reorganization, reclassification,
sale, consolidation, merger, dissolution, liquidation or
winding up, as the case may be (on which date, in the event
of voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, the right to convert the
Series A Preferred shall terminate).
3. Without limiting the obligation of the Corporation to
provide notice to the Registered Holders of corporate
actions hereunder, it is agreed that failure of the
Corporation to give notice shall not invalidate such
corporate action of the Corporation.
k. Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common
Stock, solely for the purpose of effecting the conversion of the
shares of Series A Preferred, the number of shares of Common
Stock then issuable upon the conversion of all outstanding shares
of Series A Preferred. For the purpose of this Section 5(k), the
number of shares of Common Stock issuable upon the conversion of
all outstanding shares of Series A Preferred shall be computed as
if at the time of computation of such number of shares of Common
Stock all outstanding shares of Series A Preferred were held by a
single holder. The Corporation shall from time to time, in
accordance with applicable law, increase the authorized amount of
its Common Stock if at any time the authorized amount of its
Common Stock remaining unissued shall not be sufficient to permit
the conversion of all shares of Series A Preferred at the time
outstanding. If any shares of Common Stock required to be
reserved for issuance upon conversion of shares of Series A
Preferred hereunder require registration with or approval of any
governmental authority under any Federal or State law before such
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<PAGE>
shares may be issued upon such conversion, the Corporation will
in good faith and as promptly as practicable use all reasonable
efforts to cause such shares to be so registered or approved.
l. Payment of Taxes. The Corporation will pay any and all taxes that
may be payable in respect of the issuance or delivery of shares
of Common Stock on conversion of shares of Series A Preferred
pursuant hereto. The Corporation shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in the issue or transfer and delivery of shares of
Common Stock in a name other than that in which the shares of
Series A Preferred so converted were registered, and no such
issuance or delivery shall be made unless and until the person
requesting such issue has paid to the Corporation the amount of
any such tax or has established to the satisfaction of the
Corporation that such tax has been paid. In no event shall the
Corporation be required to pay or reimburse a Registered Holder
for any income tax payable by such holder as a result of such
issuance.
m. No Reissuance of Preferred Stock. Shares of Series A Preferred
converted as provided herein will be cancelled.
6. Authorization of Additional Classes of Shares. So long as any shares of
Series A Preferred remain outstanding, the Board of Directors shall not
authorize the creation of a new class or series of shares having dividend rights
or liquidation preferences or other rights equal, prior or superior to the
Series A Preferred, or increase the dividend rights or liquidation preferences
of any class or series in such a manner as to make such class or series become
equal, prior or superior to the Series A Preferred, without first obtaining the
written consent of holders holding a majority of the then outstanding shares of
Series A Preferred.
7. Reissuance of Shares. Any shares of the Series A Preferred which are
redeemed or otherwise reacquired by the Corporation shall assume the status of
authorized but unissued Preferred Stock undesignated as to series, subject to
later issuance, and shall not be reissued as shares of Series A Preferred.
8. Preemptive Rights. No holder of shares of Series A Preferred by reason
of holding such shares shall have any preemptive or preferential right to
purchase or subscribe to any securities of the Corporation, now or hereafter to
be authorized.
9. Voting Rights.
(a) General. The holders of the Series A Preferred Stock will be
entitled to 20,000 votes per share of Series A Preferred, subject
to adjustment in accordance with Article 5 hereof, on all matters
subject to a vote of stockholders of the Corporation (except as
provided in subsection 9(b) below), such that holders of the
Series A Preferred shall have the same voting rights as they
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would have if the shares of Series A Preferred held by them had
been converted into Common Stock.
(b) Class Voting. Except as specified herein, the holders of the
Common Stock and the holders of the Series A Preferred shall be
entitled to vote as separate classes only when required by
applicable law to do so. So long as any shares of Series A
Preferred remain outstanding, the Corporation shall not, without
the affirmative vote or consent of the holders of at least
66-2/3% of all outstanding Series A Preferred voting separately
as a class, (i) amend, alter or repeal (by merger or otherwise)
any provision of the Certificate of Incorporation or the Bylaws
of the Corporation, as amended, or this Certificate of
Designation, so as to adversely affect the relative rights,
preferences, qualification, limitations or restrictions of the
Series A Preferred; (ii) increase the number of members of the
Board of Directors to more than seven (7); or (iii) effect any
reclassification of the Series A Preferred. As long as at least
one-half (1/2) of the originally issued shares of Series A
Preferred are outstanding, the holders of the Series A Preferred
shall have the right to elect one member of the Board of
Directors by the affirmative vote of a majority of the Series A
Preferred shares that are then voting.
(c) Removal and Vacancy. Only Holders of the Series A Preferred (to
the extent they are entitled to vote thereon) shall be entitled
to vote on the removal, with cause, of any director elected by
the holders of Series A Preferred (to the extent they are
entitled to vote thereon). Any vacancy in the office of a
director created by the death, resignation or removal of a
director elected by the holders of the Series A Preferred (to the
extent they are entitled to vote thereon) may be filled only by a
vote of holders of the Series A Preferred. Any director elected
by the stockholders to fill a vacancy shall serve until the
annual meeting at which time such director's term expires and
until his or her successor has been elected and has qualified,
unless removed and replaced pursuant to this subsection 9(c).
10. Sale, Transfer and Assignment. Except as otherwise provided in this
Section 10, the Series A Preferred may not be sold, transferred or assigned,
without the express written consent of the Corporation. Any attempted sale,
transfer or assignment shall be null and void without the express written
consent of the Corporation; provided that, the sale, transfer or assignment of
any Common Stock received pursuant to the conversion of the Series A Preferred
shall not be prohibited by this Section 10; further provided that, the Series A
Preferred may be assigned to Danaher Corporation or any affiliate of Danaher
Corporation. For purposes of this Section 10, the term "affiliate" means any
person or entity directly or indirectly controlling, controlled by or under
direct or indirect common control with respect to Danaher Corporation.
RESOLVED FURTHER, that, before the Corporation shall issue any shares of
the Series A Preferred, a certificate pursuant to Section 151 of the General
Corporation Law of the State of Delaware shall be made, executed, acknowledged,
filed and recorded in accordance with the provisions of said Section 151; and
that the proper officers of the Corporation are hereby authorized and directed
to do all acts and things which may be necessary or proper in their opinion to
carry into effect the purposes and intent of this and the foregoing resolutions.
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IN WITNESS WHEREOF, this Certificate of Designation has been made under the
seal of the Corporation and the hands of the undersigned, said Jay Allen
Chaffee, Chairman of the Board, and Carol Rogerson, Assistant Secretary,
respectively, of the Corporation, this 23 day of December, 1997.
TANKNOLOGY-NDE INTERNATIONAL, INC.
//s// JAY ALLEN CHAFFEE
By:
Jay Allen Chaffee
Chairman of the Board
ATTEST:
//s// CAROL ROGERSON
Carol Rogerson
Assistant Secretary
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EXHIBIT 10.49
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Preemptive Rights Agreement
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Dated as of December 23, 1997
<PAGE>
TABLE OF CONTENTS
Section 1. Definitions.......................................................1
Section 2. Preemptive Rights.................................................2
2.1 Right of First Refusal......................................2
2.2 Notice of Preemption Offering...............................2
2.3 Manner of Exercise..........................................2
2.4 Participation by Holder.....................................2
2.5 Unsold Securities...........................................4
2.6 Termination of Preemptive Rights............................4
Section 3. Miscellaneous.....................................................4
3.1 Rules of Construction.......................................4
3.2 Notices.....................................................4
3.3 Further Acts and Documents..................................6
3.4 Counterparts................................................6
3.5 Assignment..................................................6
3.6 Amendments. ...............................................6
3.7 Governing Law...............................................6
<PAGE>
Preemptive Rights Agreement
This is the PREEMPTIVE RIGHTS AGREEMENT dated as of December 23, 1997
("Agreement") by and between Tanknology-NDE International, Inc. ("TNDE"), a
Delaware corporation, and DH Holdings Corp. ("DH"), a Delaware corporation,
entered into pursuant to the Note, Preferred Stock and Warrant Purchase
Agreement, dated December 23, 1997, as amended, restated, supplemented or
otherwise modified from time to time ("Purchase Agreement") by and between DH,
as purchaser, and TNDE, ProEco, Inc. ("ProEco"), a Delaware corporation,
Tanknology/NDE Corporation ("NDE"), a Delaware corporation, 2368692 Canada, Inc.
("Canada"), a Canadian Federal corporation, and Tanknology-NDE Construction
Services, Inc. ("Construction"), a Delaware corporation, as sellers.
TNDE, together with its successors and assigns, is referred to as the
"Company" and DH, is referred to as the "Holder." The Company and the Holder are
referred to collectively as the "Parties" and individually as a "Party."
This Agreement is one of the "Related Documents" referred to in the
Purchase Agreement.
In consideration of their mutual promises set forth in this Agreement and
the Purchase Agreement, the Parties hereby agree as follows.
Section 1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Common Stock" means the shares of the Company's Common Stock, par
value $.0001, at any time outstanding.
(b) "GAAP" means generally accepted accounting principles.
(c) "Person" or "Persons" means any individual, corporation, limited
liability company, partnership, joint venture, association, joint
stock company, trust, unincorporated organization, governmental
authority or any other form of entity.
(d) "Preemption Offering" means (i) any Rights Offering, (ii) the
Company's issuance of any warrants, options or rights entitling any
person to purchase Common Stock (or securities convertible into Common
Stock) for cash consideration or non-cash consideration; and (iii) the
Company's issuance of shares of Common Stock for cash consideration or
non-cash consideration, other than (A) issuances of Common Stock
pursuant to the conversion of any preferred stock issued under the
Purchase Agreement, or outstanding as of the date hereof, or (B) the
exercise of any warrants or options issued pursuant to the Purchase
Agreement or as reflected on Schedule 6 of the Purchase Agreement.
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Notwithstanding the foregoing, the term "Preemption Offering" shall
not include (i) the issuance or sale of any options, warrants or
similar instruments which are issued with respect to any employee or
director stock option plan or other employee benefit plan of the
Company which is in effect on the date of this Agreement, or (ii) the
issuance or sale of Common Stock pursuant to the exercise or
conversion of any options, warrants or similar instruments which are
issued with respect to any employee or director stock option plan or
other employee benefit plan of the Company which is in effect on the
date of this Agreement; provided that the maximum number of options,
warrants, similar instruments or shares of Common Stock which is
subject to such plans is not greater than the number of options,
warrants, similar instruments or shares of Common Stock, respectively,
subject to such plans on the date of this Agreement.
(e) "Rights Offering" means any offering of Common Stock, Convertible
Securities or other shares of capital stock of the Company or any
distribution of rights to purchase Common Stock or Convertible
Securities by or on behalf of the Company that is made substantially
on a prorata basis among the holders of Common Stock.
Section 2. Preemptive Rights.
2.1 Right of First Refusal. During the term of this Agreement, the Holder shall
have a right of first refusal in any Preemption Offering upon the terms and
subject to the conditions set forth in this Section to purchase either all
or a portion of the securities to be offered in such Preemption Offering as
defined below.
2.2 Notice of Preemption Offering. The Company shall give the Holder at least
30 days' prior Notice of each Preemption Offering. Such Notice shall set
forth: (i) the proposed commencement date for such Preemption Offering;
(ii) the number and description of the securities to be offered pursuant to
the Preemption Offering; and (iii) the purchase price for such securities
and other material terms of the Preemption Offering.
2.3 Manner of Exercise. The Holder may, in the sole exercise of its discretion,
elect to participate in any such Preemption Offering by giving Notice of
its election to participate to the Company within 5 business days after
being given Notice of such Preemption Offering. Such Notice shall set forth
the number and description of the securities to be purchased pursuant to
Holder's right of first refusal. If the consideration payable in the
Preemption Offering is not cash, the Board of Directors shall, in good
faith determine the cash equivalent of such non-cash consideration and
Holder may participate in the Preemption Offering on a cash basis.
2.4 Participation by Holder. If Holder elects to exercise its right of first
refusal in such Preemption Offering, the Holder shall have the right to
purchase for cash, upon the same terms and conditions as those provided for
in such Preemption Offering, up to a pro rata portion ("Pro Rata Portion")
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<PAGE>
equal to that percentage of the securities of each type issued in such
Preemption Offering not exceeding the Holder's percentage record ownership
of the Company's Common Stock immediately before the Preemption Offering on
a fully diluted basis adjusted to include in both the numerator and the
denominator any shares of the Company's Common Stock which would be
issuable upon the conversion of preferred stock or warrants issued to
Holder pursuant to the Purchase Agreement and which have not been so
converted; provided that, Holder shall purchase an equal percentage of the
securities of each type to be issued in such Preemption Offering; provided
further that, in the event of a Preemption Offering that involves the
issuance of any Common Stock or securities convertible into Common Stock or
warrants, options or rights ("Options") entitling any person to purchase
Common Stock (or securities convertible into Common Stock) for cash or cash
equivalent consideration which is less than $0.425 (the "Weighted Average
Conversion Price") per share of Common Stock or per share of Common Stock
issuable upon excercise of such Options and/or conversion of such
Convertible Securities, Holder shall have the right of first refusal to
purchase for cash, upon the same terms and conditions as those provided for
in such Preemption Offering, either up to the Pro Rata Portion or the
entire amount of the securities of each type issued in such Preemption
Offering; provided further that, the Weighted Average Conversion Price
shall be subject to appropriate adjustment from time to time in case the
Corporation shall (i) declare a dividend or make a distribution payable in
Common Stock on any class or series of capital stock of the Corporation
other than the Series A Preferred, (ii) subdivide or reclassify its
outstanding shares of Common Stock into a greater number of shares, (iii)
combine its outstanding shares of Common Stock into a smaller number of
shares, (iv) make a distribution on its Common Stock in shares of its
capital stock other than Common Stock or (v) issue by reclassification of
its Common Stock any shares of its capital stock in which case, the
Weighted Average Conversion Price in effect at the time of the record date
for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be proportionately
reduced in the case of any increase in the number of shares of Common Stock
outstanding, and proportionately increased in the case of any reduction in
the number of shares of Common Stock outstanding.
For purposes of calculating the Weighted Average Conversion Price with
respect to any Options offered in a Preemption Offering, the price per
share of the Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of the Convertible Securities issuable upon
the exercise of such Option shall be determined by dividing (i) the total
amount, if any, receivable by the Company as consideration for the granting
of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon the
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<PAGE>
conversion or exchange thereof, by (ii) the total maximum number of shares
of Common Stock issuable upon the exercise of all such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Options.
For purposes of calculating the Weighted Average Conversion Price with
respect to any Convertible Securities offered in a Preemption Offering, the
price per share for which Common Stock is issuable upon the conversion or
exchange of such Convertible Securities shall be determined by dividing (i)
the total amount received or receivable by the Corporation as consideration
for the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities.
2.5 Unsold Securities. The Company may for a period of not more than 90 days
after the commencement date for any Preemption Offering offer and sell the
securities subject to such Preemption Offering which were not sold to the
Holder pursuant to this Agreement to any Person or Persons upon the terms
and subject to the conditions of such Preemption Offering.
2.6 Termination of Preemptive Rights. The rights of the Holder under this
Agreement and the obligations of the Company hereunder shall terminate on
the earlier of (i) the repayment of the note dated December 23, 1997, in
the principal amount of $6,500,000, by and between TNDE, ProEco, NDE,
Canada and Construction, as sellers and DH, as purchaser including all
principal and interest due thereunder and (ii) December 31, 2004.
Section 3. Miscellaneous.
3.1 Rules of Construction. Unless otherwise specified, the following rules
shall be applied in construing the provisions of this Agreement:
(a) Headings to the various Sections of this Agreement are included solely
for purposes of reference and shall be ignored in construing the provisions
of this Agreement.
(b) The word "including" connotes "including without limitation".
(c) Any reference to any agreement or other document in this Agreement
refers to that agreement or other document as amended from time to time
after the date of this Agreement.
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<PAGE>
3.2 Notices. Any notice or other communication required or permitted to be made
or given under this Agreement shall be in writing and shall be deemed to
have been given to the Party to whom it is addressed: (i) on the date
indicated on the certified mail return receipt if sent by certified mail
return receipt requested; (ii) on the business day actually received if
hand delivered or if transmitted by telefax or if delivered or transmitted
on a day that is not a business day, the next business day or (iii) one
business day after such notice was delivered to an overnight delivery
service, addressed, delivered or transmitted in each case as follows:
Purchaser:
DH Holdings Corporation 1250 24th Street, N.W.
Suite 800
Washington, D.C. 20037
ATTENTION: Vice President
Telephone: (202) 828-0850
Telefax: (202) 828-0860
With a Courtesy Copy (not required for effective Notice) to:
Veeder-Root Company
125 Powder Forest Drive
Simsbury, Connecticut 06070
ATTENTION: Steven H. Sigmon, President
Telephone: (860) 651-2735
Telefax: (860) 651-2727
Company:
Tanknology-NDE International, Inc.
8900 Shoal Creek Blvd.
Building 200
Austin, Texas 78758
ATTENTION: Daniel Sharplin, President
Telephone: (512) 451-6334
Telefax: (512) 459-1459
5
<PAGE>
With a Courtesy Copy (not required for effective Notice) to:
Tanknology-NDE International, Inc.
712 Main Street, Suite 1700
Houston, Texas 77002
ATTENTION: Jay Allen Chaffee
Telephone: (713) 223-5730
Telefax: (713) 223-5379
A Party's address for notice may be changed from time to time only by
written notice given to each of the other Parties in accordance with this
Section.
3.3 Further Acts and Documents. Each of the parties hereby agrees to
execute and deliver such further instruments and to do such further
acts and things as may be necessary or desirable to carry out the
purposes of this Agreement.
3.4 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original and all of which shall
constitute one in the same agreement.
3.5 Assignment. The rights of the Holder hereunder may not be sold,
assigned or otherwise transferred, except with the express written
consent of the Company; provided that, this Section 3.5 shall not
prohibit the assignment or transfer of such rights to Danaher
Corporation or to any affiliate of Danaher Corporation. For purposes
of this Section 3.5, the term "affiliate" shall mean any person or
entity directly or indirectly controlling, controlled by, or under
direct or indirect common control with, the Danaher Corporation.
3.6 Amendments. Any amendment or modification of this Agreement shall be
effective only if evidenced by a written instrument executed by duly
authorized representatives of the Parties hereto. Any waiver by a
Party of its rights hereunder shall be effective only if evidenced by
a written instrument executed by a duly authorized representative of
such Party. In no event shall such waiver of any rights hereunder
constitute the waiver of such rights in any future instance unless the
waiver so specifies in writing.
3.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware.
6
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The parties have executed and delivered this Agreement effective as of the
day and year first above written.
Company:
TANKNOLOGY-NDE INTERNATIONAL, INC.
//s// JAY ALLEN CHAFFEE
By: Jay Allen Chaffee
Its: Chairman
Holder:
DH HOLDINGS CORPORATION
By: //s// DANIEL L. COMAS
Its: Vice President
7
<PAGE>
EXHIBIT 10.50
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REGISTRATION RIGHTS AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. Definitions......................................................1
1.1 Code....................................................1
1.2 Commission..............................................1
1.3 Demand Registration.....................................1
1.4 Exchange Act............................................1
1.5 Exempt Offering.........................................1
1.6 Registrable Common......................................1
1.7 Registration Notice.....................................2
1.8 Requesting Holders......................................2
1.9 Rule 144................................................2
1.10 Securities Act..........................................2
1.11 Selling Stockholder.....................................2
2. Piggyback Registration Rights....................................2
3. Demand Registration Rights.......................................3
4. Registration Procedures..........................................4
5. Underwriting Agreement...........................................6
6. Priority in Registrations........................................6
7. Rule 144 Reporting...............................................7
8. Adjustments Affecting Registrable Common.........................7
9. Registration Expenses............................................7
10. Participation in Underwritten Registrations......................8
11. Assignment of Registration Rights................................8
12. Indemnification and Contribution.................................8
12.1 Indemnification by the Company..........................8
12.2 Conduct of Indemnification Proceedings..................9
12.3 Indemnification by Holders of Registrable Common........9
12.4 Contribution...........................................10
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13. Miscellaneous...................................................11
13.1 Amendments.............................................11
13.2 Notices................................................11
13.3 Successors and Assigns.................................12
13.4 Counterparts...........................................12
13.5 Headings...............................................12
13.6 Governing Law..........................................12
13.7 Entire Agreement; Termination..........................12
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of December 23, 1997 by and between Tanknology-NDE International, Inc.,
a Delaware corporation ("TNDE" or the "Company"), and DH Holdings Corp., a
Delaware corporation ("DH").
WHEREAS, pursuant to the Note, Preferred Stock and Warrant Purchase
Agreement entered into between TNDE, ProEco, Inc., a Delaware corporation,
Tanknology/NDE Corporation, a Delaware corporation, 2368642 Canada, Inc., a
Canadian Federal corporation, Tanknology-NDE Construction Services Inc., a
Delaware corporation and DH on December 23, 1997 (the "Purchase Agreement"), DH
has purchased preferred stock of TNDE (the "Preferred Stock") which is initially
convertible into 3,000,000 shares of TNDE's common stock, par value of $.0001
per share (the "Common Stock"), and warrants (the "Warrants") for the purchase
of 4,500,000 shares of Common Stock; and
WHEREAS, in order to induce DH to enter into the Purchase Agreement, TNDE
has agreed to provide registration rights on the terms set forth in this
Agreement for the benefit of DH;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. Definitions. The following capitalized terms shall have the meanings
assigned to them in this Section 1 or in the parts of this Agreement referred to
below:
1.1 Code: the Internal Revenue Code of 1986, as amended, and any
successor thereto.
1.2 Commission: the Securities and Exchange Commission, and any
successor thereto.
1.3 Demand Registration: as defined in Section 3.
1.4 Exchange Act: the Securities Exchange Act of 1934, as amended, and
any successor thereto, and the rules and regulations thereunder.
1.5 Exempt Offering: an offering or issuance of shares in connection
with (i) employee compensation or benefit plans or (ii) one or more acquisition
transactions under a Registration Statement on either Form S-1 or form S-4 under
the Securities Act (or a successor to either Form S-1 or Form S-4).
1.6 Registrable Common: shares of Common Stock that are issuable or issued
to DH pursuant to the conversion of the Preferred Stock or the exercise of the
Warrants and any additional shares of Common Stock issued or distributed in
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<PAGE>
respect of any other shares of Common Stock by way of a stock dividend or
distribution or stock split or in connection with a combination of shares,
recapitalization, reorganization, merger, consolidation or otherwise. For
purposes of this Agreement, shares of Registrable Common will cease to be
Registrable Common when and to the extent that a registration statement covering
such shares has been declared effective under the Securities Act.
1.7 Registration Notice: as defined in Section 2.
1.8 Requesting Holders: as defined in Section 3.
1.9 Rule 144: Securities Act Rule 144 (or any similar or successor
provision under the Securities Act).
1.10 Securities Act: the Securities Act of 1933, as amended, and any
successor thereto, and the rules and regulations thereunder.
1.11 Selling Stockholder: as defined in Section 12.
2. Piggyback Registration Rights. At any time during the term of this
Agreement that shares of Registrable Common remain outstanding, if TNDE proposes
to register any Common Stock under the Securities Act for a public offering for
cash, other than a registration relating to an Exempt Offering, TNDE will give
DH prompt written notice of its intent to do so (a "Registration Notice") at
least 45 days prior to the filing of the related registration statement with the
Commission. Such notice shall specify the approximate date on which TNDE
proposes to file such registration statement and shall set forth the maximum
number of shares of Common Stock which TNDE intends to register in the proposed
offering. Upon receipt of a Registration Notice, DH shall be entitled to
participate on the same terms and conditions as TNDE in the public offering to
which such Registration Notice relates and to offer and sell shares of
Registrable Common therein to the extent provided in this Section 2. DH shall
notify TNDE of its desire to participate in such offering no later than thirty
days following the Registration Notice, which notice shall state the aggregate
number of shares of Registrable Common that DH then desires to sell in the
offering. TNDE shall select in its sole discretion, any managing underwriter or
underwriters to administer such offering, and shall determine in its sole
discretion the offering price and underwriting discount or commission. If DH
desires to participate in such public offering, DH may include shares of
Registrable Common in the registration statement relating to the offering to the
extent that the inclusion of such shares shall not reduce the number of shares
of Common Stock to be offered and sold by TNDE to be included therein. If the
lead managing underwriter selected by TNDE for a public offering (or, if the
offering is not underwritten, a financial advisor to TNDE) determines that
marketing factors require a limitation on the number of shares of Registrable
Common to be offered and sold in such offering and notifies DH in writing to
that effect, there shall be included in the offering only that number of shares
of Registrable Common, if any, that such lead managing underwriter or financial
advisor, as the case may be, believes will not jeopardize the success of the
offering. In this regard, priority in registration shall be determined in
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<PAGE>
accordance with Section 6 hereof. No registration effected under this Section 2
shall relieve TNDE of its obligation to effect any registration upon request
under Section 3, nor shall any registration under this section 2 be deemed to
have been effected under Section 3.
3. Demand Registration Rights. At any time during the period beginning on
the second anniversary of the date of this Agreement and ending on December 31,
2007, DH may request in writing that TNDE file a registration statement under
the Securities Act covering the registration of all or a part of the shares of
Registrable Common then held by DH (a "Demand Registration"). TNDE shall use its
commercially reasonable best efforts to effect as soon as practicable the
registration under the Securities Act in accordance with Section 4 hereof
(including without limitation, the execution of an undertaking to file
post-effective amendments) of all shares of Registrable Common which DH requests
be registered within 30 days after the mailing of such notice; provided,
however, that TNDE shall be obligated to effect only two Demand Registrations
pursuant to this Section 3. In connection with a Demand Registration, DH, in its
sole discretion, shall determine whether (a) to proceed with, withdraw from or
terminate such offering and (b) to take such actions as may be necessary to
close the sale of Registrable Common contemplated by such offering, including,
without limitation, waiving any conditions to closing such sale that may not
have been fulfilled. In the event DH exercises its discretion under this
paragraph to terminate a proposed Demand Registration, the terminated Demand
Registration shall not constitute a Demand Registration under this Section 3
only if the determination to terminate such Demand Registration (i) follows the
exercise by TNDE of any of its rights provided by the last two paragraphs of
this Section 3 or (ii) results from a material adverse change in the condition
(financial or other), results of operations or business of TNDE and its
subsidiaries taken as a whole. TNDE expressly reserves the right to select,
subject to the approval of DH (which approval shall not be unreasonably
withheld), any managing underwriter or underwriters to administer such offering;
and DH shall determine the offering price and underwriting discount or
commission.
Notwithstanding the preceding paragraph, if TNDE shall furnish to DH a
certificate signed by the President of TNDE stating that in the reasonable
judgment of the President, it would be detrimental to TNDE or its stockholders
if such registration statement were to be filed and it is therefore beneficial
to defer the filing of such registration statement, TNDE shall have the right to
defer such filing for a period of not more than 120 days after receipt of the
request of DH. TNDE shall promptly give notice to DH at the end of any delay
period under this paragraph.
Notwithstanding the preceding two paragraphs, if at the time of any request
by DH for a Demand Registration, TNDE has plans to file within 90 days after
such request for the sale of any of its securities in a public offering under
the Securities Act (other than an Exempt Offering), no Demand Registration shall
be initiated under this Section 3 until 90 days after the effective date of such
registration unless TNDE is no longer actively employing in good faith all
reasonable efforts to effect such registration; provided that TNDE shall provide
DH the right to participate in such public offering pursuant to, and subject to,
Section 2 hereof.
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4. Registration Procedures. In connection with registrations under Sections
2 and 3 hereof, and subject to the terms and conditions contained therein, TNDE
shall:
(a) use its commercially reasonable best efforts to prepare and file
with the Commission as soon as reasonably practicable, a registration
statement with respect to the Registrable Common and use its
commercially reasonable best efforts to cause such registration to
become and remain effective for a period of at least 120 days (or such
shorter period during which DH shall have sold all Registrable Common
which it requested to be registered);
(b) prepare and file with the Commission such amendments (including
post- effective amendments) to such registration statement and
supplements to the related prospectus to reflect appropriately the
plan of distribution of the securities registered thereunder until the
completion of the distribution contemplated by such registration
statement or for so long thereafter as a dealer is required by law to
deliver a prospectus in connection with the offer and sale of the
shares of Registrable Common covered by such registration statement
and/or as shall be necessary so that neither such registration
statement nor the related prospectus shall contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading and so that such registration statement and the related
prospectus will otherwise comply with applicable legal requirements;
(c) provide to DH's counsel an opportunity to review and provide
comments with respect to such registration statement and each
prospectus included therein (and any post- effective amendment or
supplements thereto) prior to such registration statement (or
post-effective amendment or supplements) becoming effective;
(d) use its commercially reasonable best efforts to register and
qualify the Registrable Common covered by such registration statement
under applicable securities or "Blue Sky" laws of such jurisdictions
as DH shall reasonably request for the distribution of the Registrable
Common, and to keep such registrations or qualifications in effect for
as long as the Securities Act registration of such Registrable Common
remains in effect;
(e) take such other actions as are reasonable and necessary to comply
with the requirements of the Securities Act;
(f) furnish such number of prospectuses (including preliminary
prospectuses) and documents incident thereto as DH from time to time
may reasonably request;
(g) provide to DH and any managing underwriter participating in any
distribution thereof, and to any attorney, accountant or other agent
retained by DH or managing underwriter, reasonable access to
appropriate officers and directors of TNDE to ask questions and to
obtain information reasonably requested by DH or any managing
underwriter, attorney,accountant or other agent in connection with
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such registration statement or any amendment thereto, as shall be
necessary to conduct a reasonable investigation within the meaning of
the Securities Act of 1933; provided, however, that (i) in connection
with any such access or request, any such requesting persons shall
cooperate to the extent reasonably practicable to minimize any
disruption to the operation by TNDE of its business and (ii) any
records, information or documents shall be kept confidential by such
requesting persons, unless (A) such records, information or documents
are in the public domain or otherwise publicly available or (B)
disclosure of such records, information or documents is required by
court or administrative order or by applicable law (including, without
limitation, the Securities Act);
(h) notify DH and the managing underwriters participating in the
distribution pursuant to such registration statement promptly (i) when
TNDE is informed that such registration statement or any
post-effective amendment to such registration statement becomes
effective, (ii) of any request by the Commission for an amendment or
any supplement to such registration statement or any related
prospectus, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of such registration statement or of any
order preventing or suspending the use of any related prospectus or
the initiation or threat of any proceeding for that purpose, (iv) of
the suspension of the qualification of any shares of Registrable
Common included in such registration statement for sale in any
jurisdiction or the initiation or threat of a proceeding for that
purpose, (v) of any determination by TNDE that any event has occurred
which makes untrue any statement of a material fact made in such
registration statement or any related prospectus or which requires the
making of a change in such registration statement or any related
prospectus in order that the same will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (vi) of the completion of the distribution contemplated by
such registration statement if it relates to an offering by TNDE and
(vii) when the registration statement, the prospectus or any
prospectus supplement related thereto or post-effective-amendment to
the registration statement has been filed;
(i) in the event of the issuance of any stop order suspending the
effectiveness of such registration statement or of any order
suspending or preventing the use of any related prospectus or
suspending the qualification of any shares of Registrable Common
included in such registration statement for sale in any jurisdiction,
use its commercially reasonable best efforts to obtain its withdrawal;
(j) otherwise use its commercially reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable,
but not later than fifteen months after the effective date of such
registration statement, an earnings statement covering the period of
at least twelve months beginning with the first full fiscal quarter
after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act;
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(k) use reasonable diligence to cause all shares of Registrable Common
included in such registration statement to be listed on any securities
exchange (including, for this purpose, the Nasdaq National Market) on
which the Common Stock is then listed at the initiation of TNDE;
(l) use reasonable diligence to obtain an opinion from legal counsel
in customary form and covering such matters of the type customarily
covered by opinions as the underwriters, if any, may reasonably
request;
(m) provide a transfer agent and registrar for all such Registrable
Common not later than the effective date of such registration
statement;
(n) enter into such customary agreements (including an underwriting
agreement in customary form) as the underwriters, if any, may
reasonably request in order to expedite or facilitate the disposition
of such shares of Registrable Common;
(o) use reasonable diligence to obtain a "comfort letter" from TNDE's
independent public accountants in customary form and covering such
matters of the type customarily covered by comfort letters as the
underwriters, if any, may reasonably request; and
(p) use all reasonable efforts to cause all Registrable Common covered
by such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to
enable the Holders to consummate the disposition of such Registrable
Common.
As used in this Section 4 and elsewhere herein, the term "underwriters"
does not include DH.
5. Underwriting Agreement. In connection with each registration pursuant to
Sections 2 and 3 covering an underwritten registered public offering, TNDE and
DH agree to enter into a written agreement with the managing underwriter in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such underwriter and companies of TNDE's size
and investment stature, including provisions for representations, warranties and
indemnification by TNDE and each Selling Stockholder which may be different from
those described in Section 12 hereof.
6. Priority in Registrations. If (i) a registration pursuant to Section 2
hereof involves an underwritten offering of securities and (ii) the managing
underwriter shall inform the Company and the holders of the Registrable Common
requesting such registration of its belief that the number of securities
requested to be included in such registration exceeds the number that can be
sold in such offering, then the Company will include in such registration, to
the extent to which the Company is advised can be sold in such offering,
securities as follows:
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(i) if such registration is for an offering of securities for the
account of the Company, first, all securities proposed by the Company to be sold
for its own account, second, such Registrable Common requested by the Selling
Stockholders to be included in such registration pursuant to Section 2 hereof
and then all other securities of the Company requested to be included in such
registration;
(ii) if such registration is for other than an offering described in
(i) above, such Registrable Common requested to be included in such registration
and all other securities proposed by the Company to be sold for its own account
shall be included in such registration pro rata on the basis of the number of
shares of such Registrable Common and such other securities so proposed to be
sold.
7. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
shares of Registrable Common held by DH to the public without registration, TNDE
agrees to:
(a) make and keep public information available (as those terms are
understood and defined in Rule 144) at all times from and after
one year after the date hereof until such date as no shares of
Registrable Common remain outstanding;
(b) use its commercially reasonable best efforts to file with the
Commission in a timely manner all reports and other documents
required of TNDE under the Securities Act and the Exchange Act at
any time that it is subject to such reporting requirements until
such date as no shares of Registrable Common remain outstanding;
and
(c) if required by the transfer agent and registrar for the Common
Stock, use reasonable diligence to obtain an opinion from legal
counsel addressed to such transfer agent and registrar, with
respect to any sale of shares of Registerable Common pursuant to
Rule 144.
8. Adjustments Affecting Registrable Common. The Company will not effect or
permit to occur any combination or subdivision of Registrable Common for so long
as DH holds shares of Registrable Common, and except as permitted by Section 2
and 3 hereof, DH will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares of Common
Stock in the ten days prior to the effectiveness of any registration of Common
Stock for sale to the public and for up to 120 days following the effectiveness
of such registration; provided, that such holdback applies to TNDE and holders
of substantially all other securities of TNDE on terms equal to or less
favorable than the terms applicable to the holders of the Registrable Common.
9. Registration Expenses. All expenses incurred in connection with any
registration, qualification and compliance under Section 2 of this Agreement
(including, without limitation, all registration, filing, qualification,
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listing, insurance, legal, printing and accounting fees, but not including,
without limitation, any underwriting fees, discounts or commissions attributable
to the sale of Registrable Common, fees and expenses of counsel and any other
special experts retained by the holders of Registrable Common in connection with
a registration required hereunder, and transfer taxes, if any) shall be borne by
TNDE. All expenses incurred in connection with any registration, qualification
and compliance under Section 3 of this Agreement (including, without limitation,
all registration, filing, qualification, legal, printing and accounting fees of
TNDE) shall be borne by DH. All underwriting commissions and discounts
applicable to shares of Registrable Common included in the registrations under
this Agreement shall be borne by the holders of the securities so registered pro
rata on the basis of the number of shares so registered.
10. Participation in Underwritten Registrations. No holder of Registrable
Common may participate in any underwritten registration hereunder unless such
holder (a) agrees to sell such holder's securities on the same basis provided in
any underwriting arrangements approved by the persons entitled hereunder to
approve such arrangements and (b) completes, executes, and delivers promptly all
questionnaires, powers of attorney, custody agreements, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
11. Assignment of Registration Rights. DH may assign its rights hereunder
only (a) in connection with the sale or other disposition of (i) all of its
Registrable Common or (ii) all of its Warrants, (b) with the express written
consent of the Company, which consent may be withheld by the Company in the
exercise of its sole discretion, or (c) to Danaher Corporation or to any person
or entity under direct or indirect control of Danaher Corporation or controlled
by or under direct or indirect common control with Danaher Corporation.
12. Indemnification and Contribution.
12.1 Indemnification by the Company. To the extent permitted by law,
TNDE agrees to indemnify and hold harmless any stockholder who sells shares of
Registrable Common in a registered offering pursuant to either Section 2 or
Section 3 hereof (a "Selling Stockholder"), from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable legal expenses)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any registration statement or prospectus relating
to the Registrable Common or in any amendment or supplement thereto or in any
related preliminary prospectus, or arising out of or based upon 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, except insofar as
such losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to TNDE by or on behalf of such Selling
Stockholder or an underwriter expressly for use therein. In connection with an
underwritten offering of shares of Registrable Common, TNDE will indemnify any
underwriters of the Registrable Common, their officers and directors and each
person who controls such underwriters (within the meaning of either Section 15
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of the Securities Act or Section 20 of the Exchange Act) on substantially the
same basis as that of the indemnification of the Selling Stockholders provided
in this Section 12.1. Notwithstanding the foregoing, TNDE's indemnification
obligations with respect to any preliminary prospectus shall not inure to the
benefit of any Selling Stockholder or underwriter with respect to any loss,
claim, damage, liability (or actions in respect thereof) or expense arising out
of or based on any untrue statement or alleged untrue statement or omission or
alleged omission to state a material fact in such preliminary prospectus, in any
case where (i) a copy of the prospectus used to confirm sales of shares of
Registrable Common was not sent or given to the person asserting such loss,
claim, damage or liability at or prior to the written confirmation of the sale
to such person and (ii) such untrue statement or alleged untrue statement or
omission or alleged omission was corrected in such prospectus.
12.2 Conduct of Indemnification Proceedings. Promptly after receipt by
a Selling Stockholder of notice of any claim or the commencement of any action
or proceeding brought or asserted against such Selling Stockholder in respect of
which indemnity may be sought from TNDE, such Selling Stockholder shall notify
TNDE in writing of the claim or the commencement of that action or proceeding;
provided, however, that the failure to so notify TNDE shall not relieve TNDE
from any liability that it may have to the Selling Stockholder otherwise than
pursuant to the indemnification provisions of this Agreement. If any such claim
or action or proceeding shall be brought against a Selling Stockholder and such
Selling Stockholder shall have duly notified TNDE thereof, TNDE shall have the
right to assume the defense thereof, including the employment of counsel. Such
Selling Stockholder shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Selling Stockholder unless (i) TNDE
has agreed to pay such fees and expenses or (ii) the named parties to any such
action or proceeding include both such Selling Stockholder and TNDE, and such
Selling Stockholder and TNDE shall have been advised by Selling Stockholder's
counsel in writing that there may be one or more legal defenses available to
such Selling Stockholder which are different from or additional to those
available to TNDE, in which case, if such Selling Stockholder notifies TNDE in
writing that it elects to employ separate counsel, TNDE shall not have the right
to assume the defense of such action or proceeding on behalf of such Selling
Stockholder; it being understood, however, that TNDE shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all Selling Stockholders. TNDE shall not be liable for
any settlement of any such action or proceeding effected without TNDE's prior
written consent.
12.3 Indemnification by Holders of Registrable Common. In connection
with any registration in which a Selling Stockholder is participating, such
Selling Stockholder will furnish to TNDE in writing such information and
affidavits as TNDE reasonably requests for use in connection with any related
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registration statement or prospectus. To the extent permitted by law, each
Selling Stockholder agrees to indemnify and hold harmless TNDE, its directors
and officers who sign the registration statement relating to shares of
Registrable Common offered by such Selling Stockholder and each person, if any,
who controls TNDE within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from TNDE to such Selling Stockholder, but only with respect to information
concerning such Selling Stockholder furnished in writing by such Selling
Stockholder or on such Selling Stockholder's behalf expressly for use in any
registration statement or prospectus relating to shares of Registrable Common
offered by such Selling Stockholder, or any amendment or supplement thereto, or
any related preliminary prospectus. In case any action or proceeding shall be
brought against TNDE or its directors or officers, or any such controlling
person, in respect of which indemnity may be sought against such Selling
Stockholder, such Selling Stockholder shall have the rights and duties given to
TNDE, and TNDE or its directors or officers or such controlling persons shall
have the rights and duties given to such Selling Stockholder, by the preceding
paragraph. Each Selling Stockholder also agrees to indemnify and hold harmless
any underwriters of the Registrable Common, their partners, officers and
directors and each person who controls such underwriters (within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act) on
substantially the same basis as that of the indemnification of TNDE provided in
this Section 12.3. Notwithstanding the foregoing, the aggregate liability of any
Selling Stockholder for any indemnification under this section shall be limited
to the aggregate net proceeds received by such Selling Stockholder from the sale
of securities pursuant to such registration statement. The Selling Stockholders
agree to contribution and indemnity provisions in the agreement to the extent
customarily requested by the underwriter.
12.4 Contribution. If the indemnification provided for in this Section
12 is unavailable to any indemnified party in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities and expenses in such proportion as is appropriate
to reflect the relative fault of the indemnifying party and the indemnified
parties in connection with the actions that resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
parties shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by such indemnified party or indemnified parties and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. TNDE and the Selling Stockholders agree that it
would not be just and equitable if contribution pursuant to this Section 12.4
were determined by pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in this
Section 12.4. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
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misrepresentation. If indemnification is available under this Section 12, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Sections 12.1 and Section 12.3 without regard to the relative fault
of said indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 12.4
13. Miscellaneous.
13.1 Amendments. Except as otherwise provided herein, the provisions
of this Agreement may not be amended, modified or supplemented, except upon the
written consent of both TNDE and DH.
13.2 Notices. Any notice or other communication required or permitted
to be made or given under this Agreement shall be in writing and shall be deemed
to have been given to the Party to whom it is addressed: (i) on the date
indicated on the certified mail return receipt if sent by certified mail return
receipt requested; (ii) on the business day actually received if hand delivered
or if transmitted by telefax or if transmitted or delivered on a day that is not
a business day, the next business day or (iii) one business day after such
notice was delivered to an overnight delivery service, addressed, delivered or
transmitted in each case as follows:
Purchaser:
DH Holdings Corp.
1250 24th Street, N.W.
Suite 800
Washington, D.C. 20037
ATTENTION: Vice President
Telephone: (202) 828-0850
Telefax: (202) 828-0860
With a Courtesy Copy (not required for effective Notice) to:
Veeder-Root Company
125 Powder Forest Drive
Simsbury, Connecticut 06070
ATTENTION: Steven H. Sigmon, President
Telephone: (860) 651-2735
Telefax: (860) 651-2727
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Company:
Tanknology-NDE International, Inc.
8900 Shoal Creek Blvd.
Building 200
Austin, Texas 78758
ATTENTION: Daniel Sharplin, President
Telephone: (512) 451-6334
Telefax: (512) 459-1459
With a Courtesy Copy (not required for effective Notice) to:
Tanknology-NDE International, Inc.
712 Main Street, Suite 1700
Houston, Texas 77002
ATTENTION: Jay Allen Chaffee
Telephone: (713) 223-5730
Telefax: (713) 223-5379
A Party's address for notice may be changed from time to time only by
written notice given to each of the other Parties in accordance with this
Section.
13.3 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the heirs, executors, administrators, successors and
assigns of each of the parties.
13.4 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
13.5 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
13.6 Governing Law. This agreement shall be governed by and construed
in accordance with the laws of the state of Delaware applicable to contracts
made and to be performed wholly within that state.
13.7 Entire Agreement; Termination. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter. This Agreement, except the provisions of Section 12 (which shall
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survive until the expiration of the applicable statutes of limitations) and this
Section 13, shall commence on and as of the date hereof and shall terminate and
be of no further force or effect on December 31, 2007.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TANKNOLOGY-NDE INTERNATIONAL, INC.
//s// JAY ALLEN CHAFFEE
By: Jay Allen Chaffee
Its: Chairman
DH HOLDINGS CORP.
By: //s// DANIEL L. COMAS
Its: VP
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EXHIBIT 10.51
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Co-Sale Agreement
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Dated as of December , 1997
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TABLE OF CONTENTS
Page
Section 1. Definitions........................................................1
Section 2. Sales by Shareholder...............................................2
2.1 Notice of Purchase Offers..................................2
2.2 Right of First Refusal. ...................................3
2.3 Right to Participate.......................................3
2.4 Consummation of Sale.......................................4
2.5 Ongoing Rights.............................................4
2.6 Permitted Exemptions.......................................4
Section 3. Prohibited Transfers...............................................4
3.1 Treatment of Prohibited Transfers..........................4
3.2 Put Option.................................................4
Section 4. Legended Certificate...............................................5
4.1 Legend.....................................................5
4.2 Legend Removal.............................................5
Section 5. Miscellaneous Provisions...........................................6
5.1 Termination of Co-Sale Rights.............................6
5.2 Notices...................................................6
5.3 Successors and Assigns....................................8
5.4 Severability..............................................8
5.5 Amendments................................................8
5.6 Governing Law.............................................9
5.7 Other Obligations of Company..............................9
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Co-Sale Agreement
This CO-SALE AGREEMENT dated as of December 23, 1997 ("Agreement") by and
between Tanknology-NDE International, Inc., a Delaware corporation ("TNDE"),
Proactive Partners, L.P., a California limited partnership ("Proactive"),
Lagunitas Partners, L.P., a California limited partnership ("Lagunitas"), Jay
Allen Chaffee, A. Daniel Sharplin and DH HOLDINGS CORP., a Delaware corporation
("DH"), is entered into pursuant to the Note, Preferred Stock and Warrant
Purchase Agreement, as amended, restated, supplemented or otherwise modified
from time to time ("Purchase Agreement") by and between DH, as purchaser, and
TNDE, ProEco, Inc., a Delaware corporation, Tanknology/NDE Corporation, a
Delaware corporation, 2368692 Canada, Inc., a Canadian Federal corporation, and
Tanknology-NDE Construction Services, Inc., a Delaware corporation, as sellers,
and dated as of December _23, 1997.
TNDE, together with its successors and assigns, is referred to as the
"Company." Proactive, Lagunitas, and Messrs. Chaffee and Sharplin together with
their respective, bound successors and assigns, are referred to collectively as
the "Shareholders" and individually as a "Shareholder." DH, together with its
permitted successors and assigns, is referred to as the "Holder." The Company,
the Shareholders and the Holder are referred to collectively as the "Parties"
and individually as a "Party."
This Agreement is one of the "Related Documents" referred to in the
Purchase Agreement.
In consideration of the mutual promises set forth in this Agreement and the
Purchase Agreement, the Parties hereby agree as follows.
Section 1. Definitions.
As used herein, the following terms shall have the following meanings:
1.1 "Business Days" means any days other than Saturday, Sunday or any days
upon which banking institutions are authorized or required by law or executive
order to be closed in the City of Washington, D.C.
1.2 "Common Share Equivalent" means an equivalent number of Common Shares
which would be issuable upon either the conversion or exercise of Convertible
Securities.
1.3 "Common Shares" means the shares of common stock, $0.0001 par value, of
the Company, at any time outstanding.
1.4 "Convertible Securities" means any securities which are convertible
into Common Shares of the Company and including any options, warrants or other
rights for which Common Shares of the Company are issuable upon their exercise.
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1.5 "Fiscal Year" means the fiscal year ending on December 31 of the
applicable year.
1.6 "Notice" means notice given in accordance with Section 5.2 hereof.
1.7 "Warrant Certificate" means the Warrant Certificate dated December 23,
1997 and issued by the Company to DH evidencing Warrants to purchase 4,500,000
Common Shares.
1.8 "Warrant Shares" means the Common Shares which are issuable upon the
exercise of the Warrants.
1.9 "Warrant(s)" means the right to purchase Common Shares of the Company
pursuant to the Warrant Certificate.
Section 2. Sales by Shareholders.
2.1 Notice of Purchase Offers. Should any Shareholder ("Selling
Shareholder") propose to accept one or more binding, written bona fide offers
from any persons to purchase Common Shares or Convertible Securities from such
Selling Shareholder other than (i) an offer from the Company to purchase such
Common Shares or Convertible Securities pursuant to an existing agreement, plan
or policy by reason of such Selling Shareholder's death, disability, retirement
or termination of employment or (ii) in the event of such an offer to Lagunitas,
any one or more bona fide offers which would not result in the sale by Lagunitas
during any Fiscal Year of Common Shares (including, Common Shares which would be
issuable upon the conversion or exercise of Convertible Securities) in excess of
3% of the total Common Shares (including, Common Shares which would be issuable
upon the conversion or exercise of Convertible Securities) held by Lagunitas as
of the beginning of such Fiscal Year or (iii) in the event of such an offer to
Proactive, any one or more bona fide offers which would not result in the sale
by Proactive during any Fiscal Year of Common Shares (including, Common Shares
which would be issuable upon the conversion or exercise of Convertible
Securities) in excess of 3% of the total Common Shares (including, Common Shares
which would be issuable upon the conversion or exercise of Convertible
Securities) held by Proactive as of the beginning of such Fiscal Year or (iv) in
the event of such an offer to a Selling Shareholder other than Lagunitas and
Proactive, any one or more bona fide offers which would not result in the sale
by such other Selling Shareholder during any Fiscal Year of Common Shares
(including, Common Shares which would be issuable upon the conversion or
exercise of Convertible Securities) in excess of 5% of the total Common Shares
(including, Common Shares which would be issuable upon the conversion or
exercise of Convertible Securities) held by such other Selling Shareholder as of
the beginning of such Fiscal Year (the "Purchase Offer"), then such Selling
Shareholder shall promptly give Notice to the Holder of the terms and conditions
of, and a copy of, each such Purchase Offer. In addition, the Selling
Shareholder shall give Notice to the Holder of any bona fide purchase offer
received which falls within the exceptions enumerated in this Section 2.1(i),
(ii), (iii) and (iv). Such notice shall include a copy of the purchase offer and
the terms and conditions thereof.
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2.2 Right of First Refusal. Subject to the terms and conditions of this
Agreement, the Holder shall have a limited right of first refusal with respect
to any Purchase Offer; provided that, if the Holder does not exercise its
limited right of first refusal, Holder shall have a limited right to participate
in the Purchase Offer as specified in Paragraph 2.3. Holder's limited right of
first refusal shall be subject to the following terms:
(a) Holder must agree to purchase all (but not less than all) of the
Common Shares and Convertible Securities which are offered for sale
pursuant to the Purchase Offer upon the same terms and conditions as
those contained in the Purchase Offer, provided that, Holder may
substitute an equivalent amount of cash for the fair market value of
any non-cash consideration offered pursuant to the Purchase Offer; and
(b) Holder must give Notice to the Selling Shareholder of its intent to
exercise its right of first refusal within five Business Days after
being given Notice of the Purchase Offer by the Selling Shareholder.
2.3 Right to Participate. In the event that the Holder does not exercise
its right of first refusal with respect to a Purchase Offer, Holder shall have a
limited right to participation in such Selling Shareholder's proposed sale of
Common Shares and/or Convertible Securities on the same (or, in the case of
Convertible Securities, equivalent) terms and conditions. To the extent that the
Holder exercises such right of participation, the number of Common Shares and
Convertible Securities which such Selling Shareholder may sell pursuant to such
Purchase Offer shall be correspondingly reduced. The right of participation of
the Holder shall be subject to the following terms and conditions:
(a) Holder must give Notice to the Selling Shareholder of its intent to
exercise its right of participation within fifteen Business Days after
being given Notice of the Purchase Offer by the Selling Shareholder.
(b) The Holder may sell all or any part of its Warrant Shares and/or
Common Shares owned of record by Holder up to a number equal to the
product obtained by multiplying (i) the aggregate number of Common
Shares (including the Common Share Equivalent of any Convertible
Securities) covered by the Purchase Offer by (ii) a fraction (A) the
numerator of which is the aggregate number of Common Shares (including
the Common Share Equivalent of Convertible Securities) owned of record
by Holder, and (B) the denominator of which is the sum of (x) the
combined number of such Common Shares (including the Common Share
Equivalent of Convertible Securities) at the time owned by all of the
Shareholders, and (y) the number of Common Shares (including the
Common Share Equivalent of Convertible Securities) at that time owned
of record by the Holder.
(c) The Holder may participate in the sale by delivering to the Selling
Shareholder for transfer to the purchase offeror one or more
certificates, properly endorsed for transfer, free and clear of all
adverse claims, which represent the number of currently exercisable
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Warrant Shares and/or Common Shares which the Holder elects to sell
pursuant to this Section 2.3. Notwithstanding any provision of the
Warrant Certificate to the contrary, the Holder may exercise such
Warrant for the number of Warrant Shares to be purchased and deliver
such Warrant Shares as provided in this Section 2.3, and such exercise
shall not constitute the single exercise of the Warrant or otherwise
affect any future exercise of the Warrant.
2.4 Consummation of Sale. The stock certificate or certificates which a
Holder delivers to the Selling Shareholder pursuant to Section 2.3 shall be
transferred by the Selling Shareholder to the purchase offeror in consummation
of the sale pursuant to the terms and conditions specified in the Notice
delivered pursuant to Section 2.1, and such Selling Shareholder shall promptly
thereafter remit to the Holder that portion of the sale proceeds to which the
Holder is entitled by reason of its participation in such sale; provided,
however, that if the Holder has delivered a Warrant to be transferred to the
purchase offeror, the Holder shall receive for such Warrant only the difference
between the purchase price set forth in the Purchase Offer and the exercise
price set forth in the Warrant and the Company shall receive the balance.
Notwithstanding the foregoing, the Selling Shareholder shall not be responsible
or liable to the Holder in the event of non-performance by the purchaser unless
such non-performance is caused by the wrongful conduct of the Selling
Shareholder.
2.5 Ongoing Rights. The exercise or non-exercise of the rights of the
Holder hereunder to participate in one or more sales made by the Selling
Shareholder shall not adversely affect the Holder's right with regard to
subsequent sales by a Selling Shareholder pursuant to Section 2 hereof.
2.6 Permitted Exemptions. The participation rights of the Holder shall not
apply to any bona fide gift; provided that a Shareholder shall inform the Holder
of such gift prior to effecting it and the donee shall furnish the Holder with a
written agreement to be bound by, and comply with, all provisions of this
Agreement applicable to such Shareholder.
Section 3. Prohibited Transfers.
3.1 Treatment of Prohibited Transfers. In the event a Shareholder should
sell any Common Shares or Convertible Securities in contravention of the
participation rights of the Holder under this Agreement (a "Prohibited
Transfer"), the Holder, in addition to such other remedies as may be available
at law, in equity or hereunder, shall have the put option provided in Section
3.2 and such Shareholder shall be bound by the applicable provisions of such put
option.
3.2 Put Option. In the event of a Prohibited Transfer by any Shareholder,
the Holder shall have the right to sell to such Shareholder that number of
shares of Common Shares (including the Common Share Equivalent of Convertible
Securities) (either directly or through delivery of such Common Shares and the
Common Share Equivalent of Convertible Securities) equal to the number of shares
the Holder would have been entitled to transfer to the purchaser in the
Prohibited Transfer pursuant to the terms hereof. Such sale shall be made on the
following terms and conditions:
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(a) The price per share at which such shares are to be sold to the
Shareholder shall be equal or equivalent to the price per share paid
by the purchaser to the Shareholder in the Prohibited Transfer. The
Shareholder shall also reimburse the Holder for any and all reasonable
fees and expenses, including legal fees and expenses, incurred
pursuant to the exercise or the attempted exercise of the Holder's
rights under this Article 3.
(b) Within thirty (30) days after the earlier of the date on which the
Holder (i) receives notice from a Shareholder of the Prohibited
Transfer, or (ii) otherwise becomes aware of the Prohibited Transfer,
the Holder shall, if exercising the put option created hereby, deliver
to such Shareholder the certificate or certificates representing
shares to be sold, each certificate to be properly endorsed for
transfer.
(c) A Shareholder shall, upon receipt of the certificate or certificates
for the shares to be sold by a Holder, pursuant to Section 3.2(b),
free and clear of all adverse claims, pay the aggregate purchase price
therefor and the amount of reimbursable fees and expenses, as
specified in Section 3.2(a), by certified or cashier's check made
payable to the order of the Holder.
(d) Notwithstanding the foregoing, any attempt to transfer shares of the
Company in violation of the terms of this Agreement shall be void and
the Company agrees it will not effect such a transfer nor will it
treat any alleged transferee as the holder of such shares without the
written consent of the Holder.
Section 4. Legended Certificate.
4.1 Legend. Each certificate representing Common Shares now or hereafter
owned by any Shareholder shall be endorsed with the following legend:
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN CO- SALE AGREEMENT
BY AND AMONG CERTAIN SHAREHOLDERS, THE COMPANY AND DH HOLDINGS CORP.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE COMPANY.
4.2 Legend Removal. The Section 4.1 legend shall be removed upon the
earlier of the date upon which the provisions of this Agreement are no longer
applicable to such securities in accordance with the provisions of Section 5.1,
or the date on which the shares represented by such certificate are no longer
owned of record beneficially by a Shareholder, pursuant to a transfer
consummated in compliance with this Agreement.
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Section 5. Miscellaneous Provisions.
5.1 Termination of Co-Sale Rights. The rights of the Holder under this
Agreement and the obligations of the Shareholders with respect to the Holder
shall terminate on the earlier of (i) December 31, 2004, (ii) the liquidation,
dissolution or indefinite cessation of the business operations of the Company;
or (iii) the first date on which the Holder is no longer the record and
beneficial owner of at least 1,500,000 Common Shares (including the Common Share
Equivalent of Convertible Securities).
5.2 Notices. Any notice or other communication required or permitted to be
made or given under this Agreement shall be in writing and shall be deemed to
have been given to the Party to whom it is addressed: (i) on the date indicated
on the certified mail return receipt if sent by certified mail return receipt
requested; (ii) on the business day actually received if hand delivered or if
transmitted by telefax or if delivered or transmitted on a day that is not a
business day, then the next business day, or (iii) one business day after such
notice was delivered to an overnight delivery service, addressed, delivered or
transmitted in each case as follows:
If to the Holder:
DH HOLDINGS CORP.
1250 24th Street, N.W.
Suite 800
Washington, D.C. 20037
ATTENTION: Vice President
Telephone: (202) 828-0850
Telefax: (202) 828-0860
With a courtesy copy (not required for effective Notice) to:
Veeder-Root Company
125 Powder Forest Drive
Simsbury, Connecticut 06070
ATTENTION: Steven H. Sigmon
Telephone: (860) 651-2735
Telefax: (860) 651-2727
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If to the Company:
Tanknology-NDE International, Inc.
8900 Shoal Creek Blvd.
Building 200
Austin, Texas 78758
ATTENTION: Daniel Sharplin, President
Telephone: (512) 451-6334
Telefax: (512) 459-1459
With a Courtesy Copy (not required for effective Notice) to:
Tanknology-NDE International, Inc.
712 Main Street, Suite 1700
Houston, Texas 77002
ATTENTION: Jay Allen Chaffee
Telephone: (713) 223-5730
Telefax: (713) 223-5379
If to Proactive:
Proactive Partners, L.P.
50 Osgood Place, Penthouse
San Francisco, CA 94153
ATTENTION: Charles McGettigan
Telephone: (415) 986-4433
Telefax: (415) 986-3617
If to Lagunitas:
Lagunitas Partners, L.P.
50 Osgood Place, Penthouse
San Francisco, CA 94153
ATTENTION: Patrick McBane
Telephone: (415) 981-2101
Telefax: (415) 521-1744
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If to Mr. Chaffee:
Jay Allen Chaffee
Tanknology-NDE International, Inc.
712 Main Street, Suite 1700
Houston, TX 77002
Telephone: (713) 223-5730
Telefax: (713) 223-5379
If to Mr. Sharplin:
A. Daniel Sharplin
Tanknology-NDE International, Inc.
8900 Shoal Creek Blvd.
Building 200
Austin, TX 78758
Telephone: (512) 451-6334
Telefax: (512) 459-1459
A Party's address for notice may be changed from time to time only by
written notice given to each of the other Parties in accordance with this
Section.
5.3 Successors and Assigns. This Agreement and the rights and obligations
of the parties hereunder shall inure to the benefit of, and be binding upon,
their respective successors, permitted assigns and legal representatives;
provided that, the rights of the Holder hereunder may not be sold, assigned or
otherwise transferred without the prior, express written consent of the Company
and all of the Shareholders; provided further that DH Holdings Corp. may
negotiate, assign, or transfer its rights and obligations hereunder without the
consent of the Company or the Shareholders to Danaher Corporation or to any
person or entity under direct or indirect control of Danaher Corporation or
controlled by or under direct or indirect common control with Danaher
Corporation.
5.4 Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
5.5 Amendments. Any amendment or modification of this Agreement shall be
effective only if evidenced by a written instrument executed by duly authorized
representatives of the Parties hereto. Any waiver by a Party of its rights
hereunder shall be effective only if evidenced by a written instrument executed
by a duly authorized representative of such Party. In no event shall such waiver
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of any rights hereunder constitute the waiver of such rights in any future
instance unless the waiver so specifies in writing.
5.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware.
5.7 Other Obligations of Company. The Company agrees to use all
commercially reasonable efforts to enforce the terms of this Agreement, to
inform the Holder of any breach hereof and to assist the Holder in the exercise
of its rights and performance of its obligations under Sections 4 and 5 hereof.
The parties have executed and delivered this Agreement effective as of the
day and year first above written.
SHAREHOLDERS: HOLDER:
PROACTIVE PARTNERS, L.P.
DH HOLDINGS CORP.
By: //s// C.C. McGETTIGAN
Its: General Partner
LAGUNITAS PARTNERS, L.P.
By: //s// DANIEL L. COMAS
By: //s// JON D. GRUBER
Its: General Partner Its: VP
//s// JAY ALLEN CHAFFEE
JAY ALLEN CHAFFEE
//s// A. DANIEL SHARPLIN
A. DANIEL SHARPLIN
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COMPANY:
TANKNOLOGY-NDE INTERNATIONAL, INC.
By: //s// JAY ALLEN CHAFFEE
Its: Chairman
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EXHIBIT 10.52
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Tanknology-NDE International, Inc.
Security Agreement - Personal Property
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Dated as of December23, 1997
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TABLE OF CONTENTS
1. Definitions................................................................1
1.1 Applicable Law....................................................1
1.3 Collateral........................................................1
1.4 Event of Default..................................................2
1.5 Intercreditor Agreement...........................................2
1.6 Lien..............................................................2
1.7 Note..............................................................2
1.8 Permitted Liens...................................................2
1.9 Person............................................................2
1.10 Pledge Agreement..................................................2
1.11 Proceeds..........................................................2
1.12 Secured Obligations...............................................3
1.13 Senior Lender.....................................................3
1.14 Senior Loan Agreement.............................................3
2. Security Interest..........................................................3
2.1 Grant of Security Interest........................................3
3. Enforcement, Remedies and Application of Proceeds..........................3
3.1 Remedies..........................................................3
3.2 Discontinuance of Remedies........................................5
3.3 Cumulative Remedies...............................................5
3.4 Power of Attorney.................................................6
4. Covenants, Warranties and Agreements of Debtors............................6
4.1 Records...........................................................6
4.2 Accounting........................................................6
4.3 Cooperation.......................................................7
4.4 Discharge Taxes, Assessments, Etc.................................7
4.5 Expenses..........................................................7
4.6 Limitations on Dispositions of Accounts and Contracts.............7
4.7 Negative Pledge...................................................7
4.8 Notices...........................................................7
4.9 Preservation of Collateral........................................8
4.10 Chief Executive Office............................................8
5. Indemnification............................................................8
5.1 Indemnification of Secured Party..................................8
5.2 Costs and Expenses................................................9
6. Termination................................................................9
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7. Recordation and Filing.....................................................9
8. Waivers...................................................................10
9. Security Interest Absolute................................................10
10 Release...................................................................10
11 Miscellaneous.............................................................11
11.1 Rules of Construction............................................11
11.2 Notices..........................................................11
11.3 Severability.....................................................12
11.4 Amendments.......................................................13
11.5 Successors and Assigns...........................................13
11.6 Further Acts and Documents.......................................13
11.7 Counterparts.....................................................13
11.8 Governing Law....................................................13
11.9 Waiver of Jury Trial.............................................13
11.10 Consent to Jurisdiction, Venue and Service of Process............13
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SECURITY AGREEMENT - PERSONAL PROPERTY
This SECURITY AGREEMENT, dated as of December 23, 1997 ("Agreement"), is
entered into by and between Tanknology-NDE International, Inc. ("TNDE"), a
Delaware corporation, ProEco, Inc. ("ProEco"), a Delaware corporation,
Tanknology/NDE Corporation ("NDE"), a Delaware corporation, 2368692 Canada, Inc.
("Canada"), a Canadian Federal corporation, Tanknology-NDE Construction
Services, Inc. ("Construction"), a Delaware corporation and DH Holdings Corp.
("DH"), a Delaware corporation, provided for in and entered into pursuant to the
Note, Preferred Stock and Warrant Purchase Agreement, as amended, restated,
supplemented or otherwise modified from time to time ("Purchase Agreement") by
and among DH, as purchaser, and TNDE, ProEco, NDE, Canada and Construction, as
sellers, dated as of December 23, 1997.
TNDE, ProEco, NDE, Canada and Construction together with their respective
successors and assigns, are referred to as "Debtors." DH, together with its
successors and assigns, is sometimes referred to as the "Secured Party." The
Debtors and the Secured Party are referred to collectively as the "Parties" and
individually as a "Party."
This Agreement is one of the Related Documents referred to in the Purchase
Agreement.
In consideration of their mutual promises set forth in this Agreement and
the Purchase Agreement, the Parties hereby agree as follows.
1. Definitions.
As used herein, the following terms shall have the following meanings:
1.1 "Applicable Law" means, with respect to any Person, any and all
federal, national, state, regional, local, municipal or foreign laws, statutes,
rules, regulations, guidelines, ordinances, licenses, permits, judicial or
administrative decisions of any country, or any political subdivision, agency,
commission, official or court thereof having jurisdiction over such Person.
1.2 "Code" means the Uniform Commercial Code of the State of Delaware, as
amended from time to time, together with any successor law.
1.3 "Collateral" means all tangible and intangible personal property now or
hereafter owned, acquired, arising or existing by or of the Debtors, whether
acquired by contract or operation of law and wherever located, including all of
the following types of personal property:
(i) all Accounts, Chattel Paper, Deposit Accounts, Documents,
Equipment, Fixtures, Goods, Instruments and Securities (all
as defined in the Code);
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(ii) all accessions to, substitutions for, replacements and
products of the foregoing;
(iii)all books and records (including customer lists, credit
files, tapes, ledger cards, computer software and hardware,
electronic data processing software, computer programs,
print-outs and other computer materials and records) of the
Debtors evidencing or containing information regarding or
otherwise pertaining to any of the foregoing; and
(iv) all Proceeds of or from the foregoing.
1.4 "Event of Default" means any event of default as defined by Section 8
of the Note.
1.5 "Intercreditor Agreement" means the Intercreditor and Subordination
Agreement dated as of December 23, 1997, by and between DH and Bank One Texas,
N.A., as modified, amended or restated from time to time.
1.6 "Lien" means mean any mortgage, pledge, security interest, encumbrance,
lien, assignment or charge of any kind.
1.7 "Note" means the Senior Subordinated Note by and between TNDE, ProEco,
NDE, Canada and Construction as sellers, and DH as purchaser, in the principal
amount of $6,500,000 and dated as of December 23, 1997.
1.8 "Permitted Liens" means any and all liens that are permitted by the
Purchase Agreement.
1.9 "Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, governmental authority or any other form of entity.
1.10 "Pledge Agreement" means the Security Interest--Pledge of Subsidiary
Stock Agreement dated as of December 23, 1997 by and between TNDE and DH.
1.11 "Proceeds" means any "proceeds" as such term is defined in the Code,
including the following, at any time whatsoever arising or receivable: (i)
whatever is received upon any collection, exchange, sale or other disposition,
of any of the Collateral, and any property into which any of the Collateral is
converted, whether cash or non-cash proceeds, (ii) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to the Debtors from time to
time with respect to any of the Collateral, including claims paid and premium
refunds, (iii) any and all payments (in any form whatsoever) made or due and
payable to the Debtors from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority, and (iv) any and all other amounts
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from time to time paid or payable under or in connection with any of the
Collateral.
1.12 "Secured Obligations" means (i) all obligations of the Debtors
evidenced by the Senior Subordinated Note due December 31, 2002, and dated as of
December 23, made payable by the Debtors to the Secured Party in the principal
amount of $6,500,000, which note was purchased by the Secured Party for
$6,500,000 pursuant to the Purchase Agreement, together with all extensions,
renewals, amendments, modifications and novations thereof, and (ii) all
obligations of the Debtors to make payments or reimburse costs and expenses
under this Agreement or the Purchase Agreement.
1.13 "Senior Lender" means Bank One Texas, N.A., as lender under the Senior
Loan Agreement, together with its successors and assigns in such capacity or any
substitutes or Persons acting in the same or similar capacity with respect to
any indebtedness incurred to replace amounts borrowed by Debtors pursuant to the
Senior Loan Agreement.
1.14 "Senior Loan Agreement" means the loan agreement, dated as of October
25, 1996, by TNDE, certain of its subsidiaries and Bank One Texas, N.A.
including all amendments, extensions, renewals and refinancings thereof.
2. Security Interest.
2.1 Grant of Security Interest. As security for the timely payment of the
Secured Obligations, the Debtors hereby grant to the Secured Party a security
interest in all of the Collateral whether now or hereafter owned, acquired,
arising or existing, whether acquired by contract or operation of law and
wherever located.
3. Enforcement, Remedies and Application of Proceeds.
3.1 Remedies. The Debtors agree that when an Event of Default has occurred
and is continuing, the Secured Party shall have the rights, options, duties and
remedies of a secured party, and the Debtors shall have the rights and duties of
a debtor, under the Code (regardless of whether such Code or a law similar
thereto has been enacted in a jurisdiction wherein the rights or remedies are
asserted), as applicable, and the Secured Party shall have the following rights
and remedies.
(a) The Secured Party shall have all of the rights and remedies
provided for under the Note and the Purchase Agreement.
(b) The Secured Party shall have all the rights of a secured party
under the Code or by other provisions of applicable law to enforce the security
interests contained herein, including without limitation, the right to sell or
otherwise dispose of any or all of the Collateral.
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(c) The Secured Party personally, or by agents or attorneys, shall
have the right (subject to compliance with any applicable mandatory legal
requirements) to take immediate possession of the Collateral, or any portion
thereof, and for that purpose may pursue the same wherever it may be found, and
may enter any of the premises of the Debtors, with or without notice, demand,
process of law or legal procedure, if this can be done without breach of the
peace, and search for, take possession of, remove, keep and store the
Collateral, or use and operate or lease the Collateral until sold.
(d) Any Collateral repossessed by the Secured Party under or pursuant
to this Section 3.1 may be sold, leased or otherwise disposed of under one or
more contracts or as an entirety, and without the necessity of a gathering at
the place of sale of the property to be sold, and in general in such manner, at
such time or times, at such place or places and on such terms as the Secured
Party may, in compliance with any mandatory requirements of applicable law,
determine to be commercially reasonable. Any of the Collateral may be sold,
leased or otherwise disposed of, in the condition in which the same existed when
taken by the Secured Party or after any repair which the Secured Party shall
determine to be commercially reasonable. Any such disposition which shall be a
public or private sale or other private proceedings permitted by such
requirements shall be made upon not less than ten (10) business days' written
notice to the Debtors specifying the times at which such disposition is to be
made and the intended sale price or other consideration therefor. To the extent
permitted by any such requirement of law, the Secured Party may itself bid for
and become the purchaser of the Collateral or any part thereof without
accountability to the Debtors. In the payment of the purchase price therefor,
the Secured Party shall be entitled to have credit on account of the purchase
price thereof of amounts owing to the Secured Party on account of the
indebtedness hereby secured and the Secured Party may deliver the claims for
interest on or principal of the Note or other indebtedness hereby secured in
lieu of cash up to the amount which would, upon distribution of the net proceeds
of such sale, be payable thereon. If, under mandatory requirements of applicable
law, the Secured Party shall be required to make disposition of the Collateral
within a period of time which does not permit the giving of notice to the
Debtors as hereinabove specified, the Secured Party need give the Debtors only
such notice of disposition as shall be reasonably practicable in view of such
mandatory requirements of applicable law.
(e) The Secured Party may proceed to protect and enforce this
Agreement by suit or suits or proceedings in equity, at law or in bankruptcy,
and whether for the specific performance of any covenant or agreement herein
contained or in execution or aid of any power herein granted, or for foreclosure
hereunder, or for the appointment of a receiver or receivers for the Collateral
or any part thereof, for the recovery of judgment for the indebtedness hereby
secured or for the enforcement of any other legal or equitable remedy available
under applicable law.
(f) Any sale, whether under any power of sale hereby given or by
virtue of judicial proceedings, shall operate to divest all right, title,
interest, claim and demand whatsoever, either at law or in equity, of the
Debtors in and to the property sold and shall be a perpetual bar, both at law
and in equity, against the Debtors, their successors and assigns, and against
any and all persons claiming the property sold, or any part thereof under,
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by or through the Debtors, their successors or assigns.
(g) Nothing hereby contained is intended, nor should it be construed,
to preclude the Secured Party from pursuing any other remedy provided by law for
the collection of the Secured Obligations or any portion thereof, or for the
recovery of any other sums to which the Secured Party may be or become entitled
for the breach of this Agreement by the Debtors.
(h) Until termination of this Agreement, the Secured Party shall have
and may exercise any and all of its rights and remedies given by this Agreement
or under any applicable law. This Agreement and all such rights and remedies
shall inure to the benefit of the Secured Party's successors and permitted
assigns that derives from the Secured Party title to or an interest in the Note,
the Secured Obligations or any portion thereof or participation therein, and
shall bind the Debtors and the successors and assigns of the Debtors.
(i) Upon the occurrence and during the continuance of an Event of
Default, in the case of any sale or disposition of the Collateral, or the
realization of funds therefrom, the Proceeds thereof shall be applied: first, to
the payment of the reasonable expenses of such sale, reasonable commissions,
reasonable attorneys' fees and all reasonable charges paid or incurred by the
Secured Party pertaining to said sale, including any taxes or other charges
imposed by law upon the Collateral and/or the owning, holding or transferring
thereof; second, to pay, satisfy and discharge the Secured Obligations; and,
third, to pay the surplus, if any, to the Debtors. To the extent such Proceeds
do not satisfy the foregoing items, the Debtors hereby promise and agree to pay
any deficiency.
3.2 Discontinuance of Remedies. In case the Secured Party shall have
proceeded to enforce any right under this Agreement by foreclosure, sale, entry
or otherwise, and such proceedings shall have been discontinued or abandoned for
any reason or shall have been determined adversely, then, and in every such
case, the Debtors and the Secured Party shall be restored to their former
respective positions and rights hereunder with respect to the property subject
to the security interest created under this Agreement.
3.3 Cumulative Remedies. No delay or omission of the Secured Party to
exercise any right or power arising from an Event of Default shall exhaust or
impair any such right or power or prevent its exercise during the continuance of
such Event of Default. No waiver by the Secured Party of any such Event of
Default, whether such waiver be full or partial, shall extend to or be taken to
affect any subsequent Event of Default, or to impair the rights resulting
therefrom except as may be otherwise provided herein. The Secured Party may
exercise any one or more or all of the remedies hereunder and no remedy is
intended to be exclusive of any other remedy but each and every remedy shall be
cumulative and in addition to any and every other remedy given hereunder or
otherwise existing now or hereafter at law or in equity; nor shall the giving,
taking or enforcement of any other or additional security, collateral or
guaranty for the payment of the indebtedness secured under this Agreement
operate to prejudice, waive or affect the security of this Agreement or any
rights, powers or remedies hereunder, nor shall the Secured Party be required to
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first look to, enforce or exhaust such other additional security, collateral or
guaranties.
3.4 Power of Attorney.
(a) The Debtors do hereby irrevocably constitute and appoint the
Secured Party and its successors and assigns and agents, upon the occurrence and
during the continuance of an Event of Default, their true and lawful attorney
with full power of substitution for them and in their name, place and stead, to
ask, demand, collect, receive, receive for and sue for any and all Proceeds with
full power to settle, adjust or compromise any claim thereunder as fully as the
Debtors could themselves do, and to endorse the name of the Debtors on all
instruments or commercial paper given in payment or in part payment thereof, and
in its reasonable discretion to file any claim or take any other action or
proceedings, either in its own name or in the name of the Debtors or otherwise,
which the Secured Party may deem necessary in its reasonable discretion to
perfect, protect and preserve the right, title and interest of the Secured Party
in and to such Proceeds and the security intended to be afforded hereby. Without
limiting the generality of the foregoing, Secured Party or its agents shall
specifically be authorized to do all acts and things necessary to fulfill the
Debtors' obligations under the Purchase Agreement.
(b) The Parties acknowledge that the powers conferred on the Secured
Party hereunder are solely to protect its interest in the Collateral and that
anything herein contained to the contrary notwithstanding, neither the Secured
Party nor its successors or assigns or agents shall have any duty, obligation or
liability by reason of or arising out of this Agreement to make any inquiry as
to the nature or sufficiency of, to present or file any claim with respect to,
or to take any action to collect or enforce the payment of, any amounts to which
it may be entitled at any time by virtue of this Agreement.
4. Covenants, Warranties and Agreements of Debtors.
The Debtors covenant, warrant and agree with Secured Party that until the
Secured Obligations are paid in full:
4.1 Records. The Debtors shall keep accurate and complete books and records
of the Collateral in a manner consistent with the reasonable requirements of the
Secured Party and the requirements of any governmental agency and allow the
Secured Party, during regular business hours and upon reasonable notice,
reasonable access to examine, inspect and make abstracts from, or copy any of
such books and records.
4.2 Accounting. The Debtors shall at the reasonable request of the Secured
Party, which request shall be made no more frequently than monthly, deliver to
it copies of all accounting and other records pertaining to the Collateral or
any portion thereof.
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4.3 Cooperation. The Debtors will faithfully preserve and protect the
Secured Party's security interest in the Collateral and will, at their own cost
and expense, cause such security interest to be perfected and to continue to be
perfected so long as the Secured Obligations or any portion thereof are
outstanding and unpaid, and for such purpose the Debtors will from time to time
at the reasonable request of the Secured Party file or record, or cause to be
filed or recorded, such instruments, documents and notices, including without
limitation, financing statements and continuation statements, as the Secured
Party may deem reasonably necessary or advisable from time to time in order to
perfect and continue perfected said security interests. The Debtors will do all
such other acts and things and will execute and deliver all such other
instruments and documents, including without limitation, further security
agreements, pledges, endorsements, assignments and notices, as the Secured Party
may deem reasonably necessary or advisable from time to time in order to perfect
and preserve the priority of said security interest.
4.4 Discharge Taxes, Assessments, Etc. The Debtors will pay promptly and
within the time that they can be paid without interest or penalty, all taxes,
assessments and similar imposts and charges which are now, or hereafter during
the effective period of this Agreement may become, a lien, charge or encumbrance
upon any of the Collateral except to the extent contested in good faith and
except for Permitted Liens. If the Debtors fail to pay any such taxes,
assessments or other charges as they become due, the Secured Party shall have
the option to do so and the Debtors agree to repay, with interest, at the rate
publicly established by Bank One, Texas, N.A. or any successor thereto from time
to time as its prime rate, all amounts so expended by the Secured Party.
4.5 Expenses. The Debtors will reimburse the Secured Party in accordance
with the provisions of the Code for all reasonable expenses, including the
reasonable attorney's fees and legal expenses, incurred by the Secured Party in
seeking to collect the Secured Obligations or any part thereof, or in pursuing
any of its rights or remedies hereunder.
4.6 Limitations on Dispositions of Accounts and Contracts. The Debtors will
not sell, assign, transfer or otherwise dispose of any material portion of the
Accounts or contracts which constitute a part of the Collateral, or attempt,
offer or contract to do so except, so long as no Event of Default has occurred
and is continuing, for the disposition of such Accounts and contracts in the
ordinary course of business to third party purchasers without recourse to the
Debtors.
4.7 Negative Pledge. The Debtors will not create or permit to be created
any lien, encumbrance or security interest of any kind (other than the Permitted
Liens and the lien in favor of the Senior Lender as provided for in the
Intercreditor Agreement) on any of the Collateral other than for the benefit of
the Secured Party unless authorized by the Secured Party in writing.
4.8 Notices.
The Debtors will provide the Secured Party promptly, in reasonable detail,
written notice of:
(i) any material change in the composition of the Collateral;
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(ii) the occurrence of any other event which is likely to have a
materially adverse effect on the aggregate value of the
Collateral or on the security interests created hereunder;
and
(iii)any other notices specifically required to be given by
Debtors under this Agreement.
4.9 Preservation of Collateral.
(a) The Debtors will warrant and defend the title to the Collateral
against all claims and demands of all Persons except Persons claiming by,
through or under the Secured Party. Except as otherwise permitted herein, the
Debtors will not assign, sell, lease, or permit any of the same to occur with
respect to the Collateral. The Debtors will not create, assume or suffer to
exist any Lien on the Collateral other than Permitted Liens and the Debtors
shall pay or discharge, at their own cost and expense, any and all claims, Liens
or charges other than Permitted Liens.
(b) Secured Party may, in its sole discretion, discharge or obtain the
release of any security interest, Lien, claim or encumbrance against the
Collateral, other than a Permitted Lien. All sums so paid by the Secured Party
shall be payable, on demand, by the Debtors to the Secured Party and shall
constitute a part of the Secured Obligations.
(c) The Debtors shall advise the Secured Party promptly, in reasonable
detail, of any Lien or claim, other than Permitted Liens, made or asserted
against any of the Collateral and of any event affecting the Secured Party's
security interest in the Collateral.
4.10 Chief Executive Office. The chief executive office of each of the
Debtors is located at the location specified in Exhibit A and all the records
related to each of the Debtors respective Collateral are, and will continue to
be, kept in such respective office. The Debtors shall give the Secured Party and
any collateral agent thirty (30) days' advance written notice of any change of
such office address or of any change in the location of the records concerning
the Collateral, and, with respect to such change, shall take all action as may
be necessary to maintain the security interest granted hereunder at all times
fully perfected and in full force and effect.
5. Indemnification.
5.1 Indemnification of Secured Party. The Debtors agree to indemnify,
protect and hold harmless the Secured Party and its assigns, directors,
officers, employees, agents or representatives (each an "Indemnified Party")
from and against all losses, damages, injuries, liabilities, claims, suits,
obligations, penalties, actions, judgments, costs, interest and demands of any
kind or nature whatsoever (all the foregoing losses, damages, etc. are the
"Indemnified Liabilities"), and expenses in connection therewith (including,
without limitation, the reasonable fees and disbursements of counsel for such
Indemnified Party in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnified Party shall be designated a
party thereto) arising outof, in connection with, or as the result of any claim
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for injury or damage arising from the operation, use, condition, possession,
storage or repossession of any of the Collateral, or any claim relating to any
laws, rules or regulations, or the entering into or performance of this
Agreement and the Note, the enforcement of any rights hereunder or thereunder,
the retention by the Secured Party of a security interest in the Collateral,
provided, however, that the Debtors shall have no obligation to so indemnify any
Indemnified Party for any indemnified liabilities arising from its willful
misconduct or gross negligence. The foregoing indemnity shall survive the
termination of this Agreement and payment in full of the Secured Obligations.
5.2 Costs and Expenses. Any and all reasonable fees, costs and expenses, of
whatever kind or nature, including the reasonable attorneys' fees and legal
expenses incurred by the Secured Party, in connection with the preparation of
this Agreement and all other documents relating hereto and the consummation of
this transaction, the filing or recording of financing statements and other
documents (including all taxes in connection with the filing and recording of
such documents) in public offices, the payment or discharge of any taxes
relating to the Collateral or imposed upon the Debtors, insurance premiums,
encumbrances or otherwise protecting, maintaining or preserving the Collateral,
or the enforcing, foreclosing, retaking, holding, storing, processing, selling
or otherwise realizing upon the Collateral and the security interest therein,
whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions or proceedings arising out of or related to the
transaction to which this Security Agreement relates, shall be borne and paid by
the Debtors on demand by the Secured Party and until so paid shall be added to
the principal amount of the Secured Obligations and shall bear interest
commencing five days from the date Debtors receive demand therefor, at the
default rate prescribed in the Note.
6. Termination.
The security interest of Secured Party in the Collateral shall be deemed to
be terminated when the Secured Obligations have been paid in full as provided
for in the Purchase Agreement, at which time the Secured Party shall, at the
Debtors' expense, execute and deliver to the Debtors at its expense all Code
termination statements and such similar documents or proper instrument or
instruments which the Debtors shall reasonably request to evidence such
termination and release of Collateral.
7. Recordation and Filing.
The Debtors agree to execute, deliver and pay the reasonable costs of
filing any financing statement or other notices appropriate under applicable law
in respect of the security interest created pursuant to this Security Agreement
which may at any time be required or be deemed by the Secured Party to be
necessary or desirable and to execute such other documents as the Secured Party
shall reasonably request with respect to the security interest created
hereunder. In the event that any re- recording or refiling thereof (or the
filing of any statements of continuation or assignment of any financing
statement) is required to protect and preserve such Lien or security interest,
the Debtors shall, at their reasonable cost and expense, cause the same to be
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re-recorded and/or refiled at the time and in the manner requested by the
Secured Party.
A carbon, photostatic or other reproduction of this Agreement shall be
sufficient as a financing statement even though only the original hereof
contains an original signature.
8. Waivers.
The Debtors waives demand, presentment and protest. No delay or omission or
forbearance by the Secured Party in exercising any rights under this Agreement,
the Note or the Purchase Agreement shall operate as a waiver of the rights of
the Secured Party under this Agreement, the Note or the Purchase Agreement or of
any other rights and shall not affect, discharge, diminish or impair the
Debtors' obligations hereunder or the Secured Obligations. Waiver on any one
occasion shall not be construed as a bar to or waiver of any rights or remedies
on any future occasion. All the Secured Party's rights and remedies, whether
evidenced hereby or by any other agreement or note, shall be cumulative and may
be exercised singularly or concurrently.
9. Security Interest Absolute.
All rights of the Secured Party and all obligations of the Debtors
hereunder shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Note or any other
agreement or instrument governing or evidencing any Secured Obligations;
(b) any exchange, release or nonperfection of any other collateral, or
any release or amendment or waiver of or consent to departure from any guaranty,
for all or any of the Secured Obligations; or
(c) any other circumstance which might otherwise constitute a defense
available to, or discharge of the Debtors.
10. Release.
The Debtors consent and agree that the Secured Party may at any time, or
from time to time, release and/or surrender all or any of the Collateral, or any
part thereof, by whomsoever deposited, which is now or may hereafter be held by
the Secured Party or its agent in connection with all or any of the Secured
Obligations, all in such manner and upon such terms as the Secured Party may
deem proper, and without notice to or further assent from the Debtors, it being
hereby agreed that the Debtors shall be and remain bound upon this Agreement,
irrespective of the existence, value or condition of any of the Collateral, and
notwithstanding any such exchange, surrender or release. The Debtors hereby
waive notice of acceptance of this Agreement, and promptness in commencing suit
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against any Party hereto or liable hereon, and in giving any notice to or of
making any claim or demand hereunder upon the Debtors.
11. Miscellaneous.
11.1 Rules of Construction. Unless otherwise specified, the following rules
shall be applied in construing the provisions of this Agreement:
(a) Terms that imply gender shall be construed to apply to all
genders.
(b) References to Paragraphs and Sections refer to the numbered
Paragraphs of and Sections of this Agreement.
(c) Headings to the various Sections of this Agreement are included
solely for purposes of reference and shall be ignored in construing the
provisions of this Agreement .
(d) The Exhibits attached to this Agreement are incorporated herein by
reference.
(e) "Herein", "hereto", "hereof" and words of similar import refer to
this Agreement or any Related Documents (as applicable).
(f) The word "and" connotes "each and every", and the word "or"
connotes "any one or more".
(g) The word "including" connotes "including without limitation".
(h) Any reference to any law or regulation refers to that law or
regulation as amended from time-to-time after the date of this Agreement and to
the corresponding provision of any successor law or regulation.
(i) Any reference to any agreement or other document in this Agreement
refers to that agreement or other document as amended from time-to-time after
the date of this Agreement.
(j) The recitals included in this Agreement are the mutual
representations of the Parties and are a part of this Agreement.
11.2 Notices. Any notice or other communication required or permitted to be
made or given under this Agreement shall be in writing and shall be deemed to
have been given to the Party to whom it is addressed: (i) on the date indicated
on the certified mail return receipt if sent by certified mail return receipt
requested; (ii) on the business day actually received if hand delivered or if
transmitted by telefax or if delivered or transmitted on a day that is not a
business day, then the next business day, or (iii) one business day after such
notice was delivered to an overnight delivery service, addressed, delivered or
transmitted in each case as follows:
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Assignee:
DH Holdings Corp.
1250 24th Street, N.W.
Suite 800
Washington, D.C. 20037
ATTENTION: Vice President
Telephone: (202) 828-0850
Telefax: (202) 828-0860
With a Courtesy Copy (not required for effective Notice) to:
Veeder-Root Company
125 Powder Forest Drive
Simsbury, Connecticut 06070
ATTENTION: Steven H. Sigmon, President
Telephone: (860) 651-2735
Telefax: (860) 651-2727
Assignor:
Tanknology-NDE International, Inc.
8900 Shoal Creek Blvd.
Building 200
Austin, Texas 78758
ATTENTION: President
Telephone: (512) 451-6334
Telefax: (512) 459-1459
With a Courtesy Copy (not required for effective Notice) to:
Tanknology-NDE International, Inc.
712 Main Street, Suite 1700
Houston, Texas 77002
ATTENTION: Jay Allen Chaffee
Telephone: (713) 223-5730
Telefax: (713) 223-5379
A Party's address for notice may be changed from time-to-time only by
written notice given to each of the other Parties in accordance with this
Section.
11.3 Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
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shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
11.4 Amendments. Any amendment or modification of this Agreement shall be
effective only if evidenced by a written instrument executed by duly authorized
representatives of the Parties hereto. Any waiver by a Party of its rights
hereunder shall be effective only if evidenced by a written instrument executed
by a duly authorized representative of such Party. In no event shall such waiver
of any rights hereunder constitute the waiver of such rights in any future
instance unless the waiver so specifies in writing.
11.5 Successors and Assigns. Whenever any of the Parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
Party; and all the covenants, promises and agreements in this Security Agreement
contained by or on behalf of the Debtors shall bind and inure to the benefit of
the successors and assigns of such Parties.
11.6 Further Acts and Documents. Each of the Parties hereby agrees to
execute and deliver such further instruments and to do such further acts and
things as may be necessary or desirable to carry out the purposes of this
Agreement.
11.7 Counterparts. This Agreement may be executed, acknowledged and
delivered in any number of counterparts, each of such counterparts constituting
an original but all together constituting only one Agreement.
11.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware.
11.9 Waiver of Jury Trial. The Secured Party and the Debtors, after
consulting or having had the opportunity to consult with legal counsel,
knowingly, voluntarily and intentionally waive any right either of them may have
to a trial by jury in any litigation based upon or arising out of this
Agreement, the Purchase Agreement or the Note or any related instrument or
agreement, or any of the transactions contemplated by this Agreement, the
Purchase Agreement or the Note, or any course of conduct, dealing, statements
(whether oral or written) or actions of any of them ("Litigation"). Neither the
Secured Party nor the Debtors shall seek to consolidate, by counterclaim or
otherwise, any action in which a jury trial has been waived with any other
action in which a jury trial cannot be or has not been waived. These provisions
shall not be deemed to have been modified in any respect or relinquished by
either the Secured Party or the Debtors except by written instrument executed by
both of them.
11.10 Consent to Jurisdiction, Venue and Service of Process. The Secured
Party and the Debtors, each after having consulted or having had the opportunity
to consult with legal counsel, hereby knowingly, voluntarily and intentionally:
(i) consents to the jurisdiction of State Court sitting in New Castle County,
Delaware and the United States District Court with jurisdiction over New Castle
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County, Delaware with respect to any Litigation; (ii) waives any objections to
the venue of any Litigation in either such court; (iii) agrees not to commence
any Litigation except in one or the other of such courts and agrees not to
contest the removal of any Litigation commenced in any other court to one or the
other of such courts; (iv) agrees not to seek to remove, by consolidation or
otherwise, any Litigation commenced in either of such courts to any other court;
and (v) waives personal service of process in connection with any Litigation and
consents to service of process by registered or certified mail in accordance
with or relinquished by either the Secured Party or the Debtors except by
written instrument executed by either of them.
The parties have executed and delivered this Agreement effective as of the
day and year first above written.
DEBTORS: SECURED PARTY:
TANKNOLOGY-NDE INTERNATIONAL, DH HOLDINGS CORP.
INC.
By: //s// JAY ALLEN CHAFFEE By: //s// DANIEL L. COMAS
Its: Chairman Its: VP
PROECO, INC.
By: //s// JAY ALLEN CHAFFEE
Its: Chairman
TANKNOLOGY/NDE CORPORATION
By: //s// JAY ALLEN CHAFFEE
Its: Chairman
2368692 CANADA, INC.
By: //s// JAY ALLEN CHAFFEE
Its: President
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TANKNOLOGY-NDE CONSTRUCTION
SERVICES, INC.
By: //s// JAY ALLEN CHAFFEE
Its: Chairman
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EXHIBIT A
Chief Executive Offices
8900 Shoal Creek Blvd.
Building 200
Austin, Texas 78758
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<PAGE>
EXHIBIT 10.53
Tanknology-NDE International, Inc.
Security Agreement - Pledge of Subsidiary Stock
Dated as of December 23, 1997
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Definitions.................................................1
Section 2. Grant of Security Interest..................................3
Section 3. Perfection of Security Interest.............................3
Section 4. Covenants with Respect to Collateral........................4
Section 5. Rights with Respect to Collateral...........................4
Section 6. Defaults and Remedies.......................................5
Section 7. Waiver......................................................6
Section 8. Security Interest Absolute..................................6
Section 9. Release.....................................................6
Section 10. Indemnification.............................................7
Section 11. Termination.................................................7
Section 12. Miscellaneous...............................................7
<PAGE>
SECURITY AGREEMENT - PLEDGE OF SUBSIDIARY STOCK
This SECURITY AGREEMENT - PLEDGE OF SUBSIDIARY STOCK, dated as of December
23, 1997 ("Agreement"), is entered into by and between Tanknology-NDE
International, Inc. ("TNDE"), a Delaware corporation, and DH Holdings Corp.
("DH"), a Delaware corporation, provided for in and entered into pursuant to
that certain Note, Preferred Stock and Warrant Purchase Agreement, as amended,
restated, supplemented or otherwise modified from time to time (the "Purchase
Agreement") by and among DH, as purchaser, and TNDE, ProEco, Inc. ("ProEco"), a
Delaware corporation, Tanknology/NDE Corporation ("NDE"), a Delaware
corporation, 2368692 Canada, Inc. ("Canada"), a Canadian Federal corporation and
Tanknology-NDE Construction Services, Inc. ("Construction"), a Delaware
corporation, as sellers, dated as of December 23, 1997.
TNDE, together with its successors and assigns, is sometimes referred to as
the "Debtor" or as the "Assignor", as applicable, and DH, together with its
successors and assigns, is sometimes referred to as the "Secured Party" or as
the "Assignee", as applicable. The Assignor and the Assignee are referred to
collectively as the "Parties" and individually as a "Party".
This Agreement is one of the "Related Documents" referred to in the
Purchase Agreement.
In consideration of their mutual promises set forth in this Agreement and
the Purchase Agreement, the Parties hereby agree as follows.
Section 1. Definitions.
As used herein, the following terms shall have the following meanings:
1.1 "Applicable Law" means, with respect to any Person, any and all
federal, national, state, regional, local, municipal or foreign laws, statutes,
rules, regulations, guidelines, ordinances, licenses, permits, judicial or
administrative decisions of any country, or any political subdivision, agency,
commission, official or court thereof having jurisdiction over such Person.
1.2 "Capital Stock" of any Person means, any and all shares, interests,
participations or other equivalents (however designated) of corporate stock,
including each class of common stock and preferred stock of such Person or
partnership interests and any warrants, options or other rights to acquire such
stock or interests.
1.3 "Code" means the Uniform Commercial Code of the State of Delaware, as
amended from time to time, together with any successor law.
1.4 "Collateral" is defined in Section 2.1.
1.5 "Event of Default" means any event of default as defined by Section 8
of the Note.
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1.6 "Intercreditor Agreement" means the Intercreditor and Subordination
Agreement dated as of December 23, 1997, by and between DH and Bank One Texas,
N.A., as modified, amended or restated from time to time.
1.7 "Note" means the Senior Subordinated Note by and between TNDE, ProEco,
NDE, Canada and Construction as sellers, and DH as purchaser, in the principal
amount of $6,500,000, and dated as of December 23, 1997.
1.8 "Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, governmental authority or any other form of entity.
1.9 "Proceeds" means any "proceeds" as such term is defined in the Code,
including the following, at any time whatsoever arising or receivable: (i)
whatever is received upon any collection, exchange, sale or other disposition,
of any of the Collateral, and any property into which any of the Collateral is
converted, whether cash or non-cash proceeds, (ii) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to the Debtor from time to
time with respect to any of the Collateral, including claims paid and premium
refunds, (iii) any and all payments (in any form whatsoever) made or due and
payable to any Debtor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority and (iv) any and all other amounts from
time to time paid or payable under or in connection with any of the Collateral.
1.10 "Secured Obligations" means (i) all obligations of the Debtor
evidenced by the Note, which note was purchased by the Secured Party for
$6,500,000 pursuant to the Purchase Agreement, together with all extensions,
renewals, amendments, modifications and notations thereof, and (ii) all
obligations of the Debtor to make payments or reimburse costs and expenses under
this Agreement or the Purchase Agreement.
1.11 "Senior Lender" means Bank One Texas, N.A., as lender under the Senior
Loan Agreement, together with its successors and assigns in such capacity or any
substitutes or Persons acting in the same or similar capacity with respect to
any indebtedness incurred to replace amounts borrowed by Debtor pursuant to the
Senior Loan Agreement.
1.12 "Senior Loan Agreement" means the loan agreement, dated as of October
25, 1996, by TNDE, certain of its subsidiaries and Bank One Texas, N.A.
1.13 "Share Interests" is defined in Section 2.1.
1.14 "Subordinated Security Agreement" means the Security
Agreement-Personal Property dated as of December 23, 1997 by and between TNDE,
ProEco, NDE, Canada, Construction and DH, as modified, amended or restated from
time to
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time, together with any other agreements securing the payment of the obligations
evidenced by the Note or under this Agreement.
1.15 "Subsidiary Stock" means all of the Capital Stock of ProEco, NDE,
Canada and Construction and any other Capital Stock TNDE owns now or in the
future.
Section 2. Grant of Security Interest.
2.1 As security for the prompt and full payment and performance of the
Secured Obligations the Assignor hereby pledges (and shall cause to be pledged)
to the Assignee and grants (and shall cause to be granted) to the Assignee a
security interest in all of its right, title and interest in all of the
Subsidiary Stock now or hereafter owned beneficially or of record by it,
including all right, title and interest in and to any distributions, dividends,
cash, instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such Subsidiary Stock, and any certificates now or hereafter evidencing such
Subsidiary Stock ("Share Interests"); together in each case with all Proceeds.
Such Share Interests and Proceeds are referred to collectively as "Collateral."
Section 3. Perfection of Security Interest.
3.1 The certificates evidencing the Share Interests have been pledged and
delivered by the Assignor to the Senior Lender pursuant to the Pledge and
Security Agreement dated as of October 25, 1996. Pursuant to the Intercreditor
Agreement, the Senior Lender has agreed to hold such certificates on behalf of
the Secured Party and upon its release of its pledge under such agreement to
deliver such certificates to the Secured Party in pledge under this Agreement.
The Assignor hereby consents to such delivery by the Senior Lender to the
Assignee. In addition, with respect to the Share Interests, the Assignor has (i)
caused the security interest created by this Agreement to be noted on the stock
register of each Debtor subsidiary; and (ii) delivered to the Assignee,
financing statements (form UCC-1) in proper form for filing under the Code in
each jurisdiction as may be necessary or, in the reasonable opinion of Assignee,
desirable to perfect the security interest created herein. Assignor hereby
authorizes Assignee to file, and appoints Assignee its attorney-in-fact for the
purpose of executing and filing, such financing statements or any additional
financing statement or any continuation statement without the signature of the
Assignor to the extent permitted by Applicable Law.
3.2 Any certificates now or hereafter issued to the Assignor representing
or evidencing all or any part of the Collateral, together with duly executed
instruments of transfer or assignment in blank, in a form reasonably
satisfactory to the Assignee, shall be delivered to (i) the Senior Lender so
long as TNDE owes Senior Lender any amount pursuant to the Senior Loan Agreement
or (ii) the Assignee in the event that TNDE is no longer obligated to repay any
amounts pursuant to the Senior Loan Agreement, in each case in pledge as
additional Collateral.
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Section 4. Covenants with Respect to Collateral.
Assignor covenants to the Assignee as follows.
4.1 Without the prior written consent of the Assignee, the Assignor will
not sell, assign, transfer, pledge, or otherwise encumber any of its rights in
or to the Collateral or any distributions or payments with respect thereto or
grant a lien, security interest or encumbrance thereon, except to the extent
permitted by the Purchase Agreement.
4.2 The Assignor will, at its expense, promptly execute, acknowledge and
deliver all such instruments and take all such action as the Assignee from time
to time may reasonably request in order to ensure to the Assignee the benefits
of the liens and security interest in and to the Collateral intended to be
created by this Agreement.
4.3 The Assignor has and will defend the title to the Collateral and the
liens and security interest of the Assignee thereon against the claim of any
person and will maintain and preserve such liens and security interest until
such time as the Secured Obligations have been paid or performed in full.
4.4 The Assignor will not change its name or identity in any manner which
is reasonably likely to make any financing or continuation statement filed in
connection herewith seriously misleading within the meaning of the Code unless
it shall have given the Assignee at least 30 days' prior written notice thereof
and shall have taken all action (or made arrangements to take such action
substantially simultaneously with such change if it is impossible to take such
action in advance) necessary or reasonably requested by the Assignee to amend
such financing statement or continuation statement so that it is not seriously
misleading. The Assignor will not change its principal place of business unless
it shall have given the Assignee prior written notice of its intent to do so.
Section 5. Rights with Respect to Collateral.
5.1 As long as no Event of Default shall have occurred and be continuing
and until written notice shall be given to the Assignor by the Assignee, the
Assignor shall have the right, from time to time, to receive distributions and
to vote and give consents with respect to the Collateral or any part thereof for
all purposes not inconsistent with the provisions of this Agreement and any
other agreement; provided, however, that no vote shall be cast, and no consent
shall be given or action taken, which would have the effect of materially
impairing the position or interest of the Assignee in respect of the Collateral
(except the declaration and payment of distributions to the Assignor as
contemplated in the Purchase Agreement) or which would authorize or effect
(except as and to the extent expressly consented to in writing by the Assignee
or as contemplated in the Purchase Agreement) (i) the dissolution or
liquidation, in whole or in part, of any Debtor Subsidiary, (ii) the
consolidation or merger of any Debtor Subsidiary with any other entity or
person, (iii) the sale, disposition or encumbrance of all or substantially all
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of the assets of any Debtor Subsidiary or (iv) the issuance of any additional
Capital Stock of any Debtor Subsidiary.
Section 6. Defaults and Remedies.
6.1 Upon the occurrence of an Event of Default and during the continuation
of such Event of Default, and following ten Business Days' written notice to
Assignor, the Assignee may cause the transfer and register in its name or in the
name of its designee the whole or any part of the Collateral, exercise any
voting rights with respect thereto, collect and receive all distributions made
thereon, sell in one or more sales after ten Business Days' notice of the time
and place of any public sale or of the time after which a private sale is to
take place (which notice the Assignor agrees is commercially reasonable), but
without any previous notice or advertisement, the whole or any part of the
Collateral and to otherwise act with respect to the Collateral as though the
Assignee was the outright owner thereof, the Assignor hereby irrevocably
constituting and appointing the Assignee, as the proxy and attorney-in-fact of
the Assignor, with full power of substitution, to sign any document or take any
act in order to do so; provided, however, that the Assignee shall not have any
duty to exercise any such right or to preserve the same and shall not be liable
for any failure to do so or for any delay in doing so. Any sale shall be made at
a public or private sale at the Assignee's place of business, or elsewhere to be
named in the notice of sale, either for cash or upon credit or for future
delivery at such price as the Assignee may deem commercially reasonable, and the
Assignee may be the purchaser of the whole or any part of the Collateral so sold
and hold the same thereafter in its own right free, to the extent permitted by
law, from any claim of the Assignors as applicable. Each sale shall be made to
the highest bidder, but the Assignee reserves the right to reject any and all
bids at such sale which, in its absolute discretion, it shall deem inadequate.
Demands of performance, except as otherwise herein specifically provided for,
notices of sale (except as otherwise herein specifically provided for),
advertisements and the presence of property at sale are hereby waived and any
sale hereunder may be conducted by an auctioneer or any officer or agent of the
Assignee.
6.2 Assignor agrees that following the occurrence and during the
continuance of an Event of Default, (i) it will not at any time plead, claim or
take the benefit of any appraisal, valuation, stay, extension, moratorium or
redemption law now or hereafter in force in order to prevent or delay the
enforcement of this Agreement, or the absolute sale of the whole or any part of
the Collateral or the possession thereof by any purchaser at any sale hereunder,
and Assignor waives the benefit of all such laws to the extent it lawfully may
do so and (ii) it will not interfere with any right, power and remedy of the
Assignee provided for in this Agreement or now or hereafter existing at law or
in equity or by statute or otherwise, or the exercise or beginning of the
exercise by the Assignee of any one or more of such rights, powers or remedies.
No failure or delay on the part of the Assignee to exercise any such right,
power or remedy and no notice or demand which may be given to or made upon the
Assignor by the Assignee with respect to any such remedies shall operate as a
waiver thereof, or limit or impair the Assignee's right to take any action or to
exercise any power or remedy hereunder, without notice or demand, or prejudice
its rights as against the Assignor in any respect.
6.3 Assignor further agrees that a breach of any of the covenants contained
in this Section will cause irreparable injury to the Assignee, that the Assignee
has no adequate remedy at law in respect of such breach and, as a consequence,
agrees that each and every covenant contained in this Section shall be
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specifically enforceable against the Assignor and Assignor hereby waives and
agrees not to assert any defenses against an action for specific performance of
such covenants except for a defense that the Secured Obligations are not then
due and payable in accordance with the agreements and instruments governing and
evidencing such obligations.
Section 7. Waiver.
7.1 Assignor waives demand, presentment and protest. No delay or
omission or forbearance by the Assignee in exercising any rights under this
Agreement, the Note, the Subordinated Security Agreement or the Purchase
Agreement or any of the other Related Documents (as defined in the Purchase
Agreement) shall operate as a waiver of the rights of the Assignee under this
Agreement, the Note, the Subordinated Security Agreement or the Purchase
Agreement or any of the other Related Documents (as defined in the Purchase
Agreement) or of any other rights and shall not affect, discharge, diminish or
impair the Assignor's obligations hereunder or the Secured Obligations. Waiver
on any one occasion shall not be construed as a bar to or waiver of any rights
or remedy on any future occasion. All the Assignee's rights and remedies,
whether evidenced hereby or by any other agreement or note or by operation of
law, shall be cumulative and may be exercised singularly or concurrently.
Section 8. Security Interest Absolute.
8.1 All rights of the Assignee and all obligations of the Assignor
hereunder shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Note, the Purchase
Agreement, the Subordinated Security Agreement, any of the other
Related Documents (as defined in the Purchase Agreement) or any other
agreement or instrument governing or evidencing any Secured
Obligations;
(b) any exchange, release or nonperfection of any other collateral, or any
release or amendment or waiver of or consent to departure from any
guaranty, for all or any of the Secured Obligations; or
(c) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Assignor or Debtor.
Section 9. Release.
9.1 Assignor consents and agrees that the Assignee may at any time, or from
time to time, in its discretion exchange, release and/or surrender all of the
Collateral, or any part thereof, by whomsoever deposited, which is now or may
hereafter be held by the Assignee in connection with all or any of the Secured
Obligations, all in such manner and upon such terms as the Assignee may deem
proper, and without notice to or further assent from the Assignor, it being
hereby agreed that the Assignor shall be and remain bound upon this Agreement,
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irrespective of the existence, value or condition of any of the Collateral, and
notwithstanding any such exchange, surrender or release. Assignor hereby waives
notice of acceptance of this Agreement, and promptness in commencing suit
hereunder, and in giving any notice to or of making any claim or demand
hereunder upon the Assignor. No act or omission of any kind on the Assignee's
part shall in any event affect or impair this Agreement.
Section 10. Indemnification.
10.1 The Assignor agrees to indemnify and hold the Assignee harmless from
and against any taxes (excluding income taxes), liabilities, claims and damages,
including reasonable attorneys' fees and disbursements, and other expenses
incurred or arising by reason of the taking or the failure to take action by the
Assignee, in good faith, in respect of any transaction effected under this
Agreement or in connection with the lien provided for herein, including, without
limitation, any taxes payable in connection with the delivery or registration of
any of the Collateral as provided herein; provided, however, the Assignor shall
not be liable for such indemnification to the Assignee to the extent that such
indemnified liability results from the Assignee's gross negligence or willful
misconduct. The Assignor agrees to pay to the Assignee all reasonable
out-of-pocket costs and expenses, including reasonable fees and disbursements of
counsel, reasonably incurred by the Assignee in connection with the performance
by the Assignee of the provisions of this Agreement and of any transactions
effected pursuant to this Agreement. The obligations of the Assignor under this
Section shall survive the termination of this Agreement.
Section 11. Termination.
11.1 This Agreement shall be terminated upon the payment in full of the
Note in accordance with its terms. Until terminated, the security interest
created hereby shall continue in full force and effect and shall secure and be
applicable to all advances now or hereafter made by the Secured Party to the
Debtors. Upon termination, the Assignee shall cooperate with the Assignor to
secure the release of the security interest, assignment and pledge created
hereby, including release and return of all pledged items of Collateral and the
execution of any releases of financing statements reasonably requested by the
Assignor.
Section 12. Miscellaneous.
12.1 Rules of Construction. Unless otherwise specified, the following rules
shall be applied in construing the provisions of this Agreement:
(a) Terms that imply gender shall be construed to apply to all genders.
(b) References to Paragraphs and Sections refer to the numbered Paragraphs
of and Sections of this Agreement unless another agreement is
specifically referred to.
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(c) Headings to the various Sections of this Agreement are included solely
for purposes of reference and shall be ignored in construing the
provisions of this Agreement .
(d) The Exhibit attached to this Agreement is incorporated herein by
reference.
(e) "Herein", "hereto", "hereof" and words of similar import refer to this
Agreement or any Related Documents (as applicable).
(f) The word "including" connotes "including without limitation".
(g) Any reference to any law or regulation refers to that law or
regulation as amended from time-to-time after the date of this
Agreement and to the corresponding provision of any successor law or
regulation.
(h) Any reference to any agreement or other document in this Agreement
refers to that agreement or other document as amended from
time-to-time after the date of this Agreement.
12.2 Notices. Any notice or other communication required or permitted to be
made or given under this Agreement shall be in writing and shall be deemed to
have been given to the Party to whom it is addressed: (i) on the date indicated
on the certified mail return receipt if sent by certified mail return receipt
requested; (ii) on the business day actually received if hand delivered or if
transmitted by telefax or if delivered or transmitted on a day that is not a
business day, then the next business day, or (iii) one business day after such
notice was delivered to an overnight delivery service, addressed, delivered or
transmitted in each case as follows:
Assignee:
DH Holdings Corp.
1250 24th Street, N.W.
Suite 800
Washington, D.C. 20037
ATTENTION: Vice President
Telephone: (202) 828-0850
Telefax: (202) 828-0860
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With a Courtesy Copy (not required for effective Notice) to:
Veeder-Root Company
125 Powder Forest Drive
Simsbury, Connecticut 06070
ATTENTION: Steven H. Sigmon, President
Telephone: (860) 651-2735
Telefax: (860) 651-2727
Assignor:
Tanknology-NDE International, Inc.
8900 Shoal Creek Blvd.
Building 200
Austin, Texas 78758
ATTENTION: Daniel Sharplin, President
Telephone: (512) 451-6334
Telefax: (512) 459-1459
With a Courtesy Copy (not required for effective Notice) to:
Tanknology-NDE International, Inc.
712 Main Street, Suite 1700
Houston, Texas 77002
ATTENTION: Jay Allen Chaffee
Telephone: (713) 223-5730
Telefax: (713) 223-5379
A Party's address for notice may be changed from time-to-time only by
written notice given to each of the other Parties in accordance with this
Section.
12.3 Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
12.4 Amendments. Any amendment or modification of this Agreement shall be
effective only if evidenced by a written instrument executed by duly authorized
representatives of the Parties hereto. Any waiver by a Party of its rights
hereunder shall be effective only if evidenced by a written instrument executed
by a duly authorized representative of such Party. In no event shall such waiver
of any rights hereunder constitute the waiver of such rights in any future
instance unless the waiver so specifies in writing.
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12.5 Successors and Assigns. Whenever any of the Parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
Party and all the covenants, promises and agreements in this Agreement contained
by or on behalf of the Assignor shall bind and inure to the benefit of the
successors and assigns of such Parties whether so expressed or not. The
covenants, promises and agreements in this Agreement may be assigned or
otherwise transferred to Danaher Corporation or an affiliate of Danaher
Corporation. For purposes of this Section 12.5, the term "affiliate" shall mean
any person or entity directly or indirectly controlling, controlled by, or under
direct or indirect common control with, Danaher Corporation.
12.6 Further Acts and Documents. Each of the Parties hereby agrees to
execute and deliver such further instruments and to do such further acts and
things as may be necessary or desirable to carry out the purposes of this
Agreement.
12.7 Counterparts. This Agreement may be executed, acknowledged and
delivered in any number of counterparts, each of such counterparts constituting
an original but all together constituting only one Agreement.
12.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware.
12.9 Waiver of Jury Trial. The Assignee and the Assignor, after consulting
or having had the opportunity to consult with legal counsel, knowingly,
voluntarily and intentionally waive any right any of them may have to a trial by
jury in any litigation based upon or arising out of this Agreement, the Purchase
Agreement or the Note or any related instrument or agreement, or any of the
transactions contemplated by this Agreement, the Purchase Agreement or the Note,
or any course of conduct, dealing, statements (whether oral or written) or
actions of any of them ("Litigation"). Neither the Assignee nor the Assignor
shall seek to consolidate, by counterclaim or otherwise, any action in which a
jury trial has been waived with any other action in which a jury trial cannot be
or has not been waived. These provisions shall not be deemed to have been
modified in any respect or relinquished by either the Assignee or the Assignor
except by written instrument executed by both of them.
12.10 Consent to Jurisdiction, Venue and Service of Process. The Assignee
and the Assignor, each after having consulted or having had the opportunity to
consult with legal counsel, hereby knowingly, voluntarily and intentionally: (i)
consents to the jurisdiction of the State Court sitting in New Castle County,
Delaware and the United States District Court with jurisdiction over New Castle
County, Delaware with respect to any Litigation; (ii) waives any objections to
the venue of any Litigation in either such court; (iii) agrees not to commence
any Litigation except in one or the other of such courts and agrees not to
contest the removal of any Litigation commenced in any other court to one or the
other of such courts; (iv) agrees not to seek to remove, by consolidation or
otherwise, any Litigation commenced in either of such courts to any other court;
and (v) waives personal service of process in connection with any Litigation and
consents to service of process by registered or certified mail in accordance
with Applicable Law. These provisions shall not be deemed to have been modified
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in any respect or relinquished by either the Assignee or the Assignor except by
written instrument executed by both of them.
The parties have executed and delivered this Agreement effective as of the
day and year first above written.
ASSIGNOR: ASSIGNEE:
TANKNOLOGY - NDE INTERNATIONAL, DH HOLDINGS CORP.
INC.
By: //s// JAY ALLEN CHAFFEE By: //s// DANIEL L. COMAS
Its: Chairman Its: VP
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EXHIBIT 10.54
AMENDMENT NO. 1 TO THE NOTE, PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
This Amendment No. 1 to the Note, Preferred Stock and Warrant Purchase
Agreement (the "Amendment No. 1"), effective as of December 23, 1997, is entered
into by and among Tanknology-NDE International, Inc. ("TNDE"), a Delaware
corporation, ProEco, Inc. ("ProEco"), a Delaware corporation, Tanknology/NDE
Corporation ("NDE"), a Delaware corporation, 2368692 Canada, Inc. ("Canada"), a
Canadian Federal corporation, and Tanknology- NDE Construction Services, Inc.
("Construction"), a Delaware corporation (collectively referred to herein as
"Sellers"), and DH Holdings Corp., a Delaware corporation ("Purchaser").
Capitalized terms used herein but not defined herein shall have the meaning
assigned to them in the Note, Preferred Stock and Warrant Purchase Agreement
(the "Agreement"), dated as of December 23, 1997, by and among Sellers and
Purchaser.
W I T N E S S E T H
WHEREAS, the Seller and the Purchaser desire to conform the terms of
Section 11(a) of the Agreement to reflect the terms contained in Section 5.19 of
the Loan Agreement dated as of the 25th day of October, 1996, as amended (the
"Loan Agreement") by and among Tanknology-NDE International, Inc., a Delaware
Corporation, Tanknology/NDE Corporation, a Delaware corporation, ProEco, Inc., a
Delaware Corporation, 2368692 Canada, Inc., a Canadian Federal Corporation, and
Tanknology-NDE Construction Services, Inc, a Delaware corporation, and Bank One,
Texas, N.A.; and
WHEREAS, the sole purpose of this Amendment No. 1 is to conform Section
11(a) of the Agreement to Section 5.19 of the Loan Agreement.
NOW THEREFORE, in consideration of the promises herein contained, and each
intending to be legally bound hereby, the parties agree as follows:
1. Pursuant to Section 13(a) of the Agreement, Sellers and Purchaser agree
to amend Section 11(a) of the Agreement to replace and supersede the language
currently in that section. Section 11(a) shall henceforth read as follows:
(a) Total Liabilities to Net Worth Ratio. TNDE and the Subsidiaries shall
maintain, at all times, a ratio of (A) Total Liabilities less (i)
Subordinated Debt, (ii) unrestricted cash, (iii) cash pledged to Bank
One, Texas, N.A., a national banking association, (iv) the outstanding
indebtedness of Sellers evidenced by the Note and (v) dividends of any
kind due to Purchaser with respect to TNDE Preferred Stock to (B) Net
Worth plus (i) Subordinated Debt, (ii) the outstanding indebtedness of
Sellers evidenced by the Note and (iii) dividends of any kind due to
Purchaser with respect to TNDE Preferred Stock of not greater than the
ratio set forth opposite the applicable period below:
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Period Ending Ratio
Closing Date through December 31, 1997 2.50:1.0
Thereafter through June 30, 1998 2:25:1.0
Thereafter through December 31, 1998 2.00:1.0
Thereafter through December 31, 1999 1.75:1.0
Thereafter through December 31, 2000 1.75:1.0
Thereafter through December 31, 2001 1.75:1.0
Thereafter through the Maturity Date 1.75:1.0
2. Sellers hereby warrant and represent that the sole purpose and effect of
this Amendment No. 1 is to conform the provisions of Section 11(a) of the
Agreement to the provisions of Section 5.19 of the Loan Agreement and that the
amendment contained in Section 1 hereof is such a conforming change.
IN WITNESS WHEREOF, the Sellers and the Purchaser have executed this
Amendment No. 1 effective as of the date first above written.
Sellers:
TANKNOLOGY-NDE INTERNATIONAL, INC.
By: //s// JAY ALLEN CHAFFEE
Its: Chairman
PROECO, INC.
By: //s// JAY ALLEN CHAFFEE
Its: Chairman
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TANKNOLOGY/NDE CORPORATION
By: //s// JAY ALLEN CHAFFEE
Its: Chairman
2368692 CANADA, INC.
By: //s// JAY ALLEN CHAFFEE
Its: President
TANKNOLOGY-NDE CONSTRUCTION
SERVICES, INC.
By: //s// JAY ALLEN CHAFFEE
Its: Chairman
Purchaser:
DH HOLDINGS CORP.
By: //s// DANIEL L. COMAS
Its: Vice President
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EXHIBIT 10.55
AMENDMENT NO. 3 TO LOAN AGREEMENT
DATED OCTOBER 25, 1996
BY AND BETWEEN TANKNOLOGY-NDE INTERNATIONAL, INC.,
TANKNOLOGY/NDE CORPORATION,
TANKNOLOGY-NDE CONSTRUCTION SERVICES, INC.,
PROECO, INC. AND 2368692 CANADA, INC.
AND BANK ONE, TEXAS, N.A.
This Amendment No. 3 ("Third Amendment") to the Loan Agreement dated as of
the 25th day of October, 1996, as amended ("Loan Agreement"), by and among
TANKNOLOGY-NDE INTERNATIONAL, INC. (formerly known as NDE ENVIRONMENTAL
CORPORATION) ("NDE"), a Delaware corporation, TANKNOLOGY/NDE CORPORATION, a
Delaware corporation, PROECO, INC., a Delaware corporation, 2368692 CANADA, INC.
(formerly known as TANKNOLOGY CANADA (1988) INC.), a Canadian federal
corporation, and TANKNOLOGY-NDE CONSTRUCTION SERVICES, INC., a Delaware
corporation (collectively, "Borrower") and BANK ONE, TEXAS, N.A., a national
banking association (the "Bank") is entered into this 23rd day of December 1997.
W I T N E S S E T H:
WHEREAS, each Borrower (except for Tanknology-NDE Construction Services,
Inc.) is a party to that certain Note and Warrant Purchase Agreement dated as of
October 25, 1996 with Banc One Capital Partners, L.P., an Ohio limited
partnership (now known as Banc One Capital Partners, L.L.C., a Delaware limited
liability company, hereinafter called "BOCP") whereby BOCP agreed to make
certain loans and accommodations available to Borrower upon terms and conditions
therein contained, such loans and accommodations (the "Subordinated
Indebtedness") evidenced, in part, by the Senior Subordinated Note dated of even
date therewith, which is subordinated to Borrower's Obligations to Bank under
the Loan Agreement;
WHEREAS, Borrower desires to repay the Subordinated Indebtedness and
discharge all other obligations owed to BOCP;
WHEREAS, DH Holdings Corp., a Delaware corporation ("DHH"), desires to
provide a certain loan to, and capital investment in, Borrower, pursuant to that
certain Note, Preferred Stock and Warrant Purchase Agreement to be entered into
on or soon after the date hereof, between Borrower and DHH (the "DHH
Agreement"), a part of the proceeds of which shall be used to repay the
Subordinated Indebtedness to BOCP;
WHEREAS, Borrower, DHH and BOCP have requested that Bank consent to the
aforementioned transactions in accordance with the terms and provisions herein;
WHEREAS, Borrower is desirous of engaging, as a general contractor, in
certain construction activities (as herein defined) associated with retail
service stations ("Construction Business");
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WHEREAS, bonding requirements would be facilitated if the Construction
Business is conducted as a subsidiary of NDE that could pledge its assets
(subject to the Surety Subordination Agreement) to secure its obligations to
Surety;
WHEREAS, NDE has formed a new wholly owned Subsidiary of NDE named
Tanknology-NDE Construction Services, Inc. ("NDE Construction Services"), a
Delaware corporation, to engage in the Construction Business, and such
Subsidiary desires to become a Borrower under the Revolving Note;
WHEREAS, Borrower has requested that Bank consent to the formation by NDE
of NDE Construction Services to engage in the Construction Business in
accordance with the terms and provisions hereof;
WHEREAS, Borrower has further requested that Bank waive Borrower's
non-compliance with certain covenants, insofar as such non-compliance is the
result of (1) NDE's formation of NDE Construction Services or (2) the pledging
of assets by NDE Construction Services (subject to the Surety Subordination
Agreement) to secure its obligations to Surety; and
WHEREAS, Bank is willing to agree to the foregoing in accordance with, and
subject to, the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the promises herein contained, and each
intending to be legally bound hereby, the parties agree as follows:
I. Amendments to Loan Agreement.
Preamble. The first grammatical paragraph of the Loan Agreement is amended
by: (1) deleting the reference to "NDE ENVIRONMENTAL CORPORATION, a Delaware
corporation" and substituting in lieu thereof: "TANKNOLOGY-NDE INTERNATIONAL,
INC., a Delaware corporation," (2) deleting the reference to "USTMAN INDUSTRIES,
INC. ("USTMAN"), a Delaware corporation" and substituting in lieu thereof:
"TANKNOLOGY-NDE CONSTRUCTION SERVICES, INC., a Delaware corporation," and (3)
deleting the reference to "TANKNOLOGY CANADA (1988) INC." and substituting in
lieu thereof: "2368692 CANADA, INC."
Article I, DEFINITIONS, is amended by deleting "Banc One Capital Partners,
L.P." and substituting in lieu thereof "DH Holdings Corp." in the definition of
"Subordinated Commitment Indebtedness".
Article I, DEFINITIONS, is further amended by deleting "USTMAN" from and
adding "NDE CONSTRUCTION SERVICES" to the definition of "Pledged Stock".
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Article I, DEFINITIONS, is further amended by revising the following
defined terms in their entirety to read as follows:
"Adjusted Liabilities" means Total Liabilities less the sum of
Subordinated Indebtedness, unrestricted cash, and cash pledged to
Bank.
"Agreement" or "Loan Agreement" shall mean this Loan Agreement, as the
same may be amended or supplemented from time to time.
Permitted Liens (I) Purchase money security interests granted to
secure not more than seventy-five per cent (75%) of the purchase price
of assets, except as permitted by Sections 6.14 and 6.15, the purchase
of which does not violate this Agreement or any instrument required
hereunder;
"Revolving Note" means that certain promissory note in the original
face amount of $5,000,000.00 dated of even date with the Third
Amendment made by the Borrower payable to the order of the Bank in the
form attached as Exhibit "A" to the Third Amendment, together with all
deferrals, renewals, extensions, amendments, modifications or
rearrangements thereof, which promissory note shall evidence certain
advances to the Borrower by the Bank pursuant to Section 2.01 of the
Loan Agreement.
"Subordinated Indebtedness" means the Indebtedness incurred by
Borrower in accordance with Section 3.14, being (a) the Senior
Subordinated Note due December 31, 2002, in the initial principal
amount of $6,500,000 payable to Subordinated Lender and (b) the
Subordinated Preferred Stock dividends of any kind due Subordinated
Lender from Borrower.
Article I, DEFINITIONS, is further amended by adding the following
definitions:
"Agreement of Indemnity" shall mean that certain indemnification
agreement entered into, from time to time, by and between NDE
Construction Services, and Surety, the form of which is attached as
Exhibit "B" to the Third Amendment.
"Consolidated" or "consolidated" as used with respect to financial
reporting requirements shall mean the reporting of financial
information by Borrower so as to include all Subsidiaries of Borrower.
"Construction Business" shall mean engaging, as a general contractor,
in construction activities related to the upgrading, modification
and/or retrofitting of underground storage tanks located at retail
gasoline service stations.
"NDE Construction Services" shall mean Tanknology-NDE Construction
Services, Inc., a Delaware corporation, being that certain Subsidiary
of NDE, formed in accordance with the Third Amendment, engaged in the
Construction Business.
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"Subordinated Lender" shall mean BOCP from the effective date of the
Loan Agreement until 7:00 A.M. on the effective date of the Third
Amendment and shall mean DHH from 7:00 A.M. on the effective date of
the Third Amendment and thereafter, according to the terms of the Loan
Agreement, as amended from time to time.
"Subordinated Preferred Stock" means the preferred stock issued and/or
to be issued by Borrower to Subordinated Lender, and any dividends
owed pursuant to such preferred stock, which are and shall be
subordinated to the Obligations of Borrower to Bank pursuant to the
Loan Agreement.
"Surety" shall mean First Indemnity of America Insurance Company or
any replacement thereof.
"Surety Subordination Agreement" shall mean a subordination agreement
substantially in the form attached hereto as Exhibit "C", that may be
entered into by and between NDE Construction Services, Bank and
Surety, and which would subordinate the Bank's liens and security
interests relating to the assets of NDE Construction Services to liens
in favor of Surety securing NDE Construction Services's obligations to
Surety pursuant to the Agreement of Indemnity, not to exceed
$1,000,000.00.
"Subordination Agreement" shall have the meaning set forth in
paragraph IV.F. of the Third Amendment.
"Third Amendment" means Amendment No. 3 to this Loan Agreement,
executed by Borrower and Bank on December 23, 1997.
Section 2.01 is amended by deleting subsection (C) (Revolving
Commitment Reserve) in its entirety.
Article II, THE LOAN, is modified by adding the following new section:
2.17 Obligations of NDE Construction Services. Notwithstanding
anything contained herein to the contrary, while NDE Construction
Services is deemed a Borrower for all other purposes (except as
otherwise noted herein), NDE Construction Services is not a Borrower
with respect to the Term Note.
Article IV, REPRESENTATIONS AND WARRANTIES, is modified by adding the
following new section:
4.18 Representations and Warranties of NDE Construction Services.
With respect to any representations and warranties made by NDE
Construction Services with respect to the Notes, such representations
and warranties shall be applicable only to the Revolving Note.
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Article V, AFFIRMATIVE COVENANTS, of the Loan Agreement is hereby amended
by revising the following Sections in their entirety to read as follows:
5.19 Adjusted Liabilities to Adjusted Net Worth. Maintain a ratio
of Adjusted Liabilities to Adjusted Net Worth of not more than 2.25 to
1.0 through June 30, 1998; thereafter 2.00 to 1.0 through September
30, 1998; thereafter 1.75 to 1.0 through June 30, 1999; thereafter
1.25 to 1.0 through December 31, 1999; and thereafter 1.0 to 1.0.
5.20 Net Worth Requirement. Maintain its Net Worth as of December
31, 1997, which shall not be less than a negative $1,100,000.00 at
that time, with allowable cumulative interim losses during fiscal year
1998 of not more than $1,000,000 (tested as of the end of each
calendar quarter), and as of December 31, 1998, and thereafter,
maintain at least the Net Worth in effect as December 31, 1997,
increasing by 70% of positive annual income after December 31, 1998.
5.21 Debt Service Coverage Ratio. Maintain a Debt Service
Coverage Ratio of 0.30 to 1.0 for the three (3) months ending March
31, 1998; 0.60 to 1.0 for the six (6) months ending June 30,1998; 1.10
to 1.0 for the nine (9) months ending September 30, 1998; 1.35 to 1.0
for the twelve (12) months ending December 31, 1998; and 1.50 to 1.0
thereafter, calculated on a rolling four quarter basis.
Article V, AFFIRMATIVE COVENANTS, is modified by adding the following new
sections:
5.34 Affirmative Covenants of NDE Construction Services. With
respect to any affirmative covenants made by NDE Construction Services
with respect to the Notes, such affirmative covenants shall be
applicable only to the Revolving Note.
Article VI, NEGATIVE COVENANTS, of the Loan Agreement is hereby amended by
revising the following Sections in their entirety to read as follows:
6.01 Other Indebtedness. Incur, create, assume or suffer to exist
any Indebtedness, whether by way of loan or the issuance or sale of
securities except (A) Loans hereunder, (B) loans and other
Indebtedness by the Bank under other credit arrangements, (C) accounts
payable incurred in the ordinary course of business which are in
compliance with Section 6.05, (D) loans, advances or extensions of
credit from suppliers, contractors or other nonaffiliated Persons
under applicable contracts or agreements in connection with Borrowers'
customary business operations, which are not overdue or are being
contested in good faith, (E) Existing Indebtedness described on
Schedule 4.09, (F) Subordinated Indebtedness, (G) Subordinated
Commitment Indebtedness; (H) Indebtedness for the payment of insurance
premiums in the ordinary course of business; (I) other Indebtedness
not to exceed the total aggregate amount of $750,000.00 at any time
outstanding, excluding (i) the $517,000 of Existing Indebtedness as
item 2 in Schedule 4.09 and (ii) the $300,000 Gilbarco Patent Note
identified in Schedule 4.09; and (J) indebtedness permitted by
Sections 6.14 and 6.15.
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<PAGE>
6.11 Restricted Payments. Except as provided on Schedule 6.11 or
in the Intercreditor and Subordination Agreement, (A) declare or pay
any dividend, (B) issue, purchase, redeem or otherwise acquire for
value any of its outstanding stock, or make any payment on account of,
or set apart assets for a sinking or other analogous fund for the
purchase, redemption, defeasance, retirement or other acquisition of
any shares of any class of capital stock of Borrower, (C) return any
capital to its stockholders, or (D) make any distribution of its
assets to its stockholders as such provided, however, if no Event of
Default or Unmatured Event of Default has occurred, Borrower may
permit the accrual of obligations to pay dividends or other similar
distributions to its stockholders, provided such obligations are fully
subordinated to all of Borrower's obligations to the Bank or on terms
acceptable to the Bank.
6.13 Payment of Subordinated Indebtedness. Make any payment of
Subordinated Indebtedness principal unless: (i) such payments are
otherwise permitted by the Subordination Agreement, and (ii)
Borrower's Consolidated Net Worth has increased during the period from
December 31, 1997 to the end of the fiscal quarter immediately
preceding the quarter in which such payment of Subordinated
Indebtedness is proposed by an amount at least equal to 1.5 times the
aggregate amount of all prior principal payments of Subordinated
Indebtedness plus the amount of the proposed principal payment of
Subordinated Indebtedness.
6.14 Capital Expenditures Limitation. Except as permitted by
Section 6.15, make Capital Expenditures in excess of: $3,000,000 in
the 1997 fiscal year; $2,500,000 in the 1998 fiscal year; and
$2,000,000 for each fiscal year thereafter; not more than $750,000 of
which, per annum, shall be financed or incurred as indebtedness to
finance up to 100% of the cost of the acquisition of vehicles and
non-gauge equipment to be used in Borrower's business.
Article VI, NEGATIVE COVENANTS, is modified by adding the following new
sections:
6.15 Additional Allowed Capital Expenditures. Make purchase money
Capital Expenditures, or incur related indebtedness or liens, except
to the extent that such Capital Expenditures, indebtedness or liens,
do not exceed, in the aggregate, $1,000,000 financed by DHH or its
affiliates up to 100% for gauge purchase and related installation, per
annum commencing with fiscal year 1998.
Article VI, NEGATIVE COVENANTS, is modified by adding the following new
section:
6.16 Negative Covenants of NDE Construction Services. With
respect to the any negative covenants made by NDE Construction
Services with respect to the Notes, such negative covenants shall be
applicable only to the Revolving Note.
Schedule 1.01(a), Collateral, is hereby amended by replacing "NDE
Environmental Corporation" with "Tanknology-NDE International, Inc." and adding
"Tanknology-NDE Construction Services, Inc." as the second item in line (a)
under Tanknology-NDE International, Inc. and by deleting the reference to
"USTMAN Industries, Inc." therefrom.
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<PAGE>
Schedule 4.01, Information Regarding the Jurisdiction in Which Each
Borrower and its Subsidiaries Are Incorporated and in Which Each Does Business
and Is Qualified as a Foreign Corporation, is hereby amended by deleting the
following:
USTMAN Industries, Inc.
State of Incorporation: Delaware
Qualifications: Colorado
and replacing same with the following:
NDE Construction Services
State of Incorporation: Delaware
Schedule 4.01 is further amended by adding the following address as the
principal place of business of each of the companies named therein:
Principal Place of Business of Borrower
8900 Shoal Creek, Bldg. 200
Austin, Texas 78757
II. Certain Waivers. Bank hereby waives non-compliance by Borrower with (1)
the covenants set forth in Section 6.11 to the extent that Borrower may issue
150 shares of Subordinated Preferred Stock pursuant to the Certificate of
Designation of Preferences and Rights of Series A Redeemable Convertible
Preferred Stock of Tanknology-NDE International, Inc., as part of the
Subordinated Indebtedness pursuant to this Third Amendment and may pay dividends
thereon, to the extent permitted by Intercreditor and Subordination Agreement;
and (2) the covenants set forth in Sections 6.04 and 6.08 of the Loan Agreement,
but only to the extent that such non-compliance was the result of NDE's
formation of NDE Construction Services. Notwithstanding anything that may be
contained herein to the contrary, except as provided in the Surety Subordination
Agreement, if in effect at the time, no waiver or any other provision contained
herein shall serve to subordinate any of Borrower's Obligations to Bank to any
of Borrower's Obligations to any third party, including, but not limited to, any
of NDE Construction Services' obligations to Surety.
III. Certain Consents. Bank hereby consents to (a) the formation by NDE of,
and the investment by NDE of up to $250,000 in, NDE Construction Services as a
wholly owned subsidiary of NDE; (b) the pledge by NDE Construction Services of
its assets (subject to the terms and conditions of the Surety Subordination
Agreement) to secure its obligations to Surety pursuant to the Agreement of
Indemnity, which pledge (subject to, and conditioned on prior execution of, the
terms and limitations of the Surety Subordination Agreement) shall constitute a
Permitted Encumbrance.
IV. Conditions to the Effectiveness of the Third Amendment. As a condition
to the effectiveness of the Third Amendment by Bank, Borrower has satisfied the
following conditions:
A. Receipt of Revolving Note, Third Amendment and Certificate of
Compliance. The Bank shall have received the amended Revolving Note (the
form of which is attached hereto as Exhibit "A"), multiple counterparts of
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<PAGE>
this Third Amendment, as requested by the Bank, and the Compliance
Certificate duly executed by an authorized officer for each Borrower.
B. Receipt of Articles of Incorporation, Bylaws and Directors
Organizational Meeting Minutes. The Bank shall have received from NDE
Construction Services its Articles of Incorporation certified by the
Secretary of State of the jurisdiction of its incorporation and its bylaws
and the minutes of its organizational meeting of directors, certified by
the Secretary or an Assistant Secretary of such entity.
C. Receipt of Certified Copy of Corporate Proceedings and
Certificate of Incumbency. The Bank shall have received from each Borrower
copies of all resolutions of its board of directors with respect to the
transactions set forth in this Third Amendment and the execution of this
Third Amendment, the amended Revolving Note, and the Collateral Documents,
such copy or copies to be certified by the Secretary or an Assistant
Secretary as being true and correct and in full force and effect as of the
date hereof. In addition, the Bank shall have received from each Borrower a
certificate of incumbency signed by the Secretary or an Assistant Secretary
setting forth (a) the names of the officers executing this Third Amendment,
the amended Revolving Note, and the Collateral Documents, (b) the office(s)
to which such Persons have been elected and in which they presently serve
and (c) an original specimen signature of each such person.
D. Receipt of Certificates of Authority and Certificates of Good
Standing. The Bank shall have received certificates, as of the most recent
dates practicable, of the Secretary of State of Delaware as to its
existence, and of the Secretary of State of each other jurisdiction in
which NDE Construction Services is qualified as a foreign corporation as to
its qualification, and of the department of revenue or taxation of each of
the foregoing jurisdictions, as to the good standing of NDE Construction
Services.
E. Collateral Documents. As security for the payment of the
Revolving Note and the performance of the obligations of NDE Construction
Services under the Loan Agreement, Bank shall have received the duly
executed and acknowledged Collateral Documents described on Schedule 1
attached hereto.
F. Receipt of the Intercreditor and Subordination Agreement. Bank
shall have received evidence satisfactory to the Bank, in its sole
discretion, that Borrower has received advances of at least Eight Million
Dollars ($8,000,000) of Indebtedness and equity on terms and conditions
satisfactory to the Bank, in its sole discretion, and Borrower, the Bank
and DHH shall have entered into an Intercreditor and Subordination
Agreement (the "Subordination Agreement") in the form as attached as
Exhibit "D".
G. DHH Agreement. True and correct copies of the DHH Agreement
and all documents and instruments to be executed or delivered by any party
thereto, as set forth therein or as contemplated thereby (collectively, the
"DHH Agreement Documents"), shall have been provided to Bank, and all of
the terms and provisions of the DHH Agreement Documents shall be
satisfactory to Bank, in its sole discretion.
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<PAGE>
H. Modification Fee. As partial consideration for its agreement
to the terms of the Third Amendment, Bank shall have received $50,000 in
cash from Borrower.
I. Facility Fee. As further partial consideration for its
agreement to the terms of the Third Amendment, Bank shall have received
three hundred and fifty thousand (350,000) stock warrants, evidenced by a
warrant certificate in the form as attached as Exhibit "E", at a strike
price no greater than $.375 per share.
J. Receipt of the Standby Commitment. Bank, Borrower and
Proactive shall have entered into an Amended and Restated Standby
Commitment in the form attached as Exhibit "F".
K. Receipt of the Certified Copy of Corporate Proceedings and
Certificate of Incumbency. Bank shall have received from DHH and from
Borrowers, respectively, copies of all resolutions of their respective
boards of directors with respect to the transactions contemplated by the
DHH Agreement and this Third Amendment, such copy or copies to be certified
by the Secretary or an Assistant Secretary as being true and correct and in
full force and effect as of the date hereof. In addition, the Bank shall
have received from each Borrower a certificate of incumbency signed by the
Secretary or an Assistant Secretary setting forth (a) the names of the
officers executing this Third Amendment, and (b) the office(s) to which
such Persons have been elected and in which they presently serve and (c) an
original specimen signature of each such person.
L. Opinions of Counsel. Bank shall have received from counsel for
Borrower and counsel for DHH, respectively, written opinions in form and
substance satisfactory to Bank, in its sole discretion, as to the matters
set forth on Exhibits G-1 and G-2, respectively, attached to the Third
Amendment.
M. Repayment of BOCP. Bank shall have received evidence
satisfactory to it, in its sole discretion, that all Indebtedness and other
obligations of Borrower to BOCP have been fully and finally paid and
discharged, and that BOCP has terminated all agreements to which it is a
party with Bank that relate to the Loan Agreement, the Intercreditor and
Subordination Agreement by and between Bank and BOCP dated October 25,
1996, the Standby Commitment by and between Bank, Borrower, BOCP and
Proactive dated October 25, 1996, and the Investment Agreement by and
between Bank and BOCP dated October 24, 1996.
V. Surety Subordination Agreement. If requested by Bank, Surety or NDE
Construction Services, each such party shall execute (and NDE Construction
Services shall cause Surety to execute) the Surety Subordination Agreement.
VI. Satisfaction of Conditions to Third Amendment. Upon the satisfaction of
the conditions to the effectiveness of the Third Amendment, as set forth in
Article IV hereof, Borrower shall execute and deliver to Bank a Certificate of
Compliance, and if Bank has been reasonably satisfied that such conditions have
been fulfilled, Bank shall contemporaneously provide a letter to Borrower and
DHH stating "Bank One, Texas, N.A. is satisfied that the conditions set forth in
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<PAGE>
Article IV of the Third Amendment to that certain Loan Agreement dated October
25, 1996, among the Bank and Tanknology-NDE International, Inc. et al. have been
fulfilled," whereupon the Third Amendment shall become effective.
VII. Reaffirmation of Representations and Warranties. To induce Bank to
enter into this Third Amendment, Borrower hereby reaffirms, as of the date
hereof, its representations and warranties contained in Article IV of the Loan
Agreement and in all other documents executed pursuant thereto, and additionally
represents and warrants as follows:
A. The execution and delivery of this Third Amendment and the
performance by Borrower of its obligations under this Third Amendment are
within the Borrower's corporate power, have received all necessary
governmental approval (if any shall be required), and do not and will not
contravene or conflict with any provision of law or of any agreement
binding upon the Borrower.
B. The Loan Agreement as amended by this Third Amendment
represents the legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with its terms subject as to
enforcement only to bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
and general principles of equity.
C. No Event of Default or Unmatured Event of Default has occurred
and is continuing as of the date hereof, subject to the waivers as set out
in Section II.
VIII. Defined Terms. Except as amended hereby, terms used herein that are
defined in the Loan Agreement shall have the same meanings herein.
IX. Reaffirmation of Loan Agreement. This Third Amendment shall be deemed
to be an amendment to the Loan Agreement, and the Loan Agreement, as amended
hereby, is hereby ratified, approved and confirmed in each and every respect.
All references to the Loan Agreement herein and in any other document,
instrument, agreement or writing shall hereafter be deemed to refer to the Loan
Agreement as amended hereby.
X. Entire Agreement. The Loan Agreement, as hereby amended, embodies the
entire agreement between Borrower and Bank, and supersedes all prior proposals,
agreements and understandings relating to the subject matter hereof. Borrower
certifies that it is relying on no representation, warranty, covenant or
agreement except for those set forth in the Loan Agreement as hereby amended and
the other documents previously executed or executed of even date herewith.
XI. Governing Law. THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA. This Third Amendment has been entered into in Harris
County, Texas, and it shall be performable for all purposes in Harris County,
Texas. Courts within the State of Texas shall have jurisdiction over any and all
disputes between Borrower and Bank, whether in law or equity, including, but not
limited to, any and all disputes arising out of or relating to this Third
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<PAGE>
Amendment or any other Loan Document; and venue in any such dispute wFhether in
federal or state court shall be laid in Harris County, Texas.
XII. Severability. Whenever possible each provision of this Third Amendment
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Third Amendment shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Third Amendment.
XIII. Execution in Counterparts. This Third Amendment may be executed in
any number of counterparts and by the different parties on separate
counterparts, and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same agreement.
XIV. Section Captions. Section captions used in this Third Amendment are
for convenience of reference only, and shall not affect the construction of this
Third Amendment.
XV. Successors and Assigns. This Third Amendment shall be binding upon the
Borrower and Bank and their respective successors and assigns, and shall inure
to the benefit of the Borrower and Bank, and the respective successors and
assigns of Bank.
XVI. Non-Application of Chapter 15 of Texas Credit Codes. The provisions of
Chapter 15 of the Texas Credit Code (Vernon's Texas Civil Statutes, Article
5069-15) are specifically declared by the parties hereto not to be applicable to
the Loan Agreement as hereby amended or any of the other Loan Documents or to
the transactions contemplated hereby.
XVII. Notice. THIS THIRD AMENDMENT TOGETHER WITH THE LOAN AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be duly executed as of the day and year first above written.
BORROWER:
TANKNOLOGY-NDE INTERNATIONAL, INC.
(formerly known as NDE ENVIRONMENTAL
CORPORATION)
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
Chairman of the Board
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<PAGE>
TANKNOLOGY/NDE CORPORATION
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
Chairman of the Board
TANKNOLOGY-NDE CONSTRUCTION
SERVICES, INC.
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
Chairman of the Board
PROECO, INC.
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
Chairman of the Board
2368692 CANADA, INC. (formerly known as
TANKNOLOGY CANADA (1988) INC.)
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
President
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BANK:
BANK ONE, TEXAS, N.A.
By: //s// CHARLES KINGSWELL-SMITH
Charles Kingswell-Smith
Senior Vice President
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<PAGE>
Schedule 1
1. Stock Power executed by Tanknology-NDE International, Inc. with
respect to its shares of Tanknology-NDE Construction Services, Inc., a
wholly owned subsidiary.
2. Amendment to Stock Pledge and Security Agreement between
Tanknology-NDE International, Inc. and Bank One, Texas.
3. Security Agreement between Tanknology-NDE Construction Services, Inc.
and Bank One, Texas.
4. Financing Statements
Tanknology-NDE International, Inc.
DELAWARE: Secretary of State
TEXAS: Secretary of State & Travis County
Tanknology-NDE Construction Services, Inc.
DELAWARE: Secretary of State
TEXAS: Secretary of State
<PAGE>
EXHIBIT A
Form of Revolving Note
REVOLVING NOTE
$5,000,000.00 December 23, 1997
FOR VALUE RECEIVED, TANKNOLOGY-NDE INTERNATIONAL, INC., a Delaware
corporation, TANKNOLOGY/NDE CORPORATION, a Delaware corporation, PROECO, INC., a
Delaware corporation, TANKNOLOGY-NDE CONSTRUCTION SERVICES, INC., a Delaware
corporation, and 2368692 CANADA, INC., a Canadian federal corporation, all of
the foregoing having an address at 8900 Shoal Creek Bldg. 200, Austin, Texas
78757, (collectively, "Borrower") unconditionally promise to pay to the order of
BANK ONE, TEXAS, NATIONAL ASSOCIATION, (herein called "Bank"), at its offices at
910 Travis, Houston, Texas 77001, the principal sum of FIVE MILLION DOLLARS
($5,000,000.00) or, if less, the aggregate unpaid principal amount of all
Revolving Loans (as defined in the Loan Agreement) made by the Bank to the
Borrower pursuant to the Loan Agreement, as shown in the records of the Bank,
outstanding on such date.
The undersigned also promise to pay interest on the unpaid principal amount
hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Loan Agreement; provided,
however, that in no event shall such interest exceed the Maximum Rate (as
hereinafter defined).
"Maximum Rate" means the Maximum Rate of non-usurious interest permitted
from day to day by Applicable Law.
"Applicable Law" means that law in effect from time to time and applicable
to this Note which lawfully permits the charging and collection of the highest
permissible lawful, non-usurious rate of interest on this Note, including laws
of the State of Texas and laws of the United States of America. It is intended
that Article 1.04, Title 79, Revised Civil Statutes of Texas, 1927, as amended
(Article 5069-1.04, as amended, Vernon's Texas Civil Statutes) shall be included
in the laws of the State of Texas in determining Applicable Law; and for the
purpose of applying said Article 1.04 to this Note, the interest ceiling
applicable to this Note under said Article 1.04 shall be the indicated weekly
rate ceiling from time to time in effect. The Borrower and the Bank hereby agree
that Chapter 15 of Subtitle 3, Title 79, Revised Civil Statutes of Texas, 1925,
as amended, shall not apply to this Note or the loan transaction evidenced by,
and referenced in, the Loan Agreement (hereinafter defined) in any manner,
including without limitation, to any account or arrangement evidenced or created
by, or provided for in, this Note.
In no event shall the aggregate of the interest on this Note, plus any
other amounts paid in connection with the loan evidenced by this Note which
would under Applicable Law be deemed "interest," ever exceed the maximum amount
of interest which, under Applicable Law, could be lawfully charged on this Note.
The Bank and the Borrower specifically intend and agree to limit contractually
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<PAGE>
the interest payable on this Note to not more than an amount determined at the
Maximum Rate. Therefore, none of the terms of this Note or any other instruments
pertaining to or securing this Note shall ever be construed to create a contract
to pay interest at a rate in excess of the Maximum Rate, and neither the
Borrower nor any other party liable herefor shall ever be liable for interest in
excess of that determined at the Maximum Rate, and the provisions of this
paragraph shall control over all provisions of this Note or of any other
instruments pertaining to or securing this Note. If any amount of interest taken
or received by the Bank shall be in excess of the maximum amount of interest
which, under Applicable Law, could lawfully have been collected on this Note,
then the excess shall be deemed to have been the result of a mathematical error
by the parties hereto and shall be refunded promptly to the Borrower. All
amounts paid or agreed to be paid in connection with the indebtedness evidenced
by this Note which would under Applicable Law be deemed "interest" shall, to the
extent permitted by Applicable Law, be amortized, prorated, allocated and spread
throughout the full term of this Note.
This Note is the Revolving Note referred to in and is entitled to the
benefits of a certain Loan Agreement, dated as of October 25, 1996 (as the same
may be amended, modified, supplemented, extended, rearranged and/or restated
from time to time, the "Loan Agreement"), entered into by and among
Tanknology-NDE International, Inc., (f/k/a NDE Environmental Corporation) et
al., as Borrower, and Bank One, Texas, National Association and secured by the
Collateral Documents (as such term is defined in the Loan Agreement). Reference
is hereby made to the Loan Agreement for a statement of the prepayment rights
and penalties and obligations of the Borrower, a description of the properties
and assets mortgaged, encumbered and assigned, the nature and extent of the
security and the rights of the parties to the Collateral Documents in respect of
such security, and for a statement of the terms and conditions under which the
due date of this Note may be accelerated. Upon the occurrence of any Event of
Default as specified in the Loan Agreement, the principal balance hereof and the
interest accrued hereon may be declared to be forthwith due and payable in
accordance with the Loan Agreement, and any indebtedness of the holder hereof to
the Borrower may be appropriated and applied hereon.
In addition to and not in limitation of the foregoing, the undersigned
further agrees, subject only to any limitation imposed by applicable law, to pay
all reasonable expenses, including reasonable attorneys' fees and legal
expenses, incurred by the holder of this Note in endeavoring to collect any
amounts payable hereunder which are not paid when due, whether by acceleration
or otherwise.
All parties hereto, whether as makers, endorsees, or otherwise, severally
waive presentment for payment, demand, protest, notice of intent to accelerate,
notice of acceleration and notice of dishonor.
This Note is issued in substitution for, and in replacement, modification,
rearrangement, renewal and extension of, but not in extinguishment of, the
outstanding principal indebtedness evidenced by that certain note of
Tanknology-NDE International, Inc. (f/k/a NDE Environmental Corporation),
Tanknology/NDE Corporation, ProEco, Inc., 2368692 Canada, Inc. (f/k/a/
Tanknology Canada (1988) Inc.) and Ustman Industries, Inc., dated October 25,
1996, payable to the order of Bank One, Texas, N.A. in the original principal
sum of $5,000,000.00, (the "Prior Note"); it being acknowledged and agreed by
Borrower that the indebtedness evidenced by this Note constitutes an extension
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<PAGE>
and renewal of the outstanding principal indebtedness evidenced by the Prior
Note, and that all security interests and other liens which secure the repayment
of the Prior Note shall continue to secure the indebtedness evidenced by this
Note.
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE
OF TEXAS AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
EXECUTED this 23rd day of December, 1997.
TANKNOLOGY-NDE INTERNATIONAL,
INC.
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
Chairman of the Board
TANKNOLOGY/NDE CORPORATION
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
Chairman of the Board
TANKNOLOGY-NDE CONSTRUCTION
SERVICES, INC.
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
Chairman of the Board
PROECO, INC.
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
Chairman of the Board
2368692 CANADA, INC.
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
President
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EXHIBIT "B"
Agreement of Indemnity
<PAGE>
EXHIBIT "C"
Form of Surety Subordination Agreement
<PAGE>
EXHIBIT "D"
Form of Intercreditor and Subordination Agreement
<PAGE>
EXHIBIT "E"
Form of Stock Warrant Certificate
(in favor of Bank One)
<PAGE>
EXHIBIT "F"
Form of Standby Commitment
<PAGE>
EXHIBIT "G-1"
Form of Opinion of Counsel for Borrower
<PAGE>
EXHIBIT "G-2"
Form of Opinion of counsel for DH Holdings Corp.
<PAGE>
<PAGE>
EXHIBIT 10.56
AMENDED AND RESTATED STANDBY COMMITMENT
This AMENDED AND RESTATED STANDBY COMMITMENT (this "Agreement") is made as
of this 23rd day of December, 1997, by and among Proactive Partners, L.P., a
California limited partnership (the "Stockholder"); Tanknology-NDE
International, Inc., a Delaware corporation (the "Borrower"); and Bank One,
Texas, N.A., a national banking association (the "Lender").
WHEREAS, the Lender, the Borrower, and certain of the Borrower's
subsidiaries have entered into that certain Loan Agreement dated as of October
25, 1996, as amended by Amendment No. 1 and Amendment No. 2 thereto (the "Loan
Agreement"), whereby the Lender agreed to make certain loans and other financial
accommodations available to the Borrower upon the terms and conditions therein
contained, such loans and accommodations evidenced by a Revolving Note and a
Term Note dated as of October 25, 1996 (the "Notes"); and
WHEREAS, Bank One Capital Partners, L.L.C., an Ohio limited liability
company ("BOCP") (formerly Bank One Capital Partners, L.P.), the Borrower and
certain of Borrower's subsidiaries entered into that certain Note and Warrant
Purchase Agreement dated as of October 25, 1996 ("BOCP Note Purchase
Agreement"), whereby BOCP made a loan and other financial accommodations
available to the Borrower on the terms and conditions therein contained; and
WHEREAS, as a condition to the obligations of the Lender to make any loans
under the Loan Agreement and the obligations of BOCP to make loans under the
Note Purchase Agreement, the Stockholder executed a Standby Commitment, dated as
of October 25, 1996 ("Standby Commitment"), to grant further assurance to the
Lender and BOCP regarding the ability of the Borrower to pay its obligations
under the Loan Agreement and the Note Purchase Agreement; and
WHEREAS, the Borrower has requested that the Lender enter into Amendment
No. 3, dated the date hereof, to the Loan Agreement ("Amendment No. 3 to the
Loan Agreement") amending certain provisions thereof and permitting the Borrower
to repay its obligations under, and terminate, the BOCP Note Purchase Agreement
and the agreements and instruments entered into pursuant thereto and to enter
into a Note, Preferred Stock, and Warrant Purchase Agreement with DH Holdings
Corp., a Delaware Corporation ("DHH"), dated the date hereof ("DH Note Purchase
Agreement"), and certain other documents and instruments pursuant thereto in
substitution for and replacement of the BOCP Note Purchase Agreement; and
WHEREAS, after the consummation of the transactions contemplated by the DH
Note Purchase Agreement and Amendment No. 3 to the Loan Agreement, the
Stockholder will be the owner of approximately 35% of the issued and outstanding
shares of common stock of the Borrower (assuming that all shares of common stock
of Borrower issuable (a) upon exercise of the Warrants under the Warrant
Certificate, dated the date hereof, issued by the Borrower to the Lender
<PAGE>
pursuant to Amendment No. 3 to the Loan Agreement and (b) upon exercise of the
Warrants under the Warrant Certificate, dated the date hereof, and upon
conversion of the shares of Series A Redeemable Convertible Preferred Stock
("Preferred Stock"), dated the date hereof, issued by the Borrower to DH
pursuant to the DH Note Purchase Agreement, were outstanding);
WHEREAS, as the owner of such percentage of the issued and outstanding
Common Stock of the Borrower, the Stockholder will benefit from the execution of
Amendment No. 3 to the Loan Agreement and the execution by the Borrower of the
DH Note Purchase Agreement; and
WHEREAS, the execution of this Agreement is a condition precedent to the
Lender's execution of Amendment No. 3 to the Loan Agreement;
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lender to enter into Amendment No. 3 to the Loan Agreement and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Stockholder's Contribution to Borrower.
(a) The Stockholder hereby agrees that if a timely payment is not made on
the Notes as required by the Loan Agreement or the Note, the
Stockholder will, at the direction of the Lender, invest One Million
Dollars ($1,000,000) in the Borrower and the Borrower shall
contemporaneously execute and deliver to the Stockholder an unsecured
subordinate note (the "Subordinate Note") substantially in the form
and substance of Exhibit A attached hereto.
(b) The Borrower agrees to use any loan made available to it under
paragraph (a) to repay principal and interest on the Notes.
2. Representations and Warranties. The Stockholder represents and warrants
to the Lender that:
(a) The Stockholder is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of
California. The Stockholder is qualified to transact business in, and
is in good standing under the laws of, all jurisdictions in which the
Stockholder is required by applicable law to maintain such
qualification, except where the failure to so qualify would not have a
material adverse effect on the Stockholder;
(b) The Stockholder has full power, authority and legal right to execute
this Agreement;
(c) This Agreement has been duly authorized, executed and delivered by the
Stockholder and constitutes the legal, valid and binding obligation of
the Stockholder enforceable against the Stockholder in accordance with
its terms;
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<PAGE>
(d) No consent, approval or authorization of or designation or filing with
any Person on the part of the Stockholder is required in connection
with the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby;
(e) The execution, delivery and performance of this Agreement will not
violate any provision of any applicable law or regulation or of any
order, judgment, writ, award or decree of any court, arbitrator or
governmental authority, domestic or foreign, or of the Stockholder's
partnership agreement (as amended and supplemented, the "Partnership
Agreement"), or of any mortgage, indenture, lease, contract, or other
agreement, instrument or undertaking to which the Stockholder is a
party or which purports to be binding upon the Stockholder or upon any
of its assets;
(f) The Stockholder will at all times during the term of this Agreement
possess, or have unrestricted access to, sources of cash sufficient to
carry out its obligations hereunder; and
(g) After giving effect to the transactions contemplated by Amendment No.
3 to the Loan Agreement and the DH Note Purchase Agreement, the
Stockholder will be the beneficial owner of record of approximately
35% of the issued and outstanding common stock of the Borrower
(assuming that all shares of common stock of Borrower issuable
(a) upon exercise of the Warrants under the Warrant Certificate, dated
the date hereof, issued by the Borrower to the Lender pursuant to
Amendment No. 3 to the Loan Agreement and (b) upon exercise of the
Warrants under the Warrant Certificate, dated the date hereof, and
upon conversion of the shares of Preferred Stock, dated the date
hereof, issued by the Borrower to DH under the DH Note Purchase
Agreement, were outstanding).
3. Termination. This Agreement shall terminate upon the payment in full of
the Notes.
4. Successors; Applicable Law. This Agreement and all obligations of the
parties hereto shall be binding upon the successors and assigns of each of them
and shall, together with the rights of the Lender and the Borrower, inure to the
benefit of the Lender and the Borrower, and their respective successors and
assigns. This Agreement shall be governed by, and be construed and interpreted
in accordance with, the internal laws (as opposed to conflicts of law
provisions) of the State of Texas.
5. Entire Agreement. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes all other
understandings, oral or written, with respect to the subject matter hereof.
6. Reliance by Lender. All covenants, agreements, representations and
warranties made herein shall, notwithstanding any investigation by the Lender,
be deemed to be material to, and to have been relied upon by, the Lender.
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<PAGE>
7. Waiver. The Lender's failure, at any time or times hereafter, to require
strict performance by any party hereto of any provision of this Agreement shall
not waive, affect or diminish any right of the Lender thereafter to demand
strict compliance and performance therewith. Any suspension or waiver by the
Lender of a default under this Agreement shall not suspend, waive or affect any
other default under this Agreement whether the same is prior or subsequent
thereto and whether of the same or of a different kind or character. None of the
undertakings, agreements, warranties, covenants and representations of the
parties hereto contained in this Agreement and no default by the parties under
this Agreement shall be deemed to have been suspended or waived by the Lender,
unless such suspension or waiver is in writing and signed by an officer of the
Lender, and directed to the other parties hereto, specifying such suspension or
waiver. This Agreement may not be modified or amended, except in a written
agreement signed by all of the parties hereto.
8. Parties. Whenever in this Agreement reference is made to any of the
parties hereto, such reference shall be deemed to include, wherever applicable,
a reference to the successors and assigns of the parties hereto.
9. Section Titles. The section titles contained in this Agreement shall be
without substantive meaning or content of any kind whatsoever and are not a part
of the agreement between the parties.
10. Notices. Except as otherwise expressly provided herein, any notice
required or desired to be served, given or delivered hereunder shall be in
writing, and shall, if sent by United States mail, certified or registered mail,
return receipt requested, with proper postage prepaid, be deemed to have been
validly served, given or delivered upon receipt by the sender of such notice of
a return receipt or upon delivery by courier or upon transmission by telex,
telecopy or similar electronic medium to the following addresses:
(i) If to the Stockholder, at:
Proactive Partners, L.P.
50 Osgood Place, Penthouse
San Francisco, CA 94153
Attention: Charles McGettigan
(ii) If to the Lender, at:
Bank One, Texas, N.A.
910 Travis
Houston, Texas 77002
Attention: Charles Kingswell-Smith
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<PAGE>
(iii) If to the Borrower, at:
Tanknology-NDE International, Inc.
8900 Shoal Creek Bldg. 200
Austin, Texas 78757
Attention: Jay Allen Chaffee
or to such other address as each party designates to the other in the manner
herein prescribed.
12. No Fiduciary Relationship. No provision herein or in any of the other
Loan Documents and no course of dealing between the parties shall be deemed to
create any fiduciary duty by the Lender to the Stockholder or any partner of the
Stockholder.
13. Definition of Stockholder. After completion of the Stockholder's
funding obligations under Section 2, the term "Stockholder" shall include any
assignee of the Stockholder.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the date first above written.
PROACTIVE PARTNERS, L.P.
By: Proactive Investment Managers, L.P.,
its General Partner
By: //s// C. C. McGETTIGAN
Charles C. McGettigan
General Partner
BANK ONE, TEXAS, N.A.
By: //s// GARY L. STONE
Name: Gary L. Stone
Title: Senior Vice President
TANKNOLOGY-NDE INTERNATIONAL, INC.
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
Chairman of the Board
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<PAGE>
EXHIBIT 10.57
- --------------------------------------------------------------------------------
Termination Agreement
- --------------------------------------------------------------------------------
Dated as of December 10, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS...................................................-2-
1.01 "Closing" ...........................................-2-
1.02 "Closing Date" ......................................-2-
1.03 "Capital Stock" .....................................-2-
1.04 "Note and Warrant Purchase Agreement"................-2-
1.05 "Related Agreements" ................................-3-
1.06 "Senior Subordinated Note"...........................-3-
1.07 "Stated Interest Rate"...............................-3-
1.08 "Subsidiaries" ......................................-3-
ARTICLE 2 CLOSING DATE..................................................-3-
2.01 Closing Date. ......................................-3-
2.02 Extension of Closing Date............................-3-
ARTICLE 3 OBLIGATIONS OF NDE............................................-3-
3.01 NDE Payment to BOCP..................................-3-
3.02 Post Closing Agreement...............................-4-
ARTICLE 4 RELEASES BY NDE AND ITS SUBSIDIARIES..........................-4-
4.01 Surrender of Claims and Rights by NDE and its
Subsidiaries. ......................................-4-
4.02 Release of BOCP and Related Parties..................-4-
ARTICLE 5 OBLIGATIONS OF BOCP...........................................-4-
5.01 Cancellation of Senior Subordinated Note.............-4-
5.02 Return of Certificates, etc..........................-4-
5.03 Execution of Post Closing Agreement..................-4-
5.04 Resignation of Director..............................-5-
5.05 Consent of Bank One, Texas, N.A......................-5-
ARTICLE 6 RELEASES BY BOCP..............................................-5-
6.01 Surrender of Claims and Rights by BOCP. ............-5-
6.02 Release of NDE and Related Parties...................-5-
6.03 Release of Security Interests. .....................-5-
ARTICLE 7 REPRESENTATIONS OF NDE AND ITS SUBSIDIARIES...................-5-
7.01 Organization. ......................................-5-
7.02 No Conflicts.........................................-6-
7.03 Enforceability.......................................-6-
7.04 Authorization and Consents...........................-6-
<PAGE>
ARTICLE 8 REPRESENTATIONS OF BOCP.......................................-6-
8.01 Organization.........................................-6-
8.02 Knowledge of BOCP....................................-6-
8.03 No Conflicts.........................................-6-
8.04 Enforceability.......................................-7-
8.05 Authorization and Consents...........................-7-
ARTICLE 9 MISCELLANEOUS PROVISIONS......................................-7-
9.01 Modifications, Amendments or Waivers. ..............-7-
9.02 Governing Law. .....................................-7-
9.03 Rules of Construction................................-7-
9.04 Further Acts and Documents...........................-8-
9.05 Counterparts. ......................................-8-
9.06 Terms and Conditions Contingent upon Closing.........-8-
<PAGE>
TERMINATION AGREEMENT
This is a Termination Agreement dated as of December 10, 1997
("Termination Agreement") by and between Tanknology-NDE International, Inc., a
Delaware corporation ("NDE"), Tanknology/NDE Corporation ("TNDE"), a Delaware
corporation, ProEco, Inc. ("ProEco"), a Delaware corporation, and 2368692 Canada
Inc., a Canadian Federal corporation ("Canada") and Banc One Capital Partners,
LLC, a Delaware limited liability company and the successor by merger to Banc
One Capital Partners, L.P., an Ohio limited partnership ("BOCP").
NDE, TNDE, ProEco and Canada are sometimes referred to collectively as
the "Debtors" and individually as a "Debtor". The Debtors and BOCP are referred
to individually as a "Party" and collectively as the "Parties."
WITNESSETH
WHEREAS, Tanknology-NDE International, Inc. was formerly known as "NDE
Environmental Corporation"; and
WHEREAS, 2368692 Canada Inc. was formerly known as "Tanknology of
Canada (1988), Inc."; and
WHEREAS, Debtors entered into a Note and Warrant Purchase Agreement
with BOCP dated as of October 25, 1996; and
WHEREAS, pursuant to the Note and Warrant Purchase Agreement, Debtors
and BOCP entered into (i) the Senior Subordinated Note, dated October 25, 1996,
in the principal amount of $8,000,000 and due on December 31, 2001 and (ii) the
Security Agreement - Personal Property, dated as of October 25, 1996; and
WHEREAS, pursuant to the Note and Warrant Purchase Agreement, NDE and
BOCP entered into the Security Agreement - Pledge of Subsidiary Stock, the Put
Option Agreement, the Preemptive Rights Agreement, the Registration Rights
Agreement, and the Co-Sale Agreement, each dated as of October 25, 1996; and
WHEREAS, pursuant to the Note and Warrant Purchase Agreement, BOCP and
certain shareholders of NDE entered into a Shareholder Agreement, dated as of
October 25, 1996 (the "Shareholder Agreement"); and
WHEREAS, pursuant to the Note and Warrant Purchase Agreement, BOCP,
Bank One, Texas, N.A., NDE and Proactive Partners, L.P., a California limited
partnership, entered into a Standby Commitment, dated as of October 25, 1996
(the "Standby Commitment"); and
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<PAGE>
WHEREAS, USTMAN Industries, Inc., a Delaware corporation ("USTMAN"),
was also a party to (i) the Note and Warrant Purchase Agreement, (ii) the Senior
Subordinated Note and (iii) the Security Agreement - Personal Property; and
USTMAN, formerly a subsidiary of NDE, has since been sold with the consent of
BOCP and released from each of the foregoing; and
WHEREAS, pursuant to the Note and Warrant Purchase Agreement, NDE
issued a Warrant Certificate representing the grant to BOCP of warrants to
purchase 13,022,920 shares of Capital Stock (the "Warrant Certificate"); and
WHEREAS, pursuant to the Note and Warrant Purchase Agreement and the
Shareholder Agreement, certain Shareholders of NDE caused the nominee of BOCP to
be elected to NDE's Board of Directors, and NDE provided BOCP with financial and
other information concerning the business, operations and conditions of NDE and
its Subsidiaries; and
WHEREAS, Debtors and BOCP desire that Debtors shall repay the Senior
Subordinated Note and that BOCP shall terminate the Note and Warrant Purchase
Agreement, Warrant Certificate, Related Agreements and Shareholder Agreement and
the rights and obligations of BOCP under the Standby Commitment; and
WHEREAS, the Senior Subordinated Note contains certain provisions
prohibiting the prepayment of the Senior Subordinated Note before September 30,
1998 ("Prepayment Restriction"); and
WHEREAS, the Parties have agreed upon the terms and conditions upon
which the Note and Warrant Purchase Agreement, Warrant Certificate, Related
Agreements and Shareholder Agreement and the rights and obligations of BOCP
under the Standby Commitment will be terminated;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Parties agree as
follows:
ARTICLE 1
DEFINITIONS
1.01 "Closing" is defined in Section 2.01
1.02 "Closing Date" is defined in Section 2.02.
1.03 "Capital Stock" means the shares of common stock, par value
$0.0001 per share, of NDE.
-2-
<PAGE>
1.04 "Note and Warrant Purchase Agreement" means the Note and Warrant
Purchase Agreement dated as of October 25, 1996 by and between Debtors and BOCP.
1.05 "Related Agreements" means the Senior Subordinated Note, Security
Agreement - Personal Property, dated as of October 25, 1996 by and between BOCP
and Debtors; Security Agreement - Pledge of Subsidiary Stock, dated as of
October 25, 1996 by and between NDE and BOCP; the Put Option Agreement, dated as
of October 25, 1996 by and between NDE and BOCP; the Preemptive Rights
Agreement, dated as of October 25, 1996 by and between NDE and BOCP; the
Registration Rights Agreement, dated as of October 25, 1996 by and between NDE
and BOCP; and the Co-Sale Agreement, dated as of October 25, 1996 by and among
NDE, BOCP and specified shareholders.
1.06 "Senior Subordinated Note" means the Senior Subordinated Note
dated October 25, 1996 in the principal amount of $8,000,000, due on December
31, 2001.
1.07 "Stated Interest Rate" means the stated interest rate in the
Senior Subordinated Note which is 13% per annum.
1.08 "Subsidiaries" means TNDE, ProEco and Canada.
ARTICLE 2
CLOSING DATE
2.01 Closing Date. Subject to any extension pursuant to Section 2.02
hereof, the closing of the transactions contemplated by this Termination
Agreement (the "Closing") shall occur on December 31, 1997 ("Closing Date").
2.02 Extension of Closing Date. NDE, in its sole discretion and upon 1
day's written notice to BOCP, may unilaterally extend the Closing Date of this
Termination Agreement to any date not later than January 31, 1998; provided
that, for any period after December 31, 1997 and until the Closing on such
extended Closing Date, the interest payable pursuant to the Senior Subordinated
Note shall be calculated by increasing the Stated Interest Rate by 3% (that is
from 13% per annum to 16% per annum); further provided that, if the Closing does
not occur, all interest payable pursuant to the Senior Subordinated Note shall
be calculated using only the Stated Interest Rate in accordance with the terms
of the Senior Subordinated Note. The term "Closing Date" shall refer to the
closing date stated in Section 2.01 or extended in accordance with Section 2.02,
as applicable.
ARTICLE 3
OBLIGATIONS OF NDE
3.01 NDE Payment to BOCP. Subject to the terms and conditions of this
Termination Agreement and at the Closing, NDE shall pay to BOCP the sum of (a)
the face amount of the Senior Subordinated Note (which is $8,000,000), plus (b)
$500,000 in consideration of the waiver of the Prepayment Restriction, plus (c)
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<PAGE>
all accrued but unpaid interest on the Senior Subordinated Note as of the
Closing Date. Such payment shall be made in cash at the Closing.
3.02 Post Closing Agreement. Subject to the terms and conditions of
this Termination Agreement and at the Closing, NDE shall execute and deliver to
BOCP the Post Closing Agreement in substantially the form attached hereto as
Exhibit A.
ARTICLE 4
RELEASES BY NDE AND ITS SUBSIDIARIES
4.01 Surrender of Claims and Rights by NDE and its Subsidiaries.
Subject to the terms and conditions of this Termination Agreement and at the
Closing, NDE and its Subsidiaries shall release, discharge and surrender to
BOCP, any and all rights and claims which they now have, then have, or in the
future may have, either directly or indirectly, against BOCP or any other person
or entity under or arising out of the Note and Warrant Purchase Agreement or any
of the Related Agreements.
4.02 Release of BOCP and Related Parties. Subject to the terms and
conditions of this Termination Agreement and at the Closing, NDE and its
Subsidiaries shall release and discharge all officers, partners, employees,
agents, attorneys and controlling persons of BOCP from any and all claims which
they now have, then have, or in the future may have, either directly or
indirectly, under or arising out of the Note and Warrant Purchase Agreement or
any of the Related Agreements.
ARTICLE 5
OBLIGATIONS OF BOCP
5.01 Cancellation of Senior Subordinated Note. Subject to the terms
and conditions of this Termination Agreement and at the Closing, BOCP shall
deliver to NDE for cancellation, at the Closing, the original Senior
Subordinated Note with BOCP's notation on the face of the Senior Subordinated
Note that the Senior Subordinated Note has been paid in full.
5.02 Return of Certificates, etc. Subject to the terms and conditions
of this Termination Agreement and at the Closing, BOCP shall deliver to NDE for
cancellation or termination (as applicable) and NDE shall cancel or terminate
(as applicable), any and all stock certificates, warrant certificates (including
without limitation the Warrant Certificate), security instruments and all other
instruments which were granted to BOCP pursuant to the Note and Warrant Purchase
Agreement, any of the Related Agreements, Shareholder Agreement or Standby
Commitment.
5.03 Execution of Post Closing Agreement. Subject to the terms and
conditions of this Termination Agreement and at the Closing, BOCP shall execute
the Post Closing Agreement attached hereto as Exhibit A.
-4-
<PAGE>
5.04 Resignation of Director. Subject to the terms and conditions of
this Termination Agreement and at the Closing, BOCP shall deliver to NDE,
effective on the Closing Date, the written resignation of BOCP's nominee, Mark
Bober, from the NDE Board of Directors.
5.05 Consent of Bank One, Texas, N.A. BOCP shall use its commercially
reasonable best efforts to obtain, and as a condition to the obligations of NDE
and its Subsidiaries hereunder and subject to the terms and conditions of this
Termination Agreement and at the Closing, BOCP shall deliver to NDE the written
consent of Bank One, Texas, N.A. to all of the transactions contemplated by this
agreement, including, but not limited to, NDE's payment of and BOCP's
cancellation of the Senior Subordinated Note and the Warrant Certificate and the
termination of the Note and Warrant Purchase Agreement, Related Agreements,
Shareholder Agreement, and Standby Committment.
ARTICLE 6
RELEASES BY BOCP
6.01 Surrender of Claims and Rights by BOCP. Subject to the terms and
conditions of this Termination Agreement and at the Closing, BOCP shall release,
discharge and surrender to NDE, any and all rights and claims which it now has,
then has, or in the future may have, either directly or indirectly, against NDE,
the Subsidiaries, or any other person or entity under or arising out of the Note
and Warrant Purchase Agreement, the Warrant Certificate or any of the Related
Agreements, Shareholder Agreement and rights of BOCP under the Standby
Commitment.
6.02 Release of NDE and Related Parties. Subject to the terms and
conditions of this Termination Agreement and at the Closing, BOCP shall release
and discharge all officers, directors, employees, agents, attorneys and
controlling persons of NDE or any of its Subsidiaries from any and all claims
which it now has, then has, or in the future may have, either directly or
indirectly, under or arising out of the Note and Warrant Purchase Agreement,
Warrant Certificate or any of the Related Agreements, the Shareholder Agreement
or the Standby Commitment.
6.03 Release of Security Interests. Subject to the terms and
conditions of this Termination Agreement and at the Closing, BOCP shall release
any and all security interests in any assets or property of NDE or any of its
Subsidiaries including any security interest in any stock of any of the
Subsidiaries of NDE which it may hold pursuant to the Note and Warrant Purchase
Agreement or any of the Related Agreements, including, without limitation, the
Security Agreement - Personal Property and the Security Agreement - Pledge of
Subsidiary Stock, and shall deliver in form suitable for filing releases of all
recorded or filed security interests.
ARTICLE 7
REPRESENTATIONS OF NDE AND ITS SUBSIDIARIES
7.01 Organization. NDE and each of its Subsidiaries is a corporation
duly incorporated and validly existing under the laws of the jurisdiction of its
formation. The execution and delivery of this Termination Agreement and any
instrument or agreement required by this Termination Agreement are within the
-5-
<PAGE>
corporate powers of NDE and its Subsidiaries, have been duly authorized and are
not in conflict with the terms of the respective charters, bylaws or other
organizational documents of NDE or its Subsidiaries.
7.02 No Conflicts. The execution, delivery and performance of this
Termination Agreement and any other instrument or agreement required by this
Termination Agreement are not, assuming that the consent of Bank One, Texas,
N.A. referred to in Section 5.05 above is obtained, in conflict with any law or
any material indenture, agreement or undertaking to which NDE or any one of its
Subsidiaries is a party or by which NDE or any one of its Subsidiaries is bound
or affected.
7.03 Enforceability. This Termination Agreement is a legal, valid and
binding agreement of NDE and its Subsidiaries enforceable against NDE and its
Subsidiaries in accordance with its terms, and every instrument or agreement
required under this Termination Agreement, when executed and delivered, will be
legal, valid, binding and enforceable against NDE and its Subsidiaries in
accordance its respective terms.
7.04 Authorization and Consents. No approval, consent, compliance,
exemption, authorization or other action by, or notice to, or filing with, any
governmental authority or any other person or entity (other than that of Bank
One, Texas, N.A. referred to in Section 5.05 above) pursuant to applicable law,
and no lapse of any waiting period under any applicable law, is necessary or
required in connection with the execution, delivery and performance by NDE and
its Subsidiaries or enforcement against NDE and its Subsidiaries of this
Termination Agreement or the transactions contemplated hereby and thereby.
ARTICLE 8
REPRESENTATIONS OF BOCP
8.01 Organization. BOCP is a Delaware limited liability company duly
organized and validly existing under the laws of the state of its formation. The
execution and delivery of this Termination Agreement and any instrument or
agreement required by this Termination Agreement are within BOCP's limited
liability company powers, have been duly authorized and are not in conflict with
the terms of the organization agreement or certificate or other organizational
documents of BOCP.
8.02 Knowledge of BOCP. BOCP is aware of and has investigated NDE and
its Subsidiaries' business, management and financial condition, has had the
opportunity to inspect NDE and its Subsidiaries' facilities and has had access
to all such other information about NDE and its Subsidiaries' as BOCP has deemed
necessary or desirable to reach an informed and knowledgeable decision to effect
the transactions pursuant to the terms and conditions of this Termination
Agreement.
8.03 No Conflicts. The execution, delivery and performance of this
Termination Agreement and any other instrument or agreement required by this
Termination Agreement are not, assuming that the consent of Bank One, Texas,
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<PAGE>
N.A. referred to in Section 5.05 above is obtained, in conflict with any law or
any material indenture, agreement or undertaking to which BOCP is a party or by
which BOCP is bound or affected.
8.04 Enforceability. This Termination Agreement is a legal, valid and
binding agreement of BOCP enforceable against BOCP in accordance with its terms,
and every instrument or agreement required under this Termination Agreement,
when executed and delivered, will be legal, valid, binding and enforceable
against BOCP in accordance with its respective terms.
8.05 Authorization and Consents. No approval, consent, compliance,
exemption, authorization or other action by, or notice to, or filing with, any
governmental authority or any other person or entity (other than Bank One,
Texas, N.A. referred to in Section 5.05 above) pursuant to applicable law, and
no lapse of any waiting period under any applicable law, is necessary or
required in connection with the execution, delivery and performance by BOCP or
enforcement against BOCP of this Termination Agreement or the transactions
contemplated hereby and thereby.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.01 Modifications, Amendments or Waivers. NDE, its Subsidiaries and
BOCP may enter into written agreements amending or changing any provision of
this Termination Agreement or the rights hereunder or give waivers or consents
to a departure from the due performance of their obligations hereunder, with
such waivers or consents not to be unreasonably withheld, provided that no
departure from a Party's due performance of its obligations hereunder shall be
effective unless agreed to in writing by the other Parties.
9.02 Governing Law. This Termination Agreement shall be governed by
and construed in accordance with the laws of the State of Ohio.
9.03 Rules of Construction. Unless otherwise specified, the following
rules shall be applied in construing the provisions of this Termination
Agreement:
(i) Terms that imply gender shall be construed to apply to all
genders.
(ii) Headings to the various Articles and Sections of this
Termination Agreement are included solely for purposes of
reference and shall be ignored in construing the provisions
of this Termination Agreement.
(iii)"Herein", "hereto", "hereof" and words of similar import
refer to this Termination Agreement.
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(iv) Any reference to any agreement or other document in this
Termination Agreement refers to that agreement or other
document as amended from time to time.
(v) The recitals included in this Termination Agreement are the
mutual representations of the Parties and are a part of this
Termination Agreement.
9.04 Further Acts and Documents. Each of the Parties hereby agrees to
execute and deliver all such further instruments and to do all such further acts
and things requested by any of the other Parties hereto, or as may be necessary
or desirable, to carry out the purposes of this Termination Agreement.
9.05 Counterparts. This Termination Agreement may be executed in
multiple counterparts, each of which shall be deemed to be an original and all
of which shall constitute one and the same agreement.
9.06 Terms and Conditions Contingent upon Closing. All rights, duties,
and obligations of the Parties pursuant to this Termination Agreement are
contingent upon the receipt of payment by BOCP pursuant to Section 3.01 hereof,
on or before January 31, 1998. In the event that BOCP does not receive such
payment, this Termination Agreement shall be null and void and of no effect.
The Parties have caused this Termination Agreement to be executed and
delivered effective as of the date first written above.
TANKNOLOGY-NDE INTERNATIONAL, INC. BANC ONE CAPITAL PARTNERS, LLC
By: Banc One Capital Partners Holdings,
Ltd, Manager
By: BOCP Holdings Corporation, Manager
By: //s// JAY ALLEN CHAFFEE By: //s// WILLIAM P. LEAHY
William P. Leahy
Authorized Signer
Its: Chairman of the Board
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<PAGE>
TANKNOLOGY/NDE CORPORATION
By: //s// JAY ALLEN CHAFFEE
Its: Chairman of the Board
PROECO, INC.
By: //s// JAY ALLEN CHAFFEE
Its: Chairman of the Board
2368692 CANADA INC.
By: //s// JAY ALLEN CHAFFEE
Its: President
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EXHIBIT A
------------------------------------------
Post Closing Agreement
------------------------------------------
Dated as of ________, 1997
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<PAGE>
POST CLOSING AGREEMENT
This is a Post Closing Agreement dated as of ___________, 1997 (the
"Post Closing Agreement") by and between Tanknology-NDE International, Inc., a
Delaware corporation ("NDE"), and Banc One Capital Partners, LLC, a Delaware
limited liability company and the successor by merger to Banc One Capital
Partners, L.P., an Ohio limited partnership ("BOCP").
NDE and BOCP are referred to individually as a "Party" and
collectively as the "Parties."
WITNESSETH
WHEREAS, Tanknology-NDE International, Inc. was formerly known as "NDE
Environmental Corporation"; and
WHEREAS, Banc One Capital Partners, LLC, a Delaware limited liability
company is the successor by merger to Banc One Capital Partners, L.P., an Ohio
limited partnership; and
WHEREAS, NDE and certain of its subsidiaries entered into a Note and
Warrant Purchase Agreement with BOCP dated as of October 25, 1996 (the "Note and
Warrant Purchase Agreement"); and
WHEREAS, pursuant to the Note and Warrant Purchase Agreement, NDE (in
some cases together with its subsidiaries) and BOCP entered into (i) the Senior
Subordinated Note dated October 25, 1996 in the principal amount of $8,000,000
and due on December 31, 2001, (ii) the Security Agreement - Personal Property
dated as of October 25, 1996, (iii) the Security Agreement - Pledge of
Subsidiary Stock dated as of October 25, 1996, (iv) the Put Option Agreement
dated as of October 25, 1996, (v) the Preemptive Rights Agreement dated as of
October 25, 1996, (vi) the Registration Rights Agreement dated as of October 25,
1996, and (vi) the Co-Sale Agreement dated as of October 25, 1996 (hereinafter
collectively referred to as the "Related Agreements"); and
WHEREAS, the Parties have agreed upon the terms and conditions upon
which the Note and Warrant Purchase Agreement, Related Agreements and certain
other agreements will be terminated;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Parties agree as
follows:
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ARTICLE I
POST CLOSING PAYMENT
Section 1.1 Post Closing Payment. In exchange for BOCP's surrender and
release of all warrants which were issued pursuant to the Note and Warrant
Purchase Agreement and Related Agreements or otherwise held by BOCP, NDE
covenants and agrees that it will pay the Post Closing Payment Amount determined
in accordance with Section 1.3 hereof upon the closing of any one of the
Triggering Events as defined in Section 1.2 hereof.
Section 1.2 Triggering Events. The entering into any written
agreement, understanding or letter of intent providing for any one of the
following transactions on or before March 31, 1999 shall constitute a
"Triggering Event"; provided that the closing of such transaction occurs prior
to the later of (i) three months after the date such written agreement,
understanding or letter of intent is entered into, and (ii) March 31, 1999:
(a) the dissolution or liquidation of NDE;
(b) an event or series of events by which any Person (as defined
in the Note and Warrant Purchase Agreement) or Persons (as defined in the Note
and Warrant Purchase Agreement) or other entities acting in concert as a
partnership or other group (a "Group of Persons") shall, as a result of a tender
or exchange offer, open market purchases, privately negotiated purchases,
merger, consolidation or otherwise, have become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 50% or more of the Voting Power
(as defined in the Note and Warrant Purchase Agreement) of the Company;
(c) the Company is merged with or into another corporation or
other entity with the effect that either (i) immediately after such transaction
the stockholders of the Company immediately prior to such transaction hold less
than 50% of the combined Voting Power (as defined in the Note and Warrant
Purchase Agreement) of the corporation or other entity surviving the
transaction, or (ii) the Company is not the surviving corporation of such
transaction;
(d) the Company or its subsidiaries, in a single transaction or
in a series of transactions, directly or indirectly, sell or exchange for cash
or other property or securities, lease or otherwise convey all or substantially
all of the combined assets of the Company and its subsidiaries to any other
Person (as defined in the Note and Warrant Purchase Agreement) or Group of
Persons; or
(e) the Company, any of its subsidiaries or any holders of shares
of any class of its or their capital stock sells any shares of such capital
stock or any securities convertible, directly or indirectly, into shares of such
capital stock pursuant to a registration statement that has been declared
effective by the Securities and Exchange Commission; provided that the gross
proceeds of such sale are at least $20,000,000.
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Section 1.3 Post Closing Payment Amount. The Post Closing Payment
Amount shall be equal to 20% of the amount by which (a) the Market Determined
Value at or as a result of the closing of the Triggering Event exceeds (b) the
Target Amount as defined in Section 1.4 in effect as of the date of the first
written agreement, understanding or letter of intent providing for such
Triggering Event.
The term "Market Determined Value" shall mean with respect to any
Triggering Event (i) the fair market value of all of the then outstanding
capital stock of the Company determined by the Appraiser based solely upon the
terms and conditions of the Triggering Event and determined without giving
consideration to the tax consequences of such sale to the Company or its
stockholders or the existence of this Agreement; or (ii) such other amount as
the Company and BOCP shall otherwise mutually agree upon within ten (10) days
after the date of such closing.
The term "Appraiser" means, with respect to any determination of the
Market Determined Value, an independent appraiser (which shall be an accounting
firm or investment banking firm that is not an affiliate of either the Company
or BOCP) selected in the manner provided for in this definition. Within ten (10)
days after the closing of any Triggering Event, the Company and BOCP shall
endeavor in good faith to select a mutually acceptable Appraiser. If no such
Appraiser is mutually selected within such time period or such longer time
period as the Company and BOCP shall mutually agree upon, then within ten (10)
days thereafter, the Company and BOCP shall each designate an investment banking
firm that is not an Affiliate of either the Company or BOCP and within ten (10)
days thereafter, such investment banking firms shall mutually select the
Appraiser. The Company shall pay the reasonable fees and expenses of the
Appraiser, and, if applicable, the Company and BOCP shall each pay the fees and
expenses of the investment banking firm designated by each of them for the
purpose of selecting the Appraiser.
Section 1.4 Target Amount. The Target Amount shall be determined based
upon the date of the first written agreement, understanding or letter of intent
providing for such Triggering Event. The Target Amount for each of the indicated
periods shall be as follows:
Date hereof thru March 31, 1998 $10,000,000
April 1, 1998 thru June 30, 1998 $12,500,000
July 1, 1998 thru September 30, 1998 $15,000,000
October 1, 1998 thru December 31, 1998 $17,500,000
January 1, 1999 thru March 31, 1999 $20,000,000
Section 1.5 Payment of the Post Closing Payment Amount. Payment of the
Post Closing Payment Amount shall be in kind such that BOCP will be entitled to
receive the same type of consideration in the same relative proportion as the
holders of Capital Stock. Payment shall be made to BOCP on the same date as the
NDE shareholders receive such consideration in exchange for a written and final
release of the obligations of NDE hereunder.
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ARTICLE II
MISCELLANEOUS PROVISIONS
Section 2.1 Modifications, Amendments or Waivers. NDE and BOCP may
enter into written agreements amending or changing any provision of this Post
Closing Agreement or the rights hereunder or give waivers or consents to a
departure from the due performance of their obligations hereunder, with such
waivers or consents not to be unreasonably withheld, provided that no departure
from a Party's due performance of its obligations hereunder shall be effective
unless agreed to in writing by the other Parties.
Section 2.2 Governing Law. This Post Closing Agreement shall be
governed by and construed in accordance with the laws of the State of Ohio.
Section 2.3 Rules of Construction. Unless otherwise specified, the
following rules shall be applied in construing the provisions of this Post
Closing Agreement:
(i) Terms that imply gender shall be construed to apply to all
genders.
(ii) Headings to the various Articles and Sections of this Post
Closing Agreement are included solely for purposes of
reference and shall be ignored in construing the provisions
of this Post Closing Agreement.
(iii)"Herein", "hereto", "hereof" and words of similar import
refer to this Post Closing Agreement.
(iv) Any reference to any agreement or other document in this
Post Closing Agreement refers to that agreement or other
document as amended from time-to-time.
(v) The recitals included in this Post Closing Agreement are the
mutual representations of the Parties and are a part of this
Post Closing Agreement.
Section 2.4 Further Acts and Documents. Each of the Parties hereby
agrees to execute and deliver all such further instruments and to do all such
further acts and things requested by any of the other Parties hereto, or as may
be necessary or desirable, to carry out the purposes of this Post Closing
Agreement.
Section 2.5 Counterparts. This Post Closing Agreement may be executed
in multiple counterparts, each of which shall be deemed to be an original and
all of which shall constitute one and the same agreement.
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Section 2.6 Shareholder Information. NDE will send BOCP copies of all
public filings and such other information which is distributed by NDE to all
holders of Capital Stock through the term of this Post Closing Agreement.
The Parties have caused this Post Closing Agreement to be executed and
delivered effective as of the date first written above.
TANKNOLOGY-NDE INTERNATIONAL, INC. BANC ONE CAPITAL PARTNERS, LLC
By: Banc One Capital Partners Holdings,
Ltd, Manager
By: BOCP Holdings Corporation, Manager
By: By: //s// WILLIAM P. LEAHY
William P. Leahy
Authorized Signer
Its:
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EXHIBIT 10.58
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") effective as of July 1, 1997
(the "Effective Date"), is entered into by and between Tanknology-NDE
International, Inc., a Delaware corporation (the "Company"), and A. Daniel
Sharplin (the "Executive").
WHEREAS, the Executive is an employee of the Company; and
WHEREAS, the parties hereto desire to set forth the terms of the
Executive's employment with the Company.
NOW, THEREFORE, in consideration of the agreements herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Employment. Subject to the terms and conditions set forth below, the
Company agrees to employ the Executive, and the Executive agrees to serve the
Company, in the capacity and for the term specified below.
2. Duties and Responsibilities. Subject to the other provisions hereof and
to the power of the board of directors of the Company (the "Board") to manage
the business and affairs of the Company and to elect and remove its officers and
other managers, the Company will employ the Executive as the President and Chief
Executive Officer of the Company, and the Executive will perform the duties,
functions and services as are customarily or otherwise reasonably incidental to
such positions and such other duties, functions and services as are not
inconsistent with the Executive's status as a manager of the Company as the
Board from time to time may request. The Executive will report directly to the
Board or to such other person as the Board may from time to time determine.
3. Compensation and Other Employee Benefits. As compensation for the
Executive's services hereunder during the Employment Term (as defined in Section
4), the Company agrees as follows:
a. Base Salary. The Company shall pay to the Executive an annual base
salary (the "Base Salary"), subject to such withholdings or other
deductions as may be required by applicable laws or regulations and in
accordance with the then current payroll policies of the Company, of
$200,000 during the period from the Effective Date to December 31,
1997, $225,000 during the period from January 1, 1998 to December 31,
1998, and $250,000 during all periods after December 31, 1998, in each
case pro rated on a daily basis, which Base Salary will be subject to
increase (but not decrease) at the discretion of Compensation
Committee of the Board (the "Compensation Committee") or, in the
absence of the Compensation Committee, at the discretion of the Board
as a whole.
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b. Qualitative Bonus. The Company shall pay to the Executive a
qualitative annual bonus (the "Qualitative Bonus") for each calendar
year ending during the Employment Term. The maximum amount of the
Qualitative Bonus, if any, shall be 25% of the Base Salary for the
Executive during the calendar year for which such Qualitative Bonus is
paid. Notwithstanding the preceding sentence, the maximum amount of
the Qualitative Bonus for the calendar year 1997, if any, shall be 60%
of the Base Salary for the Executive during the calendar year 1997.
The Qualitative Bonus for each calendar year shall be paid on or
before March 31 of the following calendar year. In all other respects,
the payment and the amount of the Qualitative Bonus shall be in the
discretion of the Compensation Committee or, in the absence of the
Compensation Committee, at the discretion of the Board as a whole.
c. Quantitative Bonus. The Company shall pay to the Executive a
quantitative annual bonus (the "Quantitative Bonus") for each calendar
year, other than calendar year 1997, ending during the Employment
Term. The amount of the Quantitative Bonus, if any, shall be
determined in accordance with the terms set forth on Schedule 1
hereto, and the Quantitative Bonus shall be paid on or before March 31
of the following calendar year.
d. Benefits and Reimbursements. Subject to the right of the Company to
amend or terminate any employee benefit, compensation or welfare plan,
the Company shall (i) afford the Executive the right to participate in
(A) such medical and dental plans as the Company makes available to
its exempt salaried employees generally during the Employment Term and
(B) any employee and/or group benefit plans that the Company makes
available to its exempt salaried employees generally during the
Employment Term (including, without limitation, disability, accident,
medical, life insurance and hospitalization plans) and (ii) subject to
the requirements of the business expense reimbursement policies and
procedures of the Company as in effect from time to time, reimburse
the Executive for the reasonable out-of-pocket expenses he incurs in
the course of performing his duties hereunder.
e. Stock Incentives. Pursuant to the Tanknology-NDE International, Inc.
Amended and Restated 1989 Stock Option Plan, as adopted by the
shareholders of the Company upon the recommendation of the Board at
the annual meeting of the shareholders on August 14, 1997 (the
"Incentive Plan"), the Compensation Committee hereby issues an Award
(as defined in the Incentive Plan) to the Executive of cash stock
appreciation rights (the "SARs") for an aggregate of 1,200,024 shares
of Common Stock of the Company to accrue at a rate of 28,572 shares of
Common Stock per month during the initial Employment Term. Except as
otherwise provided herein, all accrued SARs shall vest on December 31,
2000. The strike price (the "Strike Price") of the SARs shall be the
per share market price of the Common Stock as of the last trade prior
to the close of business on the Effective Date. Except as otherwise
provided in this Agreement, once the SARs have vested, (i) the value
of the SARs shall be equal to (A) the excess of the average per share
market price of the Common Stock for the 90 days immediately prior to
the vesting date over the Strike Price multiplied by (B) the number of
shares of Common Stock represented by the SARs and (ii) a cash payment
equal to such amount shall be made to the Executive (or the
Executive's estate) within 30 days after the date the SARs vest in
accordance with the terms of this Agreement. Notwithstanding the
foregoing, at any time prior to the earlier of (i) the vesting of the
accrued SARs in accordance with this Agreement or (ii) December 31,
1998, the Company may, at its option, elect to convert the SARs into
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non-qualified options (the "Stock Options") to purchase up to a
maximum of 1,200,024 shares of Common Stock at an exercise price equal
to the Strike Price. The Stock Options shall accrue and vest under the
terms set forth herein applicable to the accrual and vesting of the
SARs and shall expire if not exercised within ten years after the date
such Stock Options vest.
4. Term. Unless earlier terminated in accordance with Section 6 of this
Agreement, the term of the Executive's employment under this Agreement (the
"Employment Term") will be for an initial term of three and one-half years
commencing on the Effective Date of this Agreement and ending, without the
necessity of further action by any person, on December 31, 2000; provided, that
the Company and the Executive may extend the Employment Term for one or more
additional periods by their mutual written consent signed by each of them.
5. Restrictive Covenants.
The Executive acknowledges that: (i) the Company is currently engaged in
the underground storage tank testing, monitoring, construction and equipment
business and that the Company may expand its operations into related or
unrelated lines of business in the future (the business and operations of the
Company at any time during the Employment Term or at the termination of the
Executive's employment for any reason being referred to herein as the
"Business"); (ii) the Company conducts and expects to continue to conduct the
Business throughout the United States and in international markets; (iii) the
Executive's work for the Company has given and will continue to give the
Executive access to and knowledge of the trade secrets of and other confidential
information concerning the Company; (iv) the Executive's covenants in this
Section 5 are essential to protect the Business and the goodwill of the Company;
and (v) the Executive has the means to support himself and his dependents, other
than by engaging in the Business in contravention of this Section 5, and this
Section 5 will not impair his ability to provide that support.
a. Competition. In light of the foregoing, the Executive covenants that
he will not, at any time during the Employment Term or the period of
730 consecutive days after the first to occur of the expiration of the
Employment Term or the termination of the Executive's employment
pursuant to Section 6(a), (c) or (d): (i) accept employment with or
render service to any person, firm, corporation or other enterprise
that is engaged in a business directly competitive with the Business
and is operating or conducting its business within 200 miles of any
office of the Company or any sales or service agent or any other
representative of the Company as of the date of termination of the
Executive's employment hereunder; (ii) directly or indirectly own,
finance or control, or participate in the ownership or control of, or
be connected as a principal, agent, representative, consultant,
advisor, investor, owner, partner, financier, manager or joint
venturer with, or permit his name to be used by or in connection with,
any business or enterprise directly competitive with the Business
(provided, however, that the Executive may invest as an investor in
the voting securities of any person that is a reporting company under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
so long as (A) the aggregate amount of those securities the Executive
owns directly or indirectly is less than five percent of the total
outstanding voting securities of that person and (B) the Executive has
no other affiliation with that person); (iii) call on, solicit or
perform services for, directly or indirectly, or aid, directly or
indirectly, any other person, entity or organization (other than the
Company) in calling on, soliciting or performing services for,
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directly or indirectly, any person that at that time is, or at any
time within one year prior to that time was, a customer of the Company
or any prospective customer that had or, to the knowledge of the
Executive, was about to receive a business proposal from the Company,
for the purpose of soliciting or selling any product or service in
competition with the Company; (iv) accept (otherwise than on behalf of
the Company), directly or indirectly, the business of any person that
at that time is, or at any time prior to that time was, a customer of
the Company, or request, advise or suggest to any such person that
such person curtail, cancel or withdraw its business from the Company;
or (v) otherwise than on behalf the Company, solicit the employment of
any person who at that time is employed on a full- or part-time basis
by the Company, or induce or advise any such person to leave the
employ the Company.
b. Confidential Information. The Executive acknowledges: (i) the Company
has a legitimate business interest in the protection of its
Confidential Information (as hereinafter defined); and (ii) the
Company's Confidential Information is a valuable asset worthy of and
subject to protection by the Company. Accordingly, the Executive
covenants that: (i) during the Employment Term and thereafter, the
Executive will keep confidential all Confidential Information of the
Company which is known to him and, except with the specific prior
written consent of the Company or as required to be disclosed by law
or the order of any agency, court or other governmental authority, not
disclose that Confidential Information to any person except the
Company and its employees, accountants, counsel and other designated
representatives. "Confidential Information" of the Company means all
know-how, trade secrets and other confidential or nonpublic
information prepared for, by or on behalf of, or in the possession of
the Company, including (i) nonpublic Proprietary Information (as
hereinafter defined), (ii) other information derived from reports,
investigations, research, studies, work in progress, codes, marketing,
sales or service programs, capital expenditure projects, cost
summaries, equipment, product or system designs or drawings, pricing
or other formulae, contract analyses, financial information,
projections, customer lists, agreements with vendors, joint venture
agreements, and confidential filings with any agency, court or other
governmental authority and (iii) all other concepts, methods,
techniques and processes of doing business, ideas or information that
can be used in the operation of a business or other enterprise and is
sufficiently valuable, or potentially valuable, and secret to afford
an actual or potential economic advantage over others. Confidential
Information of the Company does not include any information that
currently is generally available to and generally known by the public
or, through no fault of the Executive, hereafter becomes generally
available to and generally known by the public.
c. Proprietary Information. "Proprietary Information" means all the
following that (i) relates to or is used or useful in the Business or
any reasonably logical extension thereof or results from the
Executive's work for the Company and (ii) is conceived or created by
the Executive, either alone or in collaboration with any other person
or persons, at any time and in any place on or after the Effective
Date of this Agreement and prior to the termination of the Executive's
employment for any reason: all conceptions and ideas for inventions,
improvements or valuable discoveries, whether or not patentable, all
trade secrets, all works of authorship (including illustrations,
writings, computer programs and software) and all other business or
technical information. The Executive will promptly disclose to the
Company as it becomes available to the Executive all Proprietary
Information and hereby assigns to the Company all his right, title and
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interest in all Proprietary Information available to him as of the
Effective Date of this Agreement. The Executive covenants and agrees
that the Executive will: (i) assign to the Company or its designee all
his right, title and interest in all Proprietary Information that
hereafter becomes available to him; and (ii) whenever requested by the
Company to do so, execute and deliver such applications, assignments,
licenses or other documents, and perform such other acts, as the
Company may consider necessary to protect the rights, title and
interest of the Company or its designee in all Proprietary Information
assigned or to be assigned by the Executive pursuant to this Section
5(c).
d. Return of Confidential and Proprietary Information. At any time at the
request of the Company and promptly on the termination of the
Executive's employment for any reason without the requirement of any
request therefor, the Executive will deliver to the Company all the
following then in the Executive's possession or subject to disposition
by the Executive: (i) the originals and all copies of all Confidential
Information; (ii) the originals and all copies of all Proprietary
Information; (iii) the originals and all copies of all books, business
forms, drawings, files, lists, memoranda, notebooks, notes, records
and other documents (including all thereof stored in computer memories
or on disks, on microfiche or by any other means) which relate to the
Business or the Company, whether compiled, made or prepared by the
Executive or by any other person; and (iv) all devices, equipment,
tools and other tangible property owned or leased by the Company.
e. Enforceability. It is the desire and intent of each of the parties
that the covenants and agreements of the Executive in Sections 5(a),
(b), (c) and (d) (the "Restrictive Covenants") be enforced to the
fullest extent permissible under all applicable laws and public
policies. Accordingly, if any particular portion of any Restrictive
Covenant is adjudicated to be invalid or unenforceable, that
Restrictive Covenant will be deemed amended (i) to reform the
particular portion to provide for such maximum restrictions as will be
valid and enforceable or, if that is not possible, then (ii) to delete
therefrom the portion thus adjudicated to be invalid or unenforceable.
The Restrictive Covenants will inure to the benefit of any successor
or successors to the Company.
f. Equitable Relief. The Executive acknowledges that (i) the Restrictive
Covenants are expressly for the benefit of the Company, (ii) the
Company would be irreparably injured by a violation of any of the
Restrictive Covenants and (iii) the Company would have no adequate
remedy at law in the event of such violation. Therefore, the Executive
acknowledges and agrees that injunctive relief, specific performance
or any other appropriate equitable remedy (without any bond or other
security being required) are appropriate remedies to enforce
compliance by the Executive with the Restrictive Covenants.
6. Termination of Employment.
a. For Due Cause. If the Company has Due Cause (as hereinafter defined)
to terminate the Executive's employment, the Company will be entitled
to terminate the Executive's employment at any time by delivering
written notice of that termination to the Executive, in which event
(i) that termination will be effective immediately on the delivery of
that notice, (ii) the Company will pay to the Executive his Base
Salary accrued and unpaid to the date of that termination, (iii) all
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of the SARs or Stock Options of the Executive granted pursuant to
Section 3(e) of this Agreement which have not vested prior to the date
of the termination will be canceled and (iv) all other rights and
benefits the Executive may have under the employee benefit, bonus
and/or stock option plans and programs of the Company, if any, will be
determined in accordance with the terms and conditions of those plans
and programs. "Due Cause" means: (i) the Executive has committed a
willful serious act, such as fraud, embezzlement or theft, against the
Company, intending to enrich himself at the expense of the Company;
(ii) the Executive has been convicted of a felony (or entered a plea
of nolo contendere to a felony charge); (iii) the Executive has
engaged in conduct that has caused demonstrable and serious injury,
monetary or otherwise, to the Company, except where such conduct was
reasonable at the time taken in light of the then-current
circumstances known to the Executive and/or such conduct was approved
by the majority of the Board or a committee thereof; (iv) the
Executive, in carrying out his duties hereunder, has been guilty of
gross neglect or willful misconduct; (v) the Executive has refused to
carry out his duties hereunder in dereliction of those duties and,
after receiving written notice to such effect from the Company, failed
to cure the existing problem within five days; or (vi) the Executive
has materially breached this Agreement and has not remedied that
breach within five days after receipt of written notice from the
Company that the breach has occurred.
b. Death. If the Executive dies, (i) the Executive's employment will
terminate on the date of his death, (ii) the Company will pay to the
Executive's estate the Executive's Base Salary accrued and unpaid
through the end of the month in which he dies, (iii) all of the SARs
or Stock Options of the Executive granted pursuant to Section 3(e) of
this Agreement which have accrued but not vested prior to the date of
his death will automatically vest as of the date of his death and (iv)
all rights and benefits the Executive (or his estate) may have under
the employee benefit, bonus and/or stock option plans and programs of
the Company, if any, will be determined in accordance with the terms
and conditions of those plans and programs.
c. Disability. If the Executive suffers a Disability (as hereinafter
defined), (i) the Executive's employment will terminate on the date on
which the Company determines that Disability has occurred, (ii) the
Company will pay to the Executive his Base Salary accrued and unpaid
through the end of the month in which his employment is terminated
because of that Disability, (iii) all of the SARs or Stock Options of
the Executive granted pursuant to Section 3(e) of this Agreement which
have accrued but not vested prior to the date on which the Company
determines that Disability has occurred will automatically vest as of
such date and (iv) all other rights and benefits the Executive may
have under the employee benefit, bonus and/or stock option plans and
programs of the Company, if any, will be determined in accordance with
the terms and conditions of those plans and programs. "Disability"
shall have the meaning ascribed to such term under any long-term
disability insurance program of the Company applicable to the
Executive or, in the absence of any such program, shall mean the
inability or incapacity (by reason of a medically determinable
physical or mental impairment) of the Executive to perform the duties
and responsibilities then assigned to him hereunder for a period that
can be reasonably expected to last more than 120 days. That inability
or incapacity will be documented to the reasonable satisfaction of the
Company by appropriate correspondence from registered physicians
reasonably satisfactory to the Company.
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d. Voluntary Termination. The Executive may voluntarily terminate his
employment at any time by providing at least 30 days' prior written
notice to the Company, in which event, subject to the provisions of
Section 6(e), (i) the termination will be effective 30 days after
receipt of such notice by the Company or on such earlier date as the
Company shall determine, (ii) the Company will pay to the Executive
his Base Salary accrued and unpaid to the date his Employment
terminates, (iii) all of the SARs or Stock Options of the Executive
granted pursuant to Section 3(e) of this Agreement which have not
vested prior to the date of the termination will be canceled and (iv)
all other rights and benefits the Executive may have under the
employee benefit, bonus and/or stock option plans and programs of the
Company, if any, will be determined in accordance with the terms and
conditions of those plans and programs. Notwithstanding the foregoing,
the Executive may voluntarily terminate his employment at any time
within 180 days following a Change in Control (as hereinafter defined)
by providing at least 30 days' prior written notice to the Company, in
which event (i) the termination will be effective 30 days after
receipt of such notice by the Company or on such earlier date as the
Company shall determine, (ii) the Company will pay to the Executive
his Base Salary for a period equal to the lesser of one year or the
remaining portion of the Employment Term, payable in accordance with
the then-current payroll policies of the Company, (iii) all of the
SARs or Stock Options of the Executive granted pursuant to Section
3(e) of this Agreement which have accrued but not vested prior to the
date of such termination will automatically vest as of such date and
(iv) all other rights and benefits the Executive may have under the
employee benefit, bonus and/or stock option plans and programs of the
Company, if any, will be determined in accordance with the terms and
conditions of such plans and programs.
e. Constructive Termination. If the Company (i) terminates the employment
of the Executive other than for Due Cause or because of a Disability,
(ii) effectively demotes the Executive to a lesser position than as
provided in Section 2 or (iii) decreases the Executive's Base Salary
below the level provided for by the terms of Section 3(a), then such
action by the Company, unless consented to in writing by the
Executive, shall be deemed to be a constructive termination
("Constructive Termination") by the Company of the Executive's
employment. In the event of a Constructive Termination, (A) the
Executive's employment will terminate immediately upon notice by the
Company to the Executive pursuant to clause (i) above or 30 days after
receipt of notice by the Executive to the Company of termination
following either of events set forth in clauses (ii) and (iii) above
(or on such earlier date as the Company shall determine), (B) the
Executive shall be entitled to receive, from the date of Constructive
Termination, his Base Salary for a period equal to the remaining
portion of the Employment Term, payable in accordance with the
then-current payroll policies of the Company, (C) all of the SARs or
Stock Options of the Executive granted pursuant to Section 3(e) of
this Agreement which have accrued but not vested prior to the date of
such Constructive Termination will automatically vest as of the date
of such termination and (D) all other rights and benefits the
Executive may have under the employee benefit, bonus and/or stock
option plans and programs of the Company, if any, will be determined
in accordance with the terms and conditions of such plans and
programs.
7. Change in Control. Upon the occurrence of a Change in Control (as
hereinafter defined), (i) if the employment of the Executive is terminated, (A)
the Executive will be entitled to receive, from the date of such termination,
his Base Salary for a period equal to the remaining portion of the Employment
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Term, payable in accordance with the then-current payroll policies of the
Company, (B) all of the SARs or Stock Options of the Executive granted pursuant
to Section 3(e) of this Agreement which have accrued but not vested prior to the
date on which the Change in Control has occurred will automatically vest as of
such date and (C) all other rights and benefits the Executive may have under the
employee benefit, bonus and/or stock option plans and programs of the Company,
if any, will be determined in accordance with the terms and conditions of those
plans and programs and (ii) if the employment of the Executive is not
terminated, (A) the terms and provisions of this Agreement shall remain in full
force and effect, (B) at the election of the Executive, the SARs or Stock
Options of the Executive granted pursuant to Section 3(e) of this Agreement
which have accrued but not vested prior to the date of such Change in Control
shall either (x) vest or (y) remain accrued but not vested and (C) regardless of
the election of the Executive pursuant to the immediately preceding clause, the
SARs or Stock Options granted pursuant to Section 3(e) of this Agreement shall
continue to accrue after the date of the Change in Control. In the event any
accrued SARs vest as a result of a Change in Control (including pursuant to
Section 6(d) above), whether automatically or upon the election of the
Executive, the value of the SARs shall be calculated based on the average per
share market price of the Common Stock for the 10 trading days immediately prior
to the vesting date. A "Change in Control" means a change in control of the
Company after the Effective Date, which shall be deemed to have occurred in any
one of the following circumstances occurring after such date: (i) there shall
have occurred an event required to be reported with respect to the Company in
response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any
similar item on any similar schedule or form) promulgated under the Exchange
Act, whether or not the Company is then subject to such reporting requirement;
(ii) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) shall have become the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 40% or more of the combined voting power of the Company's then
outstanding voting securities; (iii) the Company is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board in office immediately prior to such
transaction or event constitute less than a majority of the Board thereafter; or
(iv) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board (including, for this purpose, any
new director whose election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period) cease for
any reason to constitute at least a majority of the Board.
8. Notices. All notices, requests, demands and other communications given
under or by reason of this Agreement must be in writing and will be deemed given
when delivered in person or when mailed, by certified mail (return receipt
requested), postage prepaid, addressed as follows (or to such other address as a
party may specify by notice pursuant to this provision):
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a. If to the Company:
Tanknology-NDE International, Inc.
8900 Shoal Creek Boulevard
Austin, Texas 78758
Attn: Chairman of the Board of Directors
b. If to the Executive:
A. Daniel Sharplin
3509 Needles Drive
Austin, Texas 78746
9. Governing Law. This Agreement will be governed by and construed in
accordance with the substantive laws (other than the rules governing conflicts
of laws) of the State of Texas.
10. Dispute Resolution. If any dispute arises between the Company and the
Executive in connection with or related to the terms of this Agreement, the
parties agree to promptly negotiate in good faith to resolve their differences
and to mutually agree upon a resolution or resolutions to such disputes. If the
parties fail to agree within 30 days after a dispute arises, either party shall
have the right to submit the dispute for resolution to binding and final
arbitration of a single arbitrator mutually agreed to by the Company and the
Executive conducted in Austin, Texas in accordance with the rules of commercial
arbitration of the American Arbitration Association. The prevailing party in any
such arbitration proceeding shall be entitled to attorney's fees and other
out-of-pocket expenses reasonably and necessarily incurred in connection with
such proceeding, the amounts of which shall be contained in the award of the
arbitrator.
11. Additional Instruments. The Executive and the Company will execute and
deliver any and all additional instruments and agreements that may be necessary
or proper to carry out the purposes of this Agreement.
12. Entire Agreement and Amendments. This Agreement contains the entire
agreement of the Executive and the Company relating to the matters contained
herein and supersedes all prior agreements and understandings, oral or written,
between the Executive and the Company with respect to the subject matter hereof.
This Agreement may not be amended or modified except by an agreement in writing
signed by the party against whom enforcement of any waiver or modification is
sought.
13. Headings. The headings of Sections and subsections hereof are included
solely for convenience of reference and will not control the meaning or
interpretation of any of the provisions hereof.
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14. Tax Withholding. Notwithstanding any other provision hereof, the
Company may withhold from amounts payable hereunder all federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
15. Separability. If any provision of this Agreement is rendered or
declared illegal, invalid or unenforceable by reason of any existing or
subsequently enacted legislation or by the final judgment of any court of
competent jurisdiction, the Executive and the Company will promptly meet and
negotiate substitute provisions for those rendered or declared illegal or
unenforceable to preserve the original intent of this Agreement to the extent
legally possible, but all other provisions of this Agreement shall remain in
full force and effect.
16. Assignments. The Company may assign this Agreement to any person or
entity succeeding to all or substantially all the business interests of the
Company by merger or otherwise. The rights and obligations of the Executive
under this Agreement are personal to him, and none of those rights, benefits or
obligations will be subject to voluntary or involuntary alienation, assignment
or transfer, except as otherwise contemplated hereby.
17. Effect of Agreement. Subject to the provisions of Section 16 with
respect to assignments, this Agreement will be binding on the Executive and his
heirs, executors, administrators, legal representatives and assigns and on the
Company and its successors and assigns, except as otherwise contemplated hereby.
18. Execution. This Agreement may be executed in multiple counterparts,
each of which will be deemed an original and all of which will constitute one
and the same agreement.
19. Waiver of Breach. The waiver by either party to this Agreement of a
breach of any provision of the Agreement by the other party will not operate or
be construed as a waiver by the waiving party of any subsequent breach by the
other party.
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IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement effective as of the date first above written.
TANKNOLOGY-NDE INTERNATIONAL, INC.
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
Chairman of the Board
EXECUTIVE
//s// A. DANIEL SHARPLIN
A. Daniel Sharplin
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Schedule 1 to Employment Agreement
Determination of Quantitative Bonus: The Quantitative Bonus to be paid to
the Executive pursuant to Section 3.c. of the Employment Agreement will be based
on achievement of "Target EBITDA" for the relative calendar year. Target EBITDA
will be established by the Compensation Committee of the Board of Directors, and
agreed to by the Executive, in conjunction with the Company's budgeting or
budget revision processes. Target EBITDA will be closely related to, or equal
to, the "mid-case" operating budget's EBITDA. Target EBITDA will be initially
established as part of the Company's annual budget process and will be adjusted
for subsequent significant transactions as part of the Company's budget revision
process. The CEO's quantitative bonus will be equal to the sum of (i) a
"Threshold bonus" as set forth in the table below for the achievement of 80% or
greater of the Target EBITDA and (ii) an amount equal to a percentage of the
amount of the excess of actual EBITDA less 80% of Target EBITDA as set forth in
the table below. In the event the Compensation Committee and the Executive do
not agree as to the Target EBITDA for any calendar year, Target EBITDA for such
calendar year shall be $6,000,000.
additional
percentage of
threshold EBITDA over
actual EBITDA bonus baseline (80%)
as % of target amount amount
- ---------------------------- ---------- ------------------
less than/equal to 79.5% $0 0.00%
79.6-84.5% $50,000 0.00%
84.6-89.5% $50,000 1.67%
89.6-94.5% $50,000 2.50%
94.6%-99.5% $50,000 3.33%
99.6-104.5% $50,000 4.17%
104.6-109.5% $50,000 5.00%
109.6-114.5% $50,000 5.83%
114.6-119.5% $50,000 6.67%
119.6-124.5% $50,000 7.50%
greater than/equal to 124.6% $50,000 8.33%
<PAGE>
EXHIBIT 10.59
EXECUTIVE CONSULTING AGREEMENT
This Executive Consulting Agreement (this "Agreement"), effective as of
July 1, 1997 (the "Effective Date"), is entered into by and between
Tanknology-NDE International, Inc., a Delaware corporation (the "Company"), and
Bunker Hill Associates, Inc., a Delaware corporation (the "Contractor").
WHEREAS, the Contractor is providing executive consulting services to the
Company; and
WHEREAS, the parties hereto desire to set forth the terms of the
Contractor's engagement with the Company.
NOW, THEREFORE, in consideration of the agreements herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Engagement. Subject to the terms and conditions set forth below, the
Company agrees to engage the Contractor, and the Contractor agrees to serve the
Company, in the capacity and for the term specified below.
2. Duties and Responsibilities. Contractor shall provide, during the Term
of Agreement (as defined in Section 4), the services of Jay Allen Chaffee, or
such other individual as the Company shall consent to in writing (the
"Consultant"), who shall act for the Company in the capacity of Chairman of the
Board. The Consultant is and shall remain an employee of the Contractor and
shall not be an employee of the Company. The Consultant shall perform the
duties, functions and services as are customarily or otherwise reasonably
incidental to the position of Chairman of the Board, including assistance with
(i) strategic planning, (ii) negotiation of financing arrangements and (iii)
negotiation of mergers, acquisitions, divestitures and other significant
business transactions, provided that the Consultant shall not be obligated to
expend in excess of 40 hours per month on the provision of such duties,
functions or services.
3. Consulting Compensation. As compensation for the Contractor's services
hereunder during the Term of Agreement, the Company agrees as follows:
a. The Company shall pay to the Contractor a monthly base retainer (the
"Base Retainer") of $7,500 within 30 days after receipt of an invoice
from the Contractor.
b. The Company shall pay the Contractor $2,500 per month as a
reimbursement for the executive secretarial support costs of the
Contractor and shall reimburse the Contractor for the reasonable
out-of-pocket expenses incurred by Consultant on behalf of Contractor
in the course of performing the Contractor's duties hereunder.
Contractor shall not be entitled to reimbursement for expenses
incurred by any other personnel of Contractor unless such
reimbursements shall have been approved by the Company in advance.
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c. The Company shall pay to the Contractor an annual bonus fee (the
"Bonus Compensation") for each calendar year ending during the Term of
Agreement, provided that the payment and amount of the Bonus
Compensation, if any, shall be determined based on a qualitative
review of the performance of the Consultant during the calendar year
for which such Bonus Compensation is paid, shall be paid on or before
March 31 of the following calendar year and shall be based upon the
achievements of the Contractor during the applicable calendar year as
compared to the value of comparable consulting services, as determined
in the reasonable discretion of the Compensation Committee or, in the
absence of the Compensation Committee, at the reasonable discretion of
the Board as a whole.
d. Pursuant to the Tanknology-NDE International, Inc. Amended and
Restated 1989 Stock Option Plan, as adopted by the shareholders of the
Company upon the recommendation of the Board at the annual meeting of
the shareholders on August 14, 1997 (the "Incentive Plan"), the
Compensation Committee hereby issues an Award (as defined in the
Incentive Plan) to the Contractor of cash stock appreciation rights
(the "SARs") for an aggregate of 800,016 shares of Common Stock of the
Company to accrue at a rate of 19,048 shares of Common Stock per month
during the initial Term of Agreement. Except as otherwise provided
herein, all accrued SARs shall vest on December 31, 2000. The strike
price (the "Strike Price") of the SARs shall be the per share market
price of the Common Stock as of the last trade prior to the close of
business on the Effective Date. Except as otherwise provided in this
Agreement, once the SARs have vested, (i) the value of the SARs shall
be equal to (A) the excess of the average per share market price of
the Common Stock for the 90 days immediately prior to the vesting date
over the Strike Price multiplied by (B) the number of shares of Common
Stock represented by the SARs and (ii) a cash payment equal to such
amount shall be made to the Contractor within 30 days after the date
the SARs vest in accordance with the terms of this Agreement.
Notwithstanding the foregoing, at any time prior to the earlier of (i)
the vesting of the accrued SARs in accordance with this Agreement or
(ii) December 31, 1998, the Company may, at its option, elect to
convert the SARs into non-qualified options (the "Stock Options") to
purchase up to a maximum of 800,016 shares of Common Stock at an
exercise price equal to the Strike Price. The Stock Options shall
accrue and vest under the terms set forth herein applicable to the
accrual and vesting of the SARs and shall expire if not exercised
within five years after the date such Stock Options vest.
4. Term. Unless earlier terminated in accordance with Section 6 of this
Agreement, the term of the Contractor's engagement under this Agreement (the
"Term of Agreement") will be for an initial term of three and one-half years
commencing on the Effective Date of this Agreement and ending, without the
necessity of further action by any person, on December 31, 2000; provided, that
the Company and the Contractor may extend the Term of Agreement for one or more
additional periods by their mutual written consent signed by each of them.
5. Restrictive Covenants.
The Contractor acknowledges that: (i) the Company is currently engaged in
the underground storage tank testing, monitoring, construction and equipment
business and that the Company may expand its operations into related or
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unrelated lines of business in the future (the business and operations of the
Company at any time during the Term of Agreement or at the termination of the
Contractor's engagement for any reason being referred to herein as the
"Business"); (ii) the Company conducts and expects to continue to conduct the
Business throughout the United States and in international markets; (iii) the
Contractor's work for the Company has given and will continue to give the
Contractor access to and knowledge of the trade secrets of and other
confidential information concerning the Company; and (iv) the Contractor's
covenants in this Section 5 are essential to protect the Business and the
goodwill of the Company. The Contractor covenants to cause each employee of the
Contractor who works for or on behalf of the Company pursuant to this Agreement,
including the Consultant, to enter into an agreement with the Contractor for the
benefit of the Company providing for the restrictive covenants set forth in this
Section 5.
a. Competition. In light of the foregoing, the Contractor covenants that
the Contractor will not, at any time during the Term of Agreement or
the period of 730 consecutive days after the first to occur of the
expiration of the Term of Agreement or the termination of the
Contractor's engagement pursuant to Section 6(a), (c) or (d):
(i) accept employment with or render service to any person, firm,
corporation or other enterprise that is engaged in a business directly
competitive with the Business and is operating or conducting its
business within 200 miles of any office of the Company or any sales or
service agent or other representative of the Company as of the date of
the termination of the engagement hereunder; (ii) directly or
indirectly own, finance or control, or participate in the ownership or
control of, or be connected as a principal, agent, representative,
consultant, advisor, investor, owner, partner, financier, manager or
joint venturer with, or permit the Contractor's name to be used by or
in connection with, any business or enterprise directly competitive
with the Business (provided, however, that the Contractor may invest
as an investor in the voting securities of any person that is a
reporting company under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), so long as (A) the aggregate amount of
those securities the Contractor owns directly or indirectly is less
than five percent of the total outstanding voting securities of that
person and (B) the Contractor has no other affiliation with that
person); (iii) call on, solicit or perform services for, directly or
indirectly, or aid, directly or indirectly, any other person, entity
or organization (other than the Company) in calling on, soliciting or
performing services for, directly or indirectly, any person that at
that time is, or at any time within one year prior to that time was, a
customer of the Company or any prospective customer that had or, to
the knowledge of the Contractor, was about to receive a business
proposal from the Company, for the purpose of soliciting or selling
any product or service in competition with the Company; (iv) accept
(otherwise than on behalf of the Company), directly or indirectly, the
business of any person that at that time is, or at any time prior to
that time was, a customer of the Company, or request, advise or
suggest to any such person that such person curtail, cancel or
withdraw its business from the Company; or (v) otherwise than on
behalf the Company, solicit the employment of any person who at that
time is employed on a full- or part-time basis by the Company, or
induce or advise any such person to leave the employ the Company.
b. Confidential Information. The Contractor acknowledges: (i) the Company
has a legitimate business interest in the protection of its
Confidential Information (as hereinafter defined); and (ii) the
Company's Confidential Information is a valuable asset worthy of and
subject to protection by the Company. Accordingly, the Contractor
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covenants that: (i) during the Term of Agreement and thereafter, the
Contractor will keep confidential all Confidential Information of the
Company which is known to the Contractor and, except with the specific
prior written consent of the Company or as required to be disclosed by
law or the order of any agency, court or other governmental authority,
not disclose that Confidential Information to any person except the
Company and its employees, accountants, counsel and other designated
representatives. "Confidential Information" of the Company means all
know-how, trade secrets and other confidential or nonpublic
information prepared for, by or on behalf of, or in the possession of
the Company, including (i) nonpublic Proprietary Information (as
hereinafter defined), (ii) other information derived from reports,
investigations, research, studies, work in progress, codes, marketing,
sales or service programs, capital expenditure projects, cost
summaries, equipment, product or system designs or drawings, pricing
or other formulae, contract analyses, financial information,
projections, customer lists, agreements with vendors, joint venture
agreements, and confidential filings with any agency, court or other
governmental authority and (iii) all other concepts, methods,
techniques and processes of doing business, ideas or information that
can be used in the operation of a business or other enterprise and is
sufficiently valuable, or potentially valuable, and secret to afford
an actual or potential economic advantage over others. Confidential
Information of the Company does not include any information that
currently is generally available to and generally known by the public
or, through no fault of the Contractor, hereafter becomes generally
available to and generally known by the public.
c. Proprietary Information. "Proprietary Information" means all the
following that (i) relates to or is used or useful in the Business or
any logical extension thereof or results from the Contractor's work
for the Company and (ii) is conceived or created by the Contractor,
either alone or in collaboration with any other person or persons, at
any time and in any place on or after the Effective Date of this
Agreement and prior to the termination of the Contractor's engagement
for any reason: all conceptions and ideas for inventions, improvements
or valuable discoveries, whether or not patentable, all trade secrets,
all works of authorship (including illustrations, writings, computer
programs and software) and all other business or technical
information. The Contractor will promptly disclose to the Company as
it becomes available to the Contractor all Proprietary Information and
hereby assigns to the Company all the Contractor's right, title and
interest in all Proprietary Information available to the Contractor as
of the Effective Date of this Agreement. The Contractor covenants and
agrees that the Contractor will: (i) assign to the Company or its
designee all the Contractor's right, title and interest in all
Proprietary Information that hereafter becomes available to him; and
(ii) whenever requested by the Company to do so, execute and deliver
such applications, assignments, licenses or other documents, and
perform such other acts, as the Company may consider necessary to
protect the rights, title and interest of the Company or its designee
in all Proprietary Information assigned or to be assigned by the
Contractor pursuant to this Section 5(c).
d. Return of Confidential and Proprietary Information. At any time at the
request of the Company and promptly on the termination of the
Contractor's engagement for any reason without the requirement of any
request therefor, the Contractor will deliver to the Company all the
following then in the Contractor's possession or subject to
disposition by the Contractor: (i) the originals and all copies of all
Confidential Information; (ii) the originals and all copies of all
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Proprietary Information; (iii) the originals and all copies of all
books, business forms, drawings, files, lists, memoranda, notebooks,
notes, records and other documents (including all thereof stored in
computer memories or on disks, on microfiche or by any other means)
which relate to the Business or the Company, whether compiled, made or
prepared by the Contractor or by any other person; and (iv) all
devices, equipment, tools and other tangible property owned or leased
by the Company.
e. Enforceability. It is the desire and intent of each of the parties
that the covenants and agreements of the Contractor in Sections 5(a),
(b), (c) and (d) (the "Restrictive Covenants") be enforced to the
fullest extent permissible under all applicable laws and public
policies. Accordingly, if any particular portion of any Restrictive
Covenant is adjudicated to be invalid or unenforceable, that
Restrictive Covenant will be deemed amended (i) to reform the
particular portion to provide for such maximum restrictions as will be
valid and enforceable or, if that is not possible, then (ii) to delete
therefrom the portion thus adjudicated to be invalid or unenforceable.
The Restrictive Covenants will inure to the benefit of any successor
or successors to the Company.
f. Equitable Relief. The Contractor acknowledges that (i) the Restrictive
Covenants are expressly for the benefit of the Company, (ii) the
Company would be irreparably injured by a violation of any of the
Restrictive Covenants and (iii) the Company would have no adequate
remedy at law in the event of such violation. Therefore, the
Contractor acknowledges and agrees that injunctive relief, specific
performance or any other appropriate equitable remedy (without any
bond or other security being required) are appropriate remedies to
enforce compliance by the Contractor with the Restrictive Covenants.
6. Termination of Engagement.
a. For Due Cause. If the Company has Due Cause (as hereinafter defined)
to terminate the Contractor's or the Consultant's engagement, the
Company will be entitled to terminate the Contractor's or the
Consultant's engagement at any time by delivering written notice of
that termination to the Contractor, in which event (i) that
termination will be effective immediately on the delivery of that
notice, (ii) the Company will pay to the Contractor the Contractor's
Base Retainer accrued and unpaid to the date of that termination,
(iii) all of the SARs or Stock Options of the Contractor granted
pursuant to Section 3(d) of this Agreement which have not vested prior
to the date of the termination will be canceled and (iv) all other
rights and benefits the Contractor or the Consultant may have under
the employee benefit, bonus and/or stock option plans and programs of
the Company, if any, will be determined in accordance with the terms
and conditions of those plans and programs. "Due Cause" means: (i) the
Contractor or the Consultant has committed a willful serious act, such
as fraud, embezzlement or theft, against the Company, intending to
enrich the Contractor or the Consultant at the expense of the Company;
(ii) the Consultant has been convicted of a felony (or entered a plea
of nolo contendere to a felony charge); (iii) the Contractor or the
Consultant has engaged in conduct that has caused demonstrable and
serious injury, monetary or otherwise, to the Company, except where
such conduct was reasonable at the time taken in light of the
then-current circumstances known to the Contractor or the Consultant
and/or such conduct was approved by a majority of the Board or a
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committee thereof; (iv) the Consultant, in carrying out the
Consultant's duties hereunder, has been guilty of gross neglect or
willful misconduct; (v) the Contractor or the Consultant has refused
to carry out their duties hereunder in dereliction of those duties
and, after receiving written notice to such effect from the Company,
failed to cure the existing problem within five days; or (vi) the
Contractor or the Consultant has materially breached this Agreement
and has not remedied that breach within five days after receipt of
written notice from the Company that the breach has occurred.
b. Death. If the Consultant dies and is not replaced upon the mutual
agreement of the Company and the Contractor, (i) the Contractor's
engagement will terminate on the date of the Consultant's death, (ii)
the Company will pay to the Contractor the Contractor's Base Retainer
accrued and unpaid through the end of the month in which the
Consultant dies, (iii) all of the SARs or Stock Options of the
Contractor granted pursuant to Section 3(d) of this Agreement which
have accrued but not vested prior to the date of the Consultant's
death will automatically vest as of the date of the Consultant's death
and (iv) all rights and benefits the Contractor may have under the
employee benefit, bonus and/or stock option plans and programs of the
Company, if any, will be determined in accordance with the terms and
conditions of those plans and programs.
c. Disability. If the Consultant suffers a Disability (as hereinafter
defined) and is not replaced upon the mutual agreement of the Company
and the Contractor, (i) the Contractor's engagement will terminate on
the date on which the Company determines that Disability has occurred,
(ii) the Company will pay to the Contractor the Contractor's Base
Retainer accrued and unpaid through the end of the month in which the
Contractor's engagement is terminated because of that Disability,
(iii) all of the SARs or Stock Options of the Contractor granted
pursuant to Section 3(d) of this Agreement which have accrued but not
vested prior to the date on which the Company determines that
Disability has occurred will automatically vest as of such date and
(iv) all other rights and benefits the Contractor may have under the
employee benefit, bonus and/or stock option plans and programs of the
Company, if any, will be determined in accordance with the terms and
conditions of those plans and programs. "Disability" shall have the
meaning ascribed to such term under any long-term disability insurance
program of the Company applicable to the Consultant or, in the absence
of any such program, shall mean the inability or incapacity (by reason
of a medically determinable physical or mental impairment) of the
Consultant to perform the duties and responsibilities assigned to the
Consultant hereunder for a period that can be reasonably expected to
last more than 120 days. That inability or incapacity will be
documented to the reasonable satisfaction of the Company by
appropriate correspondence from registered physicians reasonably
satisfactory to the Company.
d. Voluntary Termination by the Contractor. The Contractor may
voluntarily terminate the Contractor's engagement at any time by
providing at least 30 days' prior written notice to the Company, in
which event (i) the termination will be effective 30 days after
receipt of such notice by the Company or on such earlier date as the
Company shall determine, (ii) the Company will pay to the Contractor
the Contractor's Base Retainer accrued and unpaid to the date the
Contractor's engagement, (iii) all of the SARs or Stock Options of the
Contractor granted pursuant to Section 3(d) of this Agreement which
have not vested prior to the date of the termination will be canceled
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and (iv) all other rights and benefits the Contractor may have under
the employee benefit, bonus and/or stock option plans and programs of
the Company, if any, will be determined in accordance with the terms
and conditions of those plans and programs.
e. Voluntary Termination by the Company. The Company may voluntarily
terminate the Contractor's engagement at any time, provided that if
the Company terminates the engagement of the Contractor other than for
Due Cause or because of a Disability, (i) the Contractor shall be
entitled to receive, from the date of such termination, the
Contractor's Base Retainer for a period equal to the remaining portion
of the Term of Agreement, payable in accordance with the then-current
payment arrangements between the Company and the Contractor, (ii) all
of the SARs or Stock Options of the Contractor granted pursuant to
Section 3(d) of this Agreement which have accrued but not vested prior
to the date of such termination will automatically vest as of the date
of such termination and (iii) all other rights and benefits the
Contractor may have under the employee benefit, bonus and/or stock
option plans and programs of the Company, if any, will be determined
in accordance with the terms and conditions of such plans and
programs.
7. Change in Control. Upon the occurrence of a Change in Control (as
hereinafter defined), (i) if the engagement of the Contractor is terminated, (A)
the Contractor will be entitled to receive, from the date of such termination,
the Contractor's Base Retainer for a period equal to the remaining portion of
the Term of Agreement, payable in accordance with the then- current payment
arrangements between the Company and the Contractor, (B) all of the SARs or
Stock Options of the Contractor granted pursuant to Section 3(d) of this
Agreement which have accrued but not vested prior to the date on which the
Change in Control has occurred will automatically vest as of such date and (C)
all other rights and benefits the Contractor may have under the employee
benefit, bonus and/or stock option plans and programs of the Company, if any,
will be determined in accordance with the terms and conditions of those plans
and programs and (ii) if the engagement of the Contractor is not terminated, (A)
the terms and provisions of this Agreement shall remain in full force and
effect, (B) at the election of the Contractor, the SARs or Stock Options of the
Contractor granted pursuant to Section 3(d) of this Agreement which have accrued
but not vested prior to the date of such Change in Control shall either (x) vest
or (y) remain accrued but not vested and (C) regardless of the election of the
Contractor pursuant to the immediately preceding clause, the SARs or Stock
Options granted pursuant to Section 3(d) of this Agreement shall continue to
accrue after the date of the Change in Control. In the event any accrued SARs
vest as a result of a Change in Control, whether automatically or upon the
election of the Contractor, the value of the SARs shall be calculated based on
the average per share market price of the Common Stock for the 10 trading days
immediately prior to the vesting date. A "Change in Control" means a change in
control of the Company after the Effective Date, which shall be deemed to have
occurred in any one of the following circumstances occurring after such date:
(i) there shall have occurred an event required to be reported with respect to
the Company in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Exchange Act, whether or not the Company is then subject to such reporting
requirement; (ii) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) shall have become the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 40% or more of the combined voting power of the Company's
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then outstanding voting securities; (iii) the Company is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board in office immediately prior to such
transaction or event constitute less than a majority of the Board thereafter; or
(iv) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board (including, for this purpose, any
new director whose election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period) cease for
any reason to constitute at least a majority of the Board.
8. Notices. All notices, requests, demands and other communications given
under or by reason of this Agreement must be in writing and will be deemed given
when delivered in person or when mailed, by certified mail (return receipt
requested), postage prepaid, addressed as follows (or to such other address as a
party may specify by notice pursuant to this provision):
a. If to the Company:
Tanknology-NDE International, Inc.
8900 Shoal Creek Boulevard
Austin, Texas 78758
Attn: President
b. If to the Contractor:
Bunker Hill Associates, Inc.
712 Main Street, Suite 1700
Houston, Texas 77002
Attn: Chairman
9. Governing Law. This Agreement will be governed by and construed in
accordance with the substantive laws (other than the rules governing conflicts
of laws) of the State of Texas.
10. Dispute Resolution. If any dispute arises between the Company and the
Contractor in connection with or related to the terms of this Agreement, the
parties agree to promptly negotiate in good faith to resolve their differences
and to mutually agree upon a resolution or resolutions to such disputes. If the
parties fail to agree within 30 days after a dispute arises, either party shall
have the right to submit the dispute for resolution to binding and final
arbitration of a single arbitrator mutually agreed to by the Company and the
Contractor conducted in Austin, Texas in accordance with the rules of commercial
arbitration of the American Arbitration Association. The prevailing party in any
such arbitration proceeding shall be entitled to attorney's fees and other
out-of-pocket expenses reasonably and necessarily incurred in connection with
such proceeding, the amounts of which shall be contained in the award of the
arbitrator.
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11. Additional Instruments. The Contractor and the Company will execute and
deliver any and all additional instruments and agreements that may be necessary
or proper to carry out the purposes of this Agreement.
12. Entire Agreement and Amendments. This Agreement contains the entire
agreement of the Contractor and the Company relating to the matters contained
herein and supersedes all prior agreements and understandings, oral or written,
between the Contractor and the Company with respect to the subject matter
hereof, including without limitation that certain Executive Consulting Agreement
between the Company and the Contractor dated May 30, 1991. This Agreement may
not be amended or modified except by an agreement in writing signed by the party
against whom enforcement of any waiver or modification is sought.
13. Headings. The headings of Sections and subsections hereof are included
solely for convenience of reference and will not control the meaning or
interpretation of any of the provisions hereof.
14. Tax Indemnification. Contractor hereby agrees to indemnify and hold
harmless the Company from any loss, claim, liability or action arising out of or
related to the failure of the Company to withhold from amounts payable hereunder
any federal, state, local or foreign taxes required to be withheld by applicable
laws or regulations.
15. Separability. If any provision of this Agreement is rendered or
declared illegal, invalid or unenforceable by reason of any existing or
subsequently enacted legislation or by the final judgment of any court of
competent jurisdiction, the Contractor and the Company will promptly meet and
negotiate substitute provisions for those rendered or declared illegal or
unenforceable to preserve the original intent of this Agreement to the extent
legally possible, but all other provisions of this Agreement shall remain in
full force and effect.
16. Assignments. The Company may assign this Agreement to any person or
entity succeeding to all or substantially all the business interests of the
Company by merger or otherwise. None of the rights and obligations of the
Contractor under this Agreement will be subject to voluntary or involuntary
alienation, assignment or transfer, except as otherwise contemplated hereby.
17. Effect of Agreement. Subject to the provisions of Section 16 with
respect to assignments, this Agreement will be binding on the Contractor and the
Company and their respective successors and assigns, except as otherwise
contemplated hereby.
18. Execution. This Agreement may be executed in multiple counterparts,
each of which will be deemed an original and all of which will constitute one
and the same agreement.
19. Waiver of Breach. The waiver by either party to this Agreement of a
breach of any provision of the Agreement by the other party will not operate or
be construed as a waiver by the waiving party of any subsequent breach by the
other party.
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<PAGE>
IN WITNESS WHEREOF, the Contractor and the Company have executed this
Agreement effective as of the date first above written.
TANKNOLOGY-NDE INTERNATIONAL, INC.
By: //s// A. DANIEL SHARPLIN
A. Daniel Sharplin
President and Chief Executive Officer
BUNKER HILL ASSOCIATES, INC.
By: //s// JAY ALLEN CHAFFEE
Name: Jay Allen Chaffee
Title: President
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EXHIBIT 10.60
AMENDMENT NO. 1 TO
THE EMPLOYMENT AGREEMENT
This Amendment No. 1 to the Employment Agreement (the "Amendment No. 1"),
effective as of July 2, 1997, is entered into by and between Tanknology-NDE
International, Inc., a Delaware corporation (the "Company") and A. Daniel
Sharplin (the "Executive"). Capitalized terms used herein but not defined herein
shall have the meaning assigned to them in the Employment Agreement (the
"Employment Agreement"), dated as of July 1, 1997, by and between the Company
and the Executive.
Pursuant to Section 3(e) of the Employment Agreement, the Company elects to
convert the SARs granted to the Executive under the Employment Agreement into
Stock Options to purchase up to a maximum of 1,200,024 shares of Common Stock at
an exercise price equal to the Strike Price.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Amendment No. 1 effective as of the date first above written.
TANKNOLOGY-NDE INTERNATIONAL, INC.
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
Chairman of the Board
EXECUTIVE
By: //s// A. DANIEL SHARPLIN
A. Daniel Sharplin
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EXHIBIT 10.61
AMENDMENT NO. 1 TO
THE EXECUTIVE CONSULTING AGREEMENT
This Amendment No. 1 to the Executive Consulting Agreement (the "Amendment
No. 1"), effective as of July 2, 1997, is entered into by and between
Tanknology-NDE International, Inc., a Delaware corporation (the "Company") and
Bunker Hill Associates, Inc., a Delaware corporation (the "Contractor").
Capitalized terms used herein but not defined herein shall have the meaning
assigned to them in the Executive Consulting Agreement (the "Executive
Consulting Agreement"), dated as of July 1, 1997, by and between the Company and
the Contractor.
Pursuant to Section 3(e) of the Executive Consulting Agreement, the Company
elects to convert the SARs granted to the Contractor under the Executive
Consulting Agreement into Stock Options to purchase up to a maximum of 800,016
shares of Common Stock at an exercise price equal to the Strike Price.
IN WITNESS WHEREOF, the Company and the Contractor have executed this
Amendment No. 1 effective as of the date first above written.
TANKNOLOGY-NDE INTERNATIONAL, INC.
By: //s// A. DANIEL SHARPLIN
A. Daniel Sharplin
President and Chief Executive Officer
BUNKER HILL ASSOCIATES, INC.
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
President
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EXHIBIT 10.62
AMENDMENT TO STOCK PURCHASE AGREEMENT
This AMENDMENT TO STOCK PURCHASE AGREEMENT (this "Amendment"), dated as of
October 30, 1997, is entered into by and between Watson General Corporation, a
California corporation ("Buyer"), and Tanknology-NDE International, Inc.
("Seller"). This Amendment amends the Stock Purchase Agreement dated May 22,
1997, which was entered into by and between Buyer and Seller (the "Stock
Purchase Agreement").
WITNESSETH:
WHEREAS, on August 13, 1996, NDE Environmental Corporation changed its name
to Tanknology-NDE International, Inc; and
WHEREAS, on May 22, 1997, Buyer and Seller entered into the Stock Purchase
Agreement which provided for the sale by Seller of USTMAN Industries, Inc., a
Delaware corporation to Buyer; and
WHEREAS, pursuant to the Stock Purchase Agreement, certain adjustments to
the purchase price were to be made in accordance with the terms and conditions
of Section 2.4 of the Stock Purchase Agreement; and
WHEREAS, a dispute has arisen regarding the calculation of the adjustment
to the purchase price; and
WHEREAS, Buyer and Seller desire to settle such dispute and have agreed
upon the adjustment to the purchase price;
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereby agree as follows:
ARTICLE I
Section 1.1 Post Closing Adjustment. The parties agree that the adjustment
required pursuant to Section 2.4 of the Stock Purchase Agreement shall be
$376,000 so that the purchase price shall be adjusted upward by $376,000 (the
"Post Closing Adjustment Amount").
Section 1.2 Payment of Post Closing Adjustment. Buyer agrees to pay the
Post Closing Adjustment Amount within one business day of the date of this
Amendment by wire transfer to an account designated by Seller.
<PAGE>
ARTICLE II
Section 2.1 General Release. Buyer agrees to release any and all claims
which relate to the calculation of the Post Closing Adjustment Amount, including
but not limited to, claims which arise from any accounting issue which may have
effected the calculation of the Post Closing Adjustment Amount.
Section 2.2 Other Releases. Buyer agrees to release any and all claims
which may arise or have arisen under Sections 4.13, 4.17 and 4.25 of the Stock
Purchase Agreement. Buyer also agrees to release any and all claims which may
arise or have arisen under Section 4.15 of the Stock Purchase Agreement;
provided that, Buyer does not release any claims which may arise or have arisen
under Section 4.15 and for which Seller has agreed to indemnify Buyer pursuant
to Section 7.1(a)(iv) and (v) of the Stock Purchase Agreement; further provided
that, Buyer does agree to release any and all claims which relate to any Gasamat
contract credits and for which Seller has agreed to indemnify Buyer pursuant to
Section 7.1(a)(v) of the Stock Purchase Agreement.
ARTICLE III
Section 3.1 Pre-Closing Intercompany Accounts. Both Buyer and Seller agree
to release any and all claims related to any and all billings for services
rendered between the two parties prior to the closing date of the Stock Purchase
Agreement.
ARTICLE IV
Section 4.1 Post Closing Billings - Buyer. Buyer agrees to process all
outstanding billings related to services provided to Seller and which were
rendered after the closing date of the Stock Purchase Agreement, through the
date of this Amendment, within 5 business days of the date of this Amendment.
Buyer agrees to pay any and all billings which are payable for services rendered
by Seller and which are billed pursuant to Section 4.2 hereof within 30 days of
the receipt of such billing.
Section 4.2 Post Closing Billings - Seller. Seller agrees to process all
outstanding billings related to services provided to Buyer and which were
rendered after the closing date of the Stock Purchase Agreement, through the
date of this Amendment, within 5 business days of the date of this Amendment.
Seller agrees to pay any and all billings which are payable for services
rendered by Buyer and which are billed pursuant to Section 4.1 hereof within 30
days of the receipt of such billing.
ARTICLE V
Section 5.1 Effect of Amendment. This Amendment constitutes the only
amendment to the Stock Purchase Agreement. Except as expressly provided for or
superseded by this Amendment, the original provisions of the Stock Purchase
Agreement shall remain in effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
date first above written.
WATSON GENERAL CORPORATION
By: //s// RONALD G. CRANE
Ronald G. Crane
Chairman of the Board
TANKNOLOGY-NDE INTERNATIONAL, INC.
By: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee
Chairman of the Board of Directors
<PAGE>
EXHIBIT 10.63
PRECISION TANK TESTING LIMITED
PURCHASE OF ASSETS
OF
TANKNOLOGY CANADA (1988) INC.
ASSET PURCHASE AGREEMENT
Smith Lyons
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS.................................................1
1.1 Definitions.................................................1
1.2 Schedules and Appendices....................................5
1.3 Sections and Headings.......................................6
1.4 Extended Meanings...........................................6
1.5 Currency....................................................6
ARTICLE 2 PURCHASE AND SALE OF PURCHASED ASSETS.......................7
2.1 Agreement to Purchase.......................................7
2.2 Excluded Assets.............................................8
2.3 Assumed Liabilities.........................................8
2.4 No Assumption of Other Liabilities..........................9
ARTICLE 3 PURCHASE PRICE..............................................9
3.1 Purchase Price..............................................9
3.2 Business Expenses...........................................9
3.3 Sales and Transfer Taxes...................................10
3.4 GST Election...............................................10
ARTICLE 4 ADDITIONAL COVENANTS OF THE PARTIES........................10
4.1 Additional Agreements......................................10
4.2 New Lease..................................................11
4.3 Offers of Employment.......................................11
4.4 Bulk Sales Act.............................................11
4.5 Transfer and Delivery of Purchased Assets..................11
ARTICLE 5 CLOSING ARRANGEMENTS.......................................11
5.1 Closing....................................................11
5.2 Closing Procedures.........................................12
ARTICLE 6 CONDITIONS OF CLOSING......................................12
6.1 Conditions for Purchaser's Benefit.........................12
6.2 Conditions for Vendor's Benefit............................13
ARTICLE 7 REPRESENTATIONS AND WARRANTIES.............................15
7.1 Representations and Warranties of Vendor...................15
7.2 Representations and Warranties of Purchaser................22
7.3 Survival...................................................23
<PAGE>
ARTICLE 8 INDEMNITY..................................................24
8.1 Indemnity of Purchaser.....................................24
8.2 Carriage of Legal Proceedings..............................24
8.3 Settlement.................................................25
8.4 Limitation on Liability....................................25
8.5 Indemnity of Vendor........................................25
ARTICLE 9 POST-CLOSING COVENANTS.....................................25
9.1 Corporate Name.............................................25
9.2 Motor Vehicles.............................................26
9.3 Collection of Accounts Receivable..........................26
9.4 Administrative Assistance to Vendor........................26
9.5 Sure-Test Western Canadian Licence.........................27
ARTICLE 10 ARBITRATION......................................................27
10.1 Arbitration................................................27
ARTICLE 11 GENERAL..........................................................28
11.1 Further Assurances.........................................28
11.2 Entire Agreement...........................................28
11.3 Invalidity of Provisions...................................28
11.4 Applicable Law.............................................28
11.5 Notices....................................................29
11.6 No Brokers.................................................29
11.7 Costs and Expenses.........................................30
11.8 Announcements..............................................30
11.9 Time of the Essence........................................30
11.10 Successors and Assigns.....................................30
11.11 Counterparts...............................................30
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT made as of the 19th day of February, 1997 among PRECISION
TANK TESTING LIMITED, a corporation incorporated under the laws of the Province
of Ontario ("Purchaser"), TANKNOLOGY CANADA (1988) INC., a corporation
incorporated under the federal laws of Canada ("Vendor"), NDE ENVIRONMENTAL
CORPORATION, a corporation incorporated under the laws of Delaware ("Parent")
and TANKNOLOGY/NDE CORPORATION, a corporation incorporated under the laws of the
State of Delaware ("Tanknology-USA").
WHEREAS Vendor carries on the business of the testing and analysis of
underground storage tanks in Canada (the "Business"), which Purchaser wishes to
acquire pursuant to the provisions hereof;
NOW THEREFORE THIS AGREEMENT WITNESSES THAT, in consideration of the
premises and the covenants and agreements herein contained, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions: In this Agreement, the recitals and the Schedules and in
any amendments hereto, unless the context otherwise requires or unless otherwise
defined in any such Schedule or amendment, the following words and phrases shall
have the meanings set forth after them:
"Accounts Receivable" means the accounts receivable of Vendor in
connection with the Business conducted on or before the Effective Date
and as listed on Schedule 7.1.26;
"Affiliate" and "Associate" have the meanings ascribed thereto in the
Business Corporations Act (Ontario);
"Agreement" means this agreement and all Schedules, Appendices and all
instruments supplemental hereto or in amendment or confirmation
hereof, and "hereof", "hereto", "hereunder" and similar expressions,
mean and refer to this Agreement as a whole and not to any particular
Article or section or subsection, and "Article" or "section" or
"subsection" or "paragraph" mean and refer to the specified Article or
section or subsection or paragraph of this Agreement;
"Appendices" means the appendices attached to and forming part of this
Agreement;
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"Assignment, Conveyance and Assumption Agreement" means the
assignment, conveyance and assumption agreement in the form attached
hereto as Appendix 1.1;
"Business" has the meaning ascribed thereto in the recitals of this
Agreement;
"Business Day" means any day other than Saturday, Sunday and statutory
holidays in the Province of Ontario;
"Claims" has the meaning ascribed thereto in section 8.1;
"Closing" means the closing of the purchase and sale of the Purchased
Assets as contemplated hereunder;
"Closing Date" means February 19, 1997 or such other date as may be
agreed to in writing by the parties hereto;
"Contract" means any agreement, obligation, license, joint venture
agreement, contract, understanding, commitment, engagement, indenture
or instrument to which Vendor is a party or by which it is bound,
whether written or oral, including, without limitation, the Customer
Contracts, Other Contracts, Equipment Leases and Real Property Leases;
"Customer Contracts" has the meaning ascribed thereto in
section 2.1(i);
"Customer Lists" has the meaning ascribed thereto in section 2.1(i);
"Effective Date" means February 1, 1997, the effective date of
completion of the within asset purchase transaction;
"Employees" means the employees of Vendor employed on the date of this
Agreement including those on pregnancy or sick leave, temporary
lay-off or short term or long term disability and who are listed in
Schedule 7.1.17;
"Equipment" has the meaning ascribed thereto in section 2.1(b);
"Equipment Leases" means the lease agreements relative to the Leased
Equipment listed in Schedule 7.1.15;
"Excluded Assets" has the meaning ascribed thereto in section 2.2;
"Existing Tanknology Licence Agreement" means the agreement dated as
of the 1st day of September, 1997, between Vendor and Tanknology
Corporation International (a predecessor corporation of
Tanknology-USA) pursuant to which Vendor was granted a licence to use
certain Intellectual Property;
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"GST" means any and all taxes payable under Part IX of the Excise Tax
Act (Canada);
"Goodwill" has the meaning ascribed thereto in section 2.1(l);
"Intellectual Property" means patents, patent applications,
inventions, licences, designs, registered designs, applications to
register designs, registered and unregistered copyright and
applications to register copyright, trade secrets, confidential
information, know-how, trade names, registered and unregistered trade
marks and applications to register trade marks, personalty rights and
other proprietary rights used or proposed to be used;
"Inventory" has the meaning ascribed therein in section 2.1(d);
"Leased Equipment" means the leased equipment currently used in the
Business, as listed in Schedule 7.1.15;
"Leased Premises" means all of the lands and buildings leased by
Vendor and used to carry on the Business including, without
limitation, the leased real property interests listed in Schedule
7.1.14 hereto;
"Office Equipment" has the meaning ascribed thereto in section 2.1(e);
"Other Contracts" has the meaning ascribed thereto in section 2.1(j);
"Patents" means the patents and patent application comprising the
Tanknology Intellectual Property and listed in Schedule 2.1(f);
"Person" means an individual, corporation, partnership, trust, trustee
or any unincorporated organization, and words importing persons have a
similar meaning;
"Pro Eco" means Pro Eco, Inc., a Delaware corporation and a
wholly-owned subsidiary of Parent;
"Purchase Price" has the meaning ascribed thereto in section 3.1;
"Purchased Assets" has the meaning ascribed thereto in section 2.1;
"Purchaser's Counsel" means Smith Lyons of Toronto, Ontario or such
other firm of solicitors reasonably acceptable to Vendor as Purchaser
may appoint with respect to this Agreement and the matters
contemplated hereby;
"Purchaser's Counsel's Closing Opinion" means an opinion of
Purchaser's Counsel addressed to Vendor and in the form appended
hereto as Appendix 6.2.5;
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"Real Property Leases" means the lease agreements relating to the
Leased Premises listed in Schedule 7.1.14;
"Records" has the meaning ascribed thereto in section 2.1(m);
"Schedules" means the schedules attached to and forming part of this
Agreement;
"Sure-Test Licence Agreement" means the amended and restated licence
agreement between Pro Eco and Purchaser in the form attached hereto as
Appendix 4.1.4 pursuant to which Pro Eco grants an exclusive,
transferable, perpetual, fully-paid licence to use the Sure-Test
software and related intellectual property in Canada;
"Sure-Test Licence Fee" means the initial licence fee in the amount of
$10,000 payable by Purchaser to Pro Eco pursuant to the Sure-Test
Licence Agreement;
"Sure-Test Support Agreement" means the technology and software
support agreement dated as of the date hereof between Purchaser and
Pro Eco in the form attached hereto as Appendix 4.1.5;
"Tanknology Intellectual Property" means the Intellectual Property
licensed to Vendor pursuant to the Existing Tanknology Licence
Agreement;
"Tanknology Intellectual Property Price" means the acquisition price
in the amount of $1,000,000 for the Patents and $25,000 for the
Trade-marks payable by Purchaser to Tanknology-USA pursuant to the
Tanknology's Intellectual Property Transfer Agreement;
"Tanknology Intellectual Property Transfer Agreement" means the
agreement between Tanknology-USA and Purchaser in the form appended as
Appendix 4.1.1 pursuant to which Tanknology-USA sells, transfers and
assigns to Purchaser all of its rights in certain software, patents,
trade-marks and trade secrets relating to the Business;
"Tanknology Licence Agreement" means an agreement between
Tanknology-USA and Purchaser in the form attached hereto as Appendix
4.1.2 pursuant to which Tanknology-USA grants to Purchaser an
exclusive, transferable, perpetual, fully-paid licence to use,
throughout Canada, certain computer programs and related intellectual
property;
"Tanknology Licence Fee" means the fee in the amount of $125,000
payable by Purchaser to Tanknology-USA pursuant to the Tanknology
Licence Agreement;
"Tanknology Support Agreement" means the technology and software
support agreement between Purchaser, Tanknology-USA and Parent in the
form attached hereto as Appendix 4.1.3;
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"Tax" or "Taxes" means all federal, state, provincial, local and
foreign income, estimated income, business, occupation, franchise, ad
valorem, property, value added, sales, use, gross receipts, employment
or withholding taxes or assessments, including any interest, penalties
or additions thereon or in respect thereof for which a party is or may
become liable;
"Tax Returns" means any return or statement filed or to be filed with
any Tax authority by or including the Vendor in connection with the
determination, assessment, collection or administration of any Tax;
"Test Vans" has the meaning ascribed thereto in section 2.1(a);
"Tools" has the meaning ascribed thereto in section 2.1(c);
"Trade-marks" means the trade-marks comprising the Tanknology
Intellectual Property and listed in Schedule 2.1(f);
"USTMAN" means USTMAN Industries, Inc., a Delaware corporation, and a
wholly-owned subsidiary of Parent;
"USTMAN SIR Licence Agreement" means the licence agreement between
USTMAN and Purchaser in the form attached hereto as Appendix 4.1.7-A;
"USTMAN SIR Support Agreement" means the licence agreement between
USTMAN and Purchaser in the form attached hereto as Appendix 4.1.7-B;
"Vendor's Counsel" means Baker & Botts, L.L.P. of Houston, Texas, as
United States legal counsel to the Vendor, and Lucas, Bowker and White
of Edmonton, Alberta, as Canadian counsel to the Vendor, or such other
counsel reasonably acceptable to Purchaser as Vendor may appoint with
respect to this Agreement and the matters contemplated hereby; and
"Vendor's Counsel's Closing Opinion" means the two opinions of
Vendor's Counsel addressed to Purchaser and in the forms appended
hereto as Appendix 6.1.7; and
"Vendor Financial Statements" means the unaudited financial statements
of Vendor for the fiscal period ended on October 24, 1996 prepared in
accordance with generally accepted accounting principles of the United
States of America applied on a consistent basis, which financial
statements are attached hereto as Appendix 7.1.10.
"Western Canada Licence Agreement" means the agreement made the fourth
day of April, 1995 between Parent, as licensor, and Sure Test Canada
Ltd., as licencee.
1.2 Schedules and Appendices: The following are the Schedules and
Appendices attached to and forming part of this Agreement:
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Schedule 2.1(a) Test Vans
Schedule 2.1(b) Equipment
Schedule 2.1(c) Tools
Schedule 2.1(d) Inventory
Schedule 2.1(e) Office Equipment
Schedule 2.1(f) Intellectual Property
Schedule 2.1(i)-A Customer Contracts
Schedule 2.1(i)-B Customer Lists
Schedule 2.1(j) Other Contracts
Schedule 7.1.14 Leased Premises and Real Property Leases
Schedule 7.1.15 Leased Equipment and Equipment Leases
Schedule 7.1.16 Litigation
Schedule 7.1.17 Employees
Schedule 7.1.18 Warranties and Guarantees
Schedule 7.1.20 Consents
Schedule 7.1.23 Environmental Matters
Schedule 7.1.25 Licences, Permits and Registrations
Schedule 7.1.26 Accounts Receivable
Appendix 1.1 Assignment, Conveyance and Assumption Agreement
Appendix 4.1.1 Tanknology Intellectual Property Transfer Agreement
Appendix 4.1.2 Tanknology Licence Agreement
Appendix 4.1.3 Tanknology Support Agreement
Appendix 4.1.4 Sure-Test Licence Agreement
Appendix 4.1.5 Sure-Test Support Agreement
Appendix 4.1.6 Non-Competition Agreement
Appendix 4.1.7-A USTMAN SIR Licence Agreement
Appendix 4.1.7-B USTMAN SIR Support Agreement
Appendix 6.1.7 Vendor's Counsel's Closing Opinion
Appendix 6.2.5 Purchaser's Counsel's Closing Opinion
Appendix 7.1.10 Vendor Financial Statements
1.3 Sections and Headings: The division of this Agreement into articles,
sections, subsections, paragraphs and subparagraphs and the insertion of
headings and any index are for convenience of reference only and shall not
affect the construction or interpretation hereof.
1.4 Extended Meanings: Words importing the singular number include the
plural and vice-versa; words importing gender include all genders.
1.5 Currency: All dollar amounts referred to in this Agreement are in
lawful currency of the United States.
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ARTICLE 2
PURCHASE AND SALE OF PURCHASED ASSETS
2.1 Agreement to Purchase: Subject to the terms and conditions of this
Agreement and in reliance on the representations and warranties contained
herein, Purchaser shall purchase and Vendor shall sell, transfer and assign to
Purchaser on the Closing Date, free and clear of all liens, claims, security
interests, encumbrances or obligations of any nature whatsoever, substantially
all of the assets, tangible and intangible, real and personal, rights and
undertakings, used in connection with the Business as at the Effective Date,
except as expressly excluded in Section 2.2 hereof, including, without
limitation, all right, title and interest of Vendor in and to:
(a) all trucks, cars and other vehicles owned by Vendor and used
in connection with the Business, together with all testing
and analysis equipment attached to or stored therein,
including, without limitation, those items listed in
Schedule 2.1(a) hereto (the "Test Vans");
(b) all machinery, equipment, spare parts and supplies owned by
Vendor and used in connection with the Business, including
without limitation the items listed in Schedule 2.1(b)
hereto (the "Equipment");
(c) all small tools used in connection with the Business,
including, without limitation, those items listed in
Schedule 2.1(c) hereto (the "Tools");
(d) all inventory for resale owned by Vendor and used in
connection with the Business, including, without limitation,
those items listed in Schedule 2.1(d) hereto (the
"Inventory");
(e) all furniture, furnishings, accessories and office equipment
owned by Vendor and used in connection with the Business,
including, without limitation, those items listed in
Schedule 2.1(e) hereto (the "Office Equipment");
(f) all Intellectual Property owned by Vendor (with the
exception of Intellectual Property licensed to Vendor under
the Existing Tanknology Licence Agreement), including,
without limitation, those items listed in Schedule 2.1(f)
hereto;
(g) Vendor's leasehold interest in the Leased Premises and all
improvements, appurtenances and fixtures situate thereon or
forming part thereof;
(h) Vendor's leasehold interest in the Leased Equipment;
(i) all of Vendor's rights pursuant to all written or oral
contracts to provide testing and analysis services to its
customers as listed on Schedule 2.1(i)-A hereto (the
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"Customer Contracts") together with Vendor's list of all
current and prospective customers of the Business as listed
on Schedule 2.1(i)-B hereto (the "Customer Lists");
(j) all of Vendor's rights to non-competition, non-solicitation
and confidentiality agreements and licences listed on
Schedule 2.1(j) hereto and other Contracts pertaining to the
Business and not otherwise expressly provided for herein
(collectively, the "Other Contracts");
(k) prepaids consisting of workers' compensation payments,
equipment rentals, utilities and subscriptions and other
like items which corporations normally treat as prepaids
provided they relate to the Business and are transferable,
but excluding insurance prepaids;
(l) the goodwill of the Business, as well as the exclusive right
of Purchaser, at its option, to represent itself as carrying
on the Business in continuation of and in succession to
Vendor, and all of Vendor's right, subject to the provisions
of section 9.1, to use the names "Tanknology Canada",
"Tanknology" or any variation thereof, all of the Vendor's
rights to its telephone numbers and all other intangibles
used in connection with the Business (collectively referred
to as the "Goodwill");
(m) all documents, or copies thereof, and other data, technical
or otherwise, owned by Vendor that relate to the Business
and which are in the possession of Vendor (the "Records");
and
(n) all other assets, rights or undertakings (other than the
Excluded Assets) used or in any way associated with the
Business of whatever nature or kind and wherever situated;
collectively, the "Purchased Assets".
2.2 Excluded Assets: There shall be specifically excluded from the
Purchased Assets: (i) all Accounts Receivable, (ii) all cash on hand and in bank
accounts of Vendor, and (iii) all insurance prepaids and/or insurance premiums
termination credits of Vendor (the "Excluded Assets").
2.3 Assumed Liabilities: As of the Effective Date, Purchaser shall assume
and thereafter pay, perform and discharge all obligations and liabilities of
Vendor in respect of the Customer Contracts, Other Contracts, Equipment Leases,
Real Property Leases and all employment obligations in respect of the Employees,
including, without limitation, notice, severance and accrued vacation
entitlements.
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2.4 No Assumption of Other Liabilities: Other than the liabilities of
Vendor assumed pursuant to section 2.3, it is expressly understood and agreed
between the parties hereto that Purchaser shall not assume and is not assuming,
nor shall Purchaser become liable, obligated or responsible for the payment of
any debts, liabilities or obligations or the performance of any duties of Vendor
of any kind or nature whatsoever, whether arising before, on or subsequent to
the Effective Date and whether contingent or liquidated in amount, including,
without limitation, any debts, liabilities, obligations or duties arising out of
accounts payable, tax liabilities, environmental matters, Contracts, or other
liabilities of Vendor or related to the operation of the Business.
ARTICLE 3
PURCHASE PRICE
3.1 Purchase Price: The purchase price payable by Purchaser for the
Purchased Assets (the "Purchase Price") (subject to the adjustments, if any, to
be made pursuant to section 3.2) shall be the sum of Fifty Thousand Dollars
($50,000) and shall be allocated to the Purchased Assets as follows:
Test Vans $ 12,963
Equipment $ 8,796
Tools $ 9,559
Office Equipment $ 10,000
Inventory $ 4,667
Goodwill $ 4,014
All other Purchased Assets $ 1
$ 50,000
The Purchase Price shall be satisfied in full by wire transfer of immediately
available funds to the order of the Vendor on Closing.
3.2 Business Expenses: All expenses of the Business attributable to the
period on and prior to the Effective Date, including, without limitation,
accrued and/or unpaid wages, salaries and commissions (exclusive of all accrued
vacation obligations which shall be the responsibility of Purchaser), and all
accrued and/or unpaid sales tax, lease payments and telephone and other utility
charges of the Business shall be borne by Vendor. All expenses of the Business
attributable to the period after the Effective Date shall be borne by Purchaser.
In the event that Purchaser and Vendor fail to agree on which party is
responsible for any such payment obligation, such parties shall retain, at their
joint expense, the firm of Ernst & Young, Chartered Accountants, or such other
national firm of chartered accountants mutually acceptable to the parties hereto
to determine the party responsible for such payment obligation and whose
determination shall be final and binding on the parties. Any and all obligations
required to be paid by the responsible party pursuant to this section shall be
made to the applicable payee within 15 days after determination of the amount of
such payment.
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3.3 Sales and Transfer Taxes: All Canadian federal, provincial and
municipal GST, sales and transfer taxes payable in connection with the transfer
of the Purchased Assets shall be borne by Purchaser.
3.4 GST Election: Each of Vendor and Purchaser is a registrant under the
Excise Tax Act (Canada) for the purposes of the GST. Vendor's GST registration
number is 13070 0727 RT. Purchaser's GST registration number is 89813 9837 RT.
Vendor and Purchaser elect for the provisions of subsection 167(1) of the Excise
Tax Act (Canada) to apply to the sale of the Purchased Assets. The parties
hereto shall take all necessary actions in order to complete and file a valid
joint election as provided in subsection 167(1) of the Excise Tax Act (Canada).
If GST is payable in respect of this asset sale transaction, such tax liability
shall be for the account of Purchaser, and Purchaser agrees to remit forthwith
Vendor the amount of such GST together with any interest and penalties levied in
respect thereof.
ARTICLE 4
ADDITIONAL COVENANTS OF THE PARTIES
As an inducement to all parties hereto to enter into this Agreement and to
consummate the transactions contemplated hereby, Purchaser and Vendor hereby
covenant and agree to the following, and acknowledge that each such covenant and
agreement is material to and relied upon by each party hereto:
4.1 Additional Agreements: On or prior to the Closing Date:
4.1.1 Tanknology Intellectual Property Transfer Agreement:
Purchaser and Tanknology-USA shall enter into the Tanknology
Intellectual Property Transfer Agreement and shall complete
the transactions contemplated thereunder on Closing;
4.1.2 Tanknology Licence Agreement: Purchaser and Tanknology-USA
shall enter into the Tanknology Licence Agreement and
Purchaser shall pay the Tanknology Licence Fee to
Tanknology-USA;
4.1.3 Tanknology Support Agreement: Parent, Tanknology-USA and
Purchaser shall enter into the Tanknology Support Agreement;
4.1.4 Sure-Test Licence Agreement: Purchaser shall enter into,
and Parent shall cause Pro Eco to enter into, the Sure-Test
Licence Agreement and Purchaser shall pay the initial
licence fee in the amount of $10,000 to Pro Eco on Closing;
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4.1.5 Sure-Test Support Agreement: Purchaser and Parent shall
enter into, and Parent shall cause Pro Eco to enter into,
the Sure-Test Support Agreement;
4.1.6 Non-Competition: Vendor, Tanknology-USA, Parent and
Purchaser shall enter into a non-competition and
non-solicitation agreement substantially in the form
attached hereto as Appendix 4.1.6;
4.1.7 USTMAN Agreements: Purchaser shall enter into, and Parent
shall cause USTMAN to enter into, the USTMAN SIR Licence
Agreement and the USTMAN SIR Support Agreement;
4.2 New Lease: It is mutually understood and agreed that Purchaser will
make a good faith effort to negotiate new lease agreements for the Leased
Premises for effect on the Closing Date or as soon as is practicable thereafter.
4.3 Offers of Employment: Purchaser shall offer employment as of the
Closing Date to all Employees on terms and conditions at least equivalent on an
overall basis to those enjoyed by each such Employee as of the Closing Date and
reflected in Schedule 7.1.17. Purchaser will be responsible for any termination
and severance costs with respect to all Employees.
4.4 Bulk Sales Act: Purchaser hereby waives compliance of the Bulk Sales
Act (Ontario). Vendor and Parent hereby, jointly and severally, shall pay and
satisfy all bona fide claims of trade creditors of the Business relating to all
periods on and before the Closing Date forthwith upon such claims becoming due
and payable. Vendor and Parent hereby jointly and severally agree to indemnify
and hold harmless Purchaser from any liability or other consequence arising out
of the waiver of such Act.
4.5 Transfer and Delivery of Purchased Assets: On Closing, Vendor shall
execute and deliver to Purchaser all bills of sale, assignments, instruments of
transfer, assurances, consents and other documents as shall be necessary to
effectively transfer to Purchaser all the Purchased Assets, and shall deliver up
to Purchaser possession of the Purchased Assets and Records, free and clear of
any liens, charges or encumbrances or rights of third persons (other than
permitted encumbrances and any liens, charges or encumbrances imposed or created
by the actions of Purchaser).
ARTICLE 5
CLOSING ARRANGEMENTS
5.1 Closing: The Closing of the transactions contemplated hereby shall take
place on the Closing Date at the offices of Purchaser's solicitors, Suite 5800,
Scotia Plaza, 40 King Street West, Toronto, Ontario M5H 3Z7, or at such other
place or time as may be approved by Vendor and Purchaser.
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5.2 Closing Procedures: At or before the Closing on the Closing Date, the
parties shall take or cause to be taken all actions, steps and corporate
proceedings necessary or desirable to validly and effectively approve or
authorize the completion of the transactions contemplated hereby.
ARTICLE 6
CONDITIONS OF CLOSING
6.1 Conditions for Purchaser's Benefit: Purchaser shall not be obligated to
complete the transaction contemplated hereby unless, on the Closing Date, each
of the following conditions has been satisfied, it being understood that these
conditions are included for the exclusive benefit of Purchaser and may be waived
in writing in whole or in party by Purchaser at any time:
6.1.1 Approvals: All necessary legal and corporate proceedings and
approvals, regulatory or otherwise, applicable to Vendor,
Parent, Tanknology-USA and Pro Eco, shall have been taken or
obtained to permit the parties to complete the transactions
provided for herein.
6.1.2 Representations: The representations and warranties of
Vendor, Parent and Tanknology-USA, set forth in this
Agreement shall be true and correct at the time of Closing
with the same force and effect as if made at and as of such
time.
6.1.3 Compliance: All of the terms, covenants and agreements set
forth in this Agreement to be complied with or performed by
Vendor, Parent and/or Tanknology-USA on or before the
Closing Date shall have been complied with or performed by
Vendor, Parent and/or Tanknology-USA in all respects on or
before the Closing Date.
6.1.4 Enforceable Agreement: This Agreement and all agreements and
documents delivered at Closing or contemplated in this
Agreement shall have been duly authorized, executed and
delivered to Purchaser by Vendor, Parent, Tanknology-USA,
USTMAN and Pro Eco as applicable, and shall be, at Closing,
valid and binding obligations of Vendor, Parent,
Tanknology-USA, USTMAN and Pro Eco respectively, enforceable
in accordance with their respective terms, subject to all
applicable laws, including, without limitation, bankruptcy
and creditors rights law and equitable principles.
6.1.5 Vendor Deliveries: Vendor, Parent and/or Tanknology-USA
shall have delivered to Purchaser:
(a) each of the Tanknology Intellectual Property Transfer
Agreement, Tanknology Licence Agreement, Tanknology
Support Agreement, Sure-Test Licence Agreement,
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Sure-Test Support Agreement, USTMAN Agreement and
Non-Competition Agreement duly executed by all
respective parties thereto other than Purchaser;
(b) the Assignment Conveyance and Assumption Agreement to
be executed by all parties thereto;
(c) a certificate dated as of Closing executed by a duly
authorized officer of each of Vendor, Parent and
Tanknology-USA to the effect that all representations
and warranties of Vendor, Parent and Tanknology- USA
contained in this Agreement are true and correct at and
as of the Closing and all conditions precedent to the
obligations of Purchaser to consummate the transactions
contemplated herein and not waived by Purchaser have
been fulfilled by Vendor, Parent and Tanknology- USA;
(d) certified copies (dated as of the Closing) of the
Shareholders of Vendor and the Board of Directors of
Parent and Tanknology-USA authorizing and approving the
execution and delivery of this Agreement and the
consummation of each and every transaction contemplated
by this Agreement;
(e) a certificate of incumbency of Vendor, Parent,
Tanknology-USA, Pro Eco and USTMAN dated as of the
Closing;
(f) the Vendor's Counsel's Closing Opinion; and
(g) the consent and release of Bank One, Texas, N.A. and
Bank One, Capital Partners L.P., the consent of the
landlord to Purchaser's assumption of the Mississauga
office lease, the waiver required by ULC Underwriters
Laboratory of Canada and the Bell Canada assumption of
Vendor's phone line, each as referred to in Schedule
7.1.20.
6.2 Conditions for Vendor's Benefit: None of Vendor, Parent and
Tanknology-USA shall be obligated to consummate the transactions herein provided
for unless, on the Closing Date, each of the following conditions has been
satisfied, it being understood that these conditions are included for the
exclusive benefit of Vendor, Parent and Tanknology-USA and may be waived in
writing in whole or in part by Vendor, Parent and Tanknology-USA at any time:
6.2.1 Approvals: All necessary legal and corporate proceedings and
approvals, regulatory or otherwise, applicable to Purchaser,
shall have been taken or obtained to permit the parties to
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complete the transactions provided for herein.
6.2.2 Representations and Warranties: The representations and
warranties of Purchaser set forth in this Agreement shall be
true and correct at the time of Closing with the same force
and effect as if made at and as of such time.
6.2.3 Compliance: All of the terms, covenants and agreements set
forth in this Agreement to be complied with or performed by
Purchaser at or before the Closing Date shall have been
complied with or performed by Purchaser in all respects.
6.2.4 Enforceable Agreement: This Agreement and all agreements and
documents delivered at Closing or contemplated in this
Agreement shall have been duly authorized, executed and
delivered to Vendor by Purchaser and shall be, at Closing,
valid and binding obligations of Purchaser, enforceable in
accordance with their respective terms, subject to all
applicable laws including, without limitation, bankruptcy
and creditors rights law and equitable principles.
6.2.5 Purchaser's Deliveries: Purchaser shall have delivered to
Vendor, Parent and Tanknology-USA:
(a) each of the Tanknology Intellectual Property Transfer
Agreement, Tanknology Licence Agreement, Tanknology
Support Agreement, Sure-Test Licence Agreement,
Sure-Test Support Agreement, USTMAN Agreement and
Non-Competition Agreement duly executed by Purchaser;
(b) the Assignment, Conveyance and Assumption Agreement to
be executed by all parties thereto;
(c) payment of the Purchase Price as provided in section
3.1;
(d) payment of the Tanknology Intellectual Property Price;
(e) payment of the Tanknology Licence Fee;
(f) payment of the Sure-Test Licence Fee;
(g) a certificated dated as of Closing executed by a duly
authorized officer of Purchaser to the effect that all
representations and warranties of Purchaser, contained
in this Agreement are true and correct at and as of the
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Closing and all conditions precedent to the obligations
of Vendor, Parent and Tanknology-USA to consummate
the transactions contemplated herein not waived by
Vendor, Parent and Tanknology-USA have been fulfilled
by Purchaser;
(h) a certificate of incumbency of Purchaser dated as of
the Closing;
(i) certified copies (dated as of the Closing) of the Board
of Directors of Purchaser authorizing and approving the
execution and delivery of this Agreement and the
consummation of each and every transaction contemplated
by this Agreement; and
(j) the Purchaser's Counsel's Closing Opinion.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties of Vendor: As an inducement to Purchaser
to enter into this Agreement and to consummate the transactions contemplated
hereby, each of Vendor, Parent and Tanknology-USA, jointly and severally, hereby
represents and warrants to Purchaser, and acknowledges that each such
representation and warranty set forth in section 7.1 is material to and is
relied upon by Purchaser:
7.1.1 Corporate Status: Each of Vendor, Parent, Tanknology-USA,
USTMAN and Pro Eco is a corporation duly incorporated and
organized and validly existing under the laws of its
jurisdiction of incorporation with all requisite corporate
power and capacity to execute and deliver this Agreement and
all other instruments and documents relating hereto and
perform all of its obligations hereunder and thereunder.
Vendor has all requisite power and capacity to own and
operate the Business and to lease and dispose of the
Purchased Assets and Vendor is qualified and in good
standing in each jurisdiction where the character of its
properties owned, operated or leased or the nature of its
activities makes such qualification necessary, except where
the failure to be so qualified shall not, alone or in the
aggregate, have a material adverse effect on the Business.
7.1.2 Effect of Agreement: The execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereunder have been duly authorized by all
necessary corporate action on the part of each of Vendor,
Parent and Tanknology-USA. The execution and delivery of the
USTMAN Agreement by USTMAN, and the Sure-test Support
Agreement by Pro Eco, and the consummation of the
transactions contemplated thereunder have been duly
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authorized by all necessary corporate action on the part of
USTMAN and Pro Eco, respectively. This Agreement and all
agreements and documents executed and delivered pursuant to
this Agreement constitute valid and binding obligations of
Vendor, Parent, Tanknology-USA, USTMAN and Pro Eco,
enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency, reorganization,
moratorium and other laws or equitable principles of general
application affecting the rights of creditors generally.
7.1.3 No Breach Caused by this Agreement: Neither the execution
nor delivery of this Agreement nor the fulfilment or
compliance with any of the terms hereof will, with or
without the giving of notice and/or the passage of time, (i)
conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under,
the articles or by-laws, as amended, of Vendor, Parent and
Tanknology-USA or, if the consents contemplated in Schedule
7.1.20 are obtained, any Contract or any judgment, decree or
order to which Vendor, Parent or Tanknology-USA is subject
or by which they are bound, or (ii) require any consent or
other action by any administrative or governmental body. The
execution, delivery and performance of this Agreement and
compliance with the provisions hereof by Vendor, Parent and
Tanknology-USA will not violate any provision of law or any
regulation by which Vendor, Parent and Tanknology-USA are
bound.
7.1.4 Title to Assets: Vendor has good and marketable title to the
Purchased Assets (and a valid and enforceable leasehold
interest in all assets subject to the Equipment Leases),
free and clear of all liens, privileges, pledges, options,
mortgages, hypothecs, charges or other encumbrances or
security interests of whatsoever nature or kind.
7.1.5 Condition of Tangible Assets: All Test Vans, Tools,
Equipment, Office Equipment and Leased Equipment are in
good, serviceable condition and fit for the particular
purposes for which they are used in the Business, subject
only to normal maintenance requirements and normal wear and
tear reasonably expected in the ordinary course of business.
7.1.6 Options: Except as set out in this Agreement, no person has
any agreement or option or any right or privilege (whether
by law, pre-emptive or contractual) capable of becoming an
agreement or option for the purchase from Vendor of any of
the Purchased Assets, other than pursuant to purchase orders
accepted by Vendor in the ordinary course of the Business.
7.1.7 Inventory: All items of Inventory are merchantable. None of
such items is below standard quality, obsolete or
obsolescent.
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7.1.8 All Assets: The Purchased Assets, the Intellectual Property
listed on Schedule 2.1(f) and all assets subject to the
Equipment Leases constitute all material assets of any
nature with which Vendor has conducted the Business for the
twelve months prior to the date hereof, other than
additional Test Vans provided by Affiliates of the Vendor
from time to time during periods of increased business
activity, and subject to the addition and deletion of assets
in the ordinary course of business. All Leased Premises are
supplied with utilities and other services necessary for the
operation of such facilities in connection with the
Business.
7.1.9 Customers and Suppliers: Vendor has no knowledge of any
termination, cancellation or modification, not in the
ordinary course of business, in the business relationships
of Vendor with any of its material customers and suppliers
which may reasonably be expected, alone or in the aggregate,
to have a material adverse effect on the Business.
7.1.10 Financial Statements: The Vendor Financial Statements are
accurate, complete, true and correct in all material
respects and fairly present in all material respects the
financial condition and results of operations of Vendor and
the Business as of the date of such statements.
7.1.11 Records Complete: All material transactions of the
Business are properly recorded in the books and records of
Vendor.
7.1.12 Intellectual Property: Vendor has full right, title and
interest to each item of Intellectual Property owned,
licensed or used by Vendor in connection with the Business
as set forth on Schedule 2.1(f). There are no pending or
threatened claims against Vendor alleging that the conduct
of the Business infringes or conflicts with the rights of
others under patents, trade-marks, copyrights or trade
secrets. The Business as now conducted does not infringe or
conflict with the rights of others, including, without
limitation, to patent, trade-mark, copyright and trade
secret rights, and Vendor owns or possesses all the patents,
trade-marks, trade names, copyrights, trade secrets, service
marks, licences and rights with respect to the foregoing
necessary for the operation of the Business as now
conducted. None of Vendor, Parent or Tanknology-USA is aware
of any violation by a third party of any patents,
trade-marks, trade names, copyrights, trade secrets,
services marks, licences or other proprietary rights owned
by Vendor, Parent and Tanknology-USA and used in connection
with the Business.
7.1.13 Contracts: Vendor is not a party to any Contract relating
to the Business, except as listed in the Schedules to this
Agreement. Vendor is not in default under or in breach of
any Customer Contract, Other Contract, Equipment Lease or
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Real Property Lease except for defaults or breaches which
individually or in the aggregate are not material and, to
the knowledge of Vendor or Parent, there exists no state of
facts which, after notice or lapse of time or both, would
constitute such a default or breach by Vendor or any other
party thereto. Each of such Contracts is now in good
standing and in full force and effect and Vendor is entitled
to all rights and benefits thereunder.
7.1.14 Real Property: Vendor is not the owner of or tenant or a
party to any agreement to own or lease any real property of
or pertaining to the Business, except for the Leased
Premises.
7.1.15 Leased Equipment: Schedule 7.1.15 contains a complete and
accurate list of all Equipment Leases and all Leased
Equipment used in the Business.
7.1.16 Litigation: Except as disclosed in Schedule 7.1.16, there
are no law suits, actions, governmental investigations,
claims or demands or other proceedings pending or, to the
best of the knowledge of Vendor, threatened against Vendor.
To the knowledge of Vendor or Parent, there exists no state
of facts which after notice or lapse of time or both could
reasonably be expected to give rise to any such action,
governmental investigations, claims or demands or other
proceedings, or which requires or may require, the
expenditure of money as a condition to or a necessity for,
the right or ability of Vendor to conduct the Business in
the manner in which the Business has been carried on prior
to the date hereof. All threatened or pending claims, suits
or actions against Vendor or any of its officers or
directors in their capacities as such which could affect
Vendor have been described in Schedule 7.1.16.
7.1.17 Employee Matters: Except as set forth in Schedule 7.1.17
hereto, Vendor:
(a) Collective Agreements: is not a party to any collective
agreement with, or commitment to, any trade union or
employee association and has not made any commitments
to or extended voluntary recognition to or conducted
negotiations with any trade union or employee
association with respect to any future agreements.
Vendor is not aware of any current attempts to organize
any employees or establish any trade union or employee
association in connection with Vendor other than as
disclosed on Schedule 7.1.17;
(b) Benefit Plans: except as set forth in Schedule 7.1.17,
is not a party to nor operates any bonus, pension,
profit sharing, deferred compensation, retirement,
hospitalization insurance, life insurance, drug or
dental insurance, eye care, weekly indemnity, long term
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disability, medical insurance, or similar plan or
practice, formal or informal, with respect to any
Employee or any other Person;
(c) Employment Contracts: is not bound by any agreement
whether written or oral with any Employee providing for
a specified period of notice of termination or
providing for any fixed term of employment, and has no
Employee who cannot be dismissed upon such period of
notice as may be required by applicable law. Schedule
7.1.17 contains a complete and accurate list of
Employees as at the Closing Date, each Employee's
annual remuneration, date of commencement of employment
and the amount of any accrued vacation benefit; and
(d) Inactive Employees: Schedule 7.1.17 contains a complete
and accurate list of Employees of Vendor who are no
longer on the payroll by reason of pregnancy or sick
leave, temporary lay-off or short term or long term
disability.
(e) Employee Plans: all employee benefit and welfare plans
to which Vendor contributes, or in which any of its
Employees participate or are eligible to participate,
have been established, qualified and administered, in
all material respects, in accordance with all
applicable laws, regulations, orders or other
legislative, administrative or judicial promulgations
and in accordance with all agreements or
understandings, written or oral, between Vendor and its
Employees. None of such plans, nor any related trusts
thereunder, is subject to any pending investigation,
examination or other proceeding initiated by any
governmental agency or instrumentality and there exists
no state of facts which after notice or lapse of time
or both could reasonably be expected to give rise to
any such investigation, examination or other
proceeding. All contributions required by the terms of
such plans or by applicable laws have been made, and
Vendor has no liability (other than liabilities
accruing after the Closing Date) with respect to any
such plans, except for current contributions not yet
due and payable based on compensation paid by Vendor,
as the case may be.
7.1.18 Fulfilment of Guarantees: There have been no requests or
demands for treatment or other services by customers of
Vendor to fulfil warranties or guarantees made or given by
Vendor to its customers which services have not been
provided to such customers, except as set forth in Schedule
7.1.18.
7.1.19 Taxes and Assessment: Vendor has filed, or will file when
and as due, all foreign, federal, provincial and local,
sales, payroll, excise, GST and business tax returns
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required by law to be filed by Vendor with respect to the
Business or the ownership of the Purchased Assets for all
periods prior to and including the Closing Date. Vendor has
paid or will pay all federal, provincial, local or foreign
taxes or other governmental charges, including interest and
penalties imposed, with respect to the Business of Vendor or
the ownership of the Purchased Assets for all periods prior
to and including the Closing Date.
7.1.20 Consents: Except as listed in Schedule 7.1.20, no consents
or approvals are required under any Contract pertaining to
the Business or to which Vendor, Parent or Tanknology-USA is
a party in order to permit the consummation of the
transactions provided for under this Agreement.
7.1.21 No Material Change: Except as disclosed or provided for in
this Agreement, since October 24, 1996;
(a) no material adverse change, financial or otherwise, in
the condition of the Business or the Purchased Assets
shall have occurred; and
(b) Vendor shall have operated the Business consistently
with prior practices and shall not have made any
material change to the Business.
7.1.22 Solvency: Vendor is solvent and the consummation of the
transactions provided for in this Agreement will not render
it insolvent. There are no conditions, obligations or
commitments of Vendor which will render Vendor insolvent.
7.1.23 Environmental Matters:
7.1.23.1 Other than as set forth on Schedule 7.1.23 attached
hereto, no environmental license, permit or approval
relating to the Purchased Assets or the Business will
become void or voidable as a result of the completion
of the transactions contemplated hereby.
7.1.23.2 To the best knowledge of the Vendor, other than as set
orth on Schedule 7.1.23 attached hereto, Vendor is not
responsible or potentially responsible for the
remediation or cost of remediation of any pollutants,
contaminants, chemicals or industrial, hazardous or
toxic substances or wastes of any kind ("Hazardous
Materials") regulated under any environmental law or
regulation at, on or under the Leased Premises, any
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land adjacent thereto or any other property owned,
leased or occupied by Vendor.
7.1.23.3 Other than as s et forth on Schedule 7.1.23 attached
hereto, Vendor has not been nor is it the subject of
any federal, provincial, local or private litigation or
proceeding involving a demand for damages or other
potential liability with respect to violations of any
environmental law, regulation or order.
7.1.23.4 Other than as s et forth on Schedule 7.1.23 attached
hereto, no notice or warning has been issued or given
by any governmental or regulatory authority with
respect to any failure or alleged failure of, or
necessity for, Vendor to have any environmental
license, permit or approval required in connection with
the conduct of the Business, except where such failure
has been fully resolved or cured or other required
action taken, nor, to the knowledge of the Vendor, is
any such notice or warning proposed or threatened; nor
has a notice or warning been issued or given by any
governmental or regulatory authority with respect to
the generation, treatment, storage, handling,
recycling, transportation, disposal or discharge of a
Hazardous Material by Vendor or the treatment, storage,
handling, recycling, disposal or discharge of a
Hazardous Material at the Leased Premises.
7.1.23.5 Other than as set forth on Schedule 7.1.23 hereto, the
Company has not handled any Hazardous Material at the
Leased Premises or any property owned, leased or
occupied by Vendor, other than in substantial
compliance with applicable environmental laws,
regulations and orders. No polychlorinated biphenyl or
asbestos material is or has been present at the Leased
Premises or any property owned, leased or otherwise
occupied by Vendor.
7.1.24 Copies of Agreement: True, correct and complete copies of
all Contracts relating to the Business or by which Vendor is
bound and all Real Property Leases and Equipment Leases have
bene provided to Purchaser.
7.1.25 Compliance with Applicable Laws: Vendor is conducting the
Business in compliance in all material respects with all
applicable federal, provincial, municipal and local laws,
rules and regulations of each jurisdiction in which it
carries on the Business including, without limitation,
zoning by-laws and regulations, and Vendor is not in breach
of any such laws, rules or regulations, except for breaches
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which in the aggregate are not material or which have been
disclosed in writing to Purchaser. Vendor is duly licensed
or registered and has obtained all permits in each
jurisdiction in which it owns or leases property or carries
on the Business, to enable the Business to be carried on as
now conducted and the Purchased Assets to be owned, leased
and operated, and all such licences, permits and
registrations are valid and subsisting and in good standing.
A complete and accurate description of all such licences,
permits and registrations held by Vendor is set forth in
Schedule 7.1.25 hereto.
7.1.26 Accounts Receivable: Schedule 7.1.26 is a complete and
accurate list of all Accounts Receivable. Vendor has not
rendered any invoice for services performed or products sold
after the Effective Date.
7.1.27 Residency: Vendor is not a non-resident of Canada within the
meaning of the Income Tax Act (Canada).
7.1.28 No Forbidden Disclosure: There is no information which
Vendor is prevented by contract from disclosing to third
parties, in respect to the transactions herein described.
7.1.29 Not Misleading: The foregoing representations and warranties
and statements of fact (including the Schedules and
Appendices related thereto) do not contain any untrue
statement of material fact or omit to state any material
fact necessary to make any such representation, warranty or
statement not misleading.
7.2 Representations and Warranties of Purchaser: As an inducement to Vendor
to enter into this Agreement and to consummate the transactions contemplated
hereby, Purchaser hereby represents and warrants to Vendor, and acknowledges
that each such representation and warranty set forth in section 7.2 is material
to and is relied upon by Vendor.
7.2.1 Good Standing: Purchaser is a corporation duly incorporated
and organized and validly existing under the laws of
Ontario.
7.2.2 Authority Relative to Agreement: Purchaser has the right,
power and authority to consummate the transactions
contemplated hereby, including the execution, delivery and
performance of this Agreement and all agreements,
instruments and documents being or to be executed and
delivered by Purchaser in connection with such transactions
and the performance of all obligations of Purchaser that
arise under this Agreement or under such other agreements,
instruments or documents or in connection herewith, and
execution and delivery of this Agreement and the
consummation of the transactions contemplated herein have
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been duly and effectively authorized and approved by all
necessary corporate action. This Agreement constitutes, and
each such other agreement, instrument, and document, upon
due execution by Purchaser will constitute, the legal,
valid, and binding obligation of Purchaser enforceable
against Purchaser, in accordance with its respective terms,
subject to applicable bankruptcy, insolvency, moratorium,
reorganization, and other laws or equitable principles of
general application affecting the rights of creditors
generally. The Board of Directors of Purchaser have approved
the consummation of the transactions contemplated hereby.
7.2.3 No Breach Caused by this Agreement: Neither the execution
nor delivery of this Agreement nor the fulfilment or
compliance with any of the terms hereof will, with or
without the giving of notice and/or the passage of time, (i)
conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under,
the articles or by-laws, as amended, of Purchaser or any
contract to which Purchaser is a party or by which it is
bound or any judgment, decree or order to which Purchaser is
subject or by which it is bound, or (ii) require any consent
or other action by any administrative or governmental body.
The execution, delivery and performance of this Agreement
and compliance with the provisions hereof by Purchaser will
not violate any provision of law or any regulation by which
Purchaser is bound.
7.3 Survival: Except as otherwise specifically provided, all
representations, warranties, covenants and agreements contained in this
Agreement on the part of each of the parties shall survive the Closing, the
execution and delivery of any bills of sale, instruments of conveyance,
assignments or other instruments for transfer of title to any of the Purchased
Assets and the payment of the consideration therefor and shall continue in full
force and effect for the benefit of the respective party, subject to the
following provisions:
(a) in respect to any Claim arising under Section 8.1,
other than a Claim based upon intentional
misrepresentation or fraud, or pertaining to Taxes, for
a period of three (3) years following the Closing Date;
and
(b) in respect to any Claim arising under Section 8.5 or
any Claim based upon intentional misrepresentation or
fraud, or pertaining to Taxes, for an unlimited period.
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ARTICLE 8
INDEMNITY
8.1 Indemnity of Purchaser: Subject to the limitations set forth in
sections 7.3 and 8.4 hereof, each of Vendor and Parent hereby jointly and
severally covenants and agrees to indemnify and save harmless Purchaser from and
against all claims, demands, actions, causes of action, liabilities, obligations
(including, without limitation, any removal or remedial action required by law,
regulation or order) damages, losses, costs and expenses (including, without
limitation, reasonable legal fees) (hereinafter sometimes collectively referred
to as the "Claims") which may be made or brought against Purchaser or which
Purchaser may suffer or incur as a result of, in respect of or arising out of
any matter or thing relating to: (i) the conduct of the Business prior to the
Closing Date, including, without limitation, the pre-Closing Date liabilities
set forth on the balance sheet included in the Vendor Financial Statements and
incurred in the ordinary course of business; (ii) any non-fulfillment of any
covenant or agreement on the part of Vendor, Parent or Tanknology-USA under this
Agreement; (iii) any breach of any representation or warranty of Vendor, Parent
or Tanknology-USA contained herein or in any certificate or other document
furnished by Vendor, Parent or Tanknology-USA pursuant to this Agreement; or
(iv) Claims in respect of litigation or threatened litigation whether or not
referred to in Schedule 7.1.16, arising from actions of Vendor, Parent or
Tanknology-USA (including a failure to act) taken or not taken prior to the
Closing Date, provided that this section 8.1 shall not cover any Claims relating
to vacation accruals of Employees, and provided further, that this section 8.1
shall not be applicable to any Claim based upon any representation, warranty,
covenant or agreement contained in this Agreement where notice of such Claim is
not given in accordance with section 8.2 prior to the expiration of such
representation, warranty, covenant or agreement pursuant to section 7.3. For
greater certainty, the provisions of this Article 8 shall apply to any Claim
arising under the indemnity set out in section 4.4 relating to the Bulk Sales
Act (Ontario). Subject to the provisions of section 10.1, the indemnity
provisions of this Article 8 shall be Purchaser's exclusive remedy in respect of
any such Claim.
8.2 Carriage of Legal Proceedings: If a Claim should arise and Purchaser
wishes to claim indemnification under section 8.1 hereof, Purchaser shall give
notice within 30 days of the Purchaser becoming aware of such Claim in writing
to Vendor, Parent and Tanknology-USA stating the nature and basis of the Claim.
Upon receipt of such notice, Vendor, Parent and Tanknology-USA shall have the
right by notice to Purchaser not later than thirty days after receipt of the
initial notice described above, to assume control of the defense, compromise or
settlement of any Claim, provided that such assumption shall, by its terms, be
without cost to Purchaser, subject to the right of reimbursement provided for
below. Upon assumption of control by Vendor, Parent and/or Tanknology-USA as
aforesaid, such indemnifying party or parties shall at their expense diligently
proceed with the defense, compromise or settlement of the Claim, including
employment of counsel reasonably satisfactory to Purchaser and, in connection
therewith, Purchaser shall cooperate fully but at the expense of the
indemnifying party or parties to make available to the indemnifying party or
parties all pertinent information and witnesses under the control of Purchaser,
make such assignments and take such other steps as in the opinion of Purchaser's
Counsel, acting reasonably, are necessary to enable the indemnifying party or
parties to conduct such defense, provided always that Purchaser shall be
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entitled to reasonable security from the indemnifying party or parties for any
expense, cost and other liabilities to which each of them may or may become
exposed by reason of such cooperation.
8.3 Settlement: In the event that Vendor, Parent and/or Tanknology-USA have
assumed the defense of any Claim and have obtained or received an offer to
compromise or settle such Claim on terms and conditions acceptable to such
indemnifying party or parties (which offer provides for a monetary settlement
and any non-monetary terms or conditions that are not material and adverse to
the interests of Purchaser) and Purchaser refuses for any reason whatsoever to
agree to the terms and conditions of such compromise or settlement, such
indemnifying party or parties may continue to defend the action or claim or
tender the further defense of such Claim to Purchaser and, in either case, the
liability of the indemnifying party or parties to Purchaser shall not exceed the
cost of implementation of such compromise or settlement. If Vendor, Parent and
Tanknology-USA do not give notice to Purchaser of their desire to control the
defense, compromise or settlement of any Claim as provided for above, Purchaser
shall be entitled to make such settlement of the Claim as in its sole discretion
may appear advisable, and such settlement or any other final determination of
such third party Claim shall be binding on Vendor, Parent and Tanknology-USA.
8.4 Limitation on Liability: The maximum aggregate amount of all liability
of Vendor, Parent and Tanknology-USA, collectively, pursuant to section 8.1
herein, and pursuant to each of the other agreements between or among any of the
parties specifically referencing this section 8.4, other than any liability
arising from any fraudulent acts of Vendor, Parent or Tanknology-USA or in
respect of Taxes, shall be limited to the sum of Two Million Dollars
($2,000,000.00), regardless of whether such liability is in the form of payment
or performance obligations.
8.5 Indemnity of Vendor: Purchaser hereby covenants and agrees to indemnify
and save harmless Vendor, Parent and Tanknology-USA from and against all Claims
which may be made or brought against Vendor, Parent or Tanknology-USA or which
they may suffer or incur as a result of, in respect of or arising out of any
matter or thing relating to: (i) the conduct of the Business after the Closing
Date; (ii) any non-fulfillment of any covenant or agreement on the part of
Purchaser under this Agreement, (iii) any breach of any representation or
warranty of Purchaser contained herein or in any certificate or other document
furnished by Purchaser pursuant to this Agreement or (iv) arising from actions
of Purchaser (including failure to act) taken or not taken after the Closing
Date. Subject to the provisions of section 10.1, the indemnity provisions of
this Article 8 shall be the exclusive remedy of Vendor, Parent and
Tanknology-USA in respect of any such Claim.
ARTICLE 9
POST-CLOSING COVENANTS
9.1 Corporate Name: Immediately following the Closing, Vendor shall take
all necessary steps and corporate proceedings as may be necessary to change its
name to a new name which does not contain the word "Tanknology", "Vacutect" or
"Sure-Test." Except for the purposes of carrying out administrative functions
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relating to the wind-up of its financial affairs, Vendor shall not use the words
"Tanknology" or "Tanknology Canada" or any other trade mark or trade name listed
on Schedule 2.1(f) after the Closing Date. Notwithstanding the provisions of
section 7.3 or anything else to the contrary contained herein, the parties
covenant and agree that:
(a) for as long as Purchaser or any successor thereto is in
existence, neither Parent nor any of Parent's
Affiliates shall conduct any business of any nature in
Canada under any name containing the words
"Tanknology", "Vacutect" or "Sure-Test"; and
(b) for as long as Parent or any Affiliate of Parent or any
successor to Parent or any such Affiliate is in
existence, neither Purchaser nor any of Purchaser's
Affiliates shall conduct any business of any nature
outside of Canada under any name containing the words
"Tanknology", "Vacutect" or "Sure-Test";
9.2 Motor Vehicles: Purchaser shall be responsible for the transfer of
ownership under applicable motor vehicle legislation of all motor vehicles and
trailers owned by Vendor and forming part of the Purchased Assets. Purchaser
shall complete the transfer of such ownership within 30 days of the Closing, and
shall indemnify and save harmless Vendor from and against all claims,
liabilities, costs, damages and expenses made against or sustained by Vendor as
a result of Purchaser operating such motor vehicles and/or trailers following
the Closing.
9.3 Collection of Accounts Receivable: Purchaser shall use reasonable
efforts, consistent with the practice of a Person carrying on a business of a
similar nature to the Business, for a period of one year following the Closing
Date, to collect those Accounts Receivable owing by customers of the Business
which request future services from the Purchaser. Any payments received by
Purchaser in respect of the Accounts Receivable shall be remitted by Purchaser
to Vendor on a monthly basis together with a written report in respect of such
collections. Any payments received by Purchaser from customers in connection
with the conduct of the Business during the one year following the Closing date
from customers who are debtors in respect of the Accounts Receivable shall be
firstly applied against the applicable accounts receivable on an oldest invoice
first basis.
9.4 Administrative Assistance to Vendor: Purchaser shall, in addition to
the assistance to be provided pursuant to section 9.3, for a period of one year
following the Closing Date, provide reasonable assistance to Vendor in the
following administrative matters:
(a) the processing and mailing of test reports to customers
of the Business in respect of all testing and analysis
completed by Vendor from January 1, 1997 to and
including January 31, 1997;
(b) the preparation and mailing of all invoices for all
services rendered and products sold by Vendor in the
ordinary course of business from January 1, 1997 to and
including January 31, 1997;
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(c) the processing and payment of all accounts payable of
Vendor relating to the Business and incurred in the
ordinary course of business from January 1 to and
including January 31, 1997, provided that Vendor shall
fund Purchaser to pay all such accounts payable prior
to the payment deadline specified in the respective
invoice. Purchaser shall be entitled to use the
proceeds of the Accounts Receivable collected on behalf
of Vendor pursuant to the provisions of section 9.3 to
satisfy payment of such accounts payable; and
(d) the attendance to limited accounting tasks in closing
the books and records of Vendor for the period
commencing September 30, 1996 and ending on February
19, 1997.
The foregoing assistance to be provided by Purchaser to Vendor shall be without
cost to Vendor except for any third party expenses necessarily incurred in
respect of the performance thereof. Vendor shall remit to Purchaser full payment
of any such third party expenses forthwith upon Purchaser's written request
therefor (including delivery of a copy of the related invoice). Purchaser shall
be entitled to use the proceeds of the Accounts Receivable collected on behalf
of Vendor pursuant to the provisions of section 9.3 to satisfy such third party
expenses.
9.5 Sure-Test Western Canadian Licence: Parent hereby acknowledges that
Purchaser has entered into discussions with Sure Test Canada Ltd., the licencee
under the Western Canada Licence Agreement, for the purpose of acquiring the
business of such licencee. If, as a result of such discussions, Parent and/or
Pro Eco (as licensor under the Western Canada Licence Agreement) receives a
request from Purchaser or the said Sure Test Canada Ltd. to terminate the
Western Canada Licence Agreement, Parent shall consent, and shall cause Pro Eco
to consent, to such termination in consideration of the increased licence fee
which would arise under section 6.2 of the Sure-Test Licence Agreement. Parent
hereby waives, and agrees to cause Pro Eco to waive, any and all of their
respective rights contained in the Western Canada Licence Agreement to
repurchase any equipment and other assets owned and used by Sure Test Canada
Ltd. in the operation of its business.
ARTICLE 10
ARBITRATION
10.1 Arbitration: Any dispute between the parties that cannot be resolved
by discussion between the parties hereto, shall be submitted to binding
arbitration. The arbitration shall be held in the Province of Ontario and shall
be settled in accordance with the provisions of the Arbitration Act (Ontario) or
The International Commercial Arbitration Act (Ontario), as appropriate. An
arbitrator shall be selected by the parties within thirty (30) days after
written notice is received from any other party hereto invoking this section
10.1 (the "Arbitration Notice Date"). If the parties are unable to agree upon an
arbitrator on or before thirty (30) days after such written notice, any party
hereto may apply to a judge of the Ontario Court of Justice (General Division)
to choose an arbitrator. There shall be a single arbitrator who shall order the
full exchange of documents before the commencement of any arbitration
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proceedings, but no other discovery process shall be permitted. It is the intent
of the parties that the arbitration shall be concluded as expeditiously as
possible. The arbitrator shall be instructed that time is of the essence in
proceeding with the determination of the dispute and, in any event, the
arbitrator's decision shall be rendered within thirty (30) days of the selection
of an arbitrator. The arbitration award shall be given in writing and shall be
final and binding on the parties, and not subject to any appeal, provided,
however, that the arbitrator shall have no authority to award punitive or
consequential damages under any circumstances regardless of whether such damages
may be available under the laws of the Province of Ontario or the applicable
laws of Canada, the parties hereby waiving their right, if any, to recover
punitive or consequential damages in connection with any dispute submitted to an
arbitrator pursuant to this section 10.1. The arbitrator shall have the right to
award costs of the arbitration. Judgment upon the award rendered may be entered
in any court of competent jurisdiction, or application may be made to such court
for judicial recognition of the award or an order of enforcement thereof, as the
case may be.
ARTICLE 11
GENERAL
11.1 Further Assurances: Each of the parties hereto shall from time to time
at the other's request and expense and without further consideration, execute
and deliver such other instruments of transfer, conveyance and assignment and
take such further action as the other may require to more effectively complete
any matter provided for herein.
11.2 Entire Agreement: This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof except as
specifically set forth or referred to herein. This Agreement supersedes any
prior or contemporaneous agreements, negotiations and discussions of the parties
in respect of the subject matter hereof, including without limitation a letter
of intent dated November 6, 1996. No amendment or waiver of this Agreement shall
be binding unless executed in writing by the parties and no such amendment or
waiver shall extend to anything other than the specific subject matter thereof.
The failure at any time of any party to insist on strict performance of any
provision of this Agreement shall not limit the ability of that party to insist
at any future time whatsoever on the performance of the same or any other
provision (except insofar as that party may have given a valid and effective
written waiver or release).
11.3 Invalidity of Provisions: The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision hereof and any such invalid or unenforceable provision shall
be deemed to be severable.
11.4 Applicable Law: This Agreement shall be governed and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
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11.5 Notices: Any notice required or permitted to be given hereunder shall
be in writing and shall be effectively given if (i) delivered personally, or
(ii) sent on any Business Day by telecopier, addressed, as follows:
(a) in the case of notice to Parent, Tanknology-USA, or
Vendor,
Tanknology/NDE Corporation
8900 Shoal Creek Blvd., Bldg. 200
Austin, Texas 78757
Attention: President, Dan Sharplin
Telecopier: (512) 459-1459
(b) with a copy to:
NDE Environmental Corporation
712 Main Street, Suite 1700
Houston, Texas 77002
Attention: Chairman, Jay Allen Chaffee
Telecopier: (713) 223-5379
(c) and in the case of notice to Purchaser, addressed as
follows:
Precision Tank Testing Limited
2550 Argentia Road, Suite 215
Mississauga, Ontario
L5N 5R1
Attention: Mr. David Lowndes, President
Telecopier: (905) 826-5315
and in all cases so sent by means of electronic communication, so confirmed. Any
notice so given is deemed conclusively to have been given and received on the
date when so personally delivered or sent by telex, telecopier or other
electronic communication. Any party hereto or others mentioned above may change
any particulars of its address for notice by notice of at least five (5)
Business Days to the others in the manner aforesaid.
11.6 No Brokers: None of the parties to this Agreement has entered into any
agreement that would entitle any Person to any valid claim against any such
party or parties for a broker's commission, finder's fee or any like payment in
respect of the purchase and sale of the Purchased Assets or any other matters
contemplated by this Agreement.
29
<PAGE>
11.7 Costs and Expenses: Each party to this Agreement shall be responsible
for its own legal and audit fees and other charges incurred in connection with
the purchase and sale of the Purchased Assets, including, without limitation,
the preparation of this Agreement, all negotiations between the parties hereto
and the consummation of all transactions contemplated hereunder.
11.8 Announcements: All public announcements about the transactions
provided for herein or contemplated hereby, or about the termination of this
Agreement prior to the Closing Date for any reason, shall be approved as to
form, content and timing by Vendor and Purchaser.
11.9 Time of the Essence: Time shall be of the essence with regard to the
performance of obligations set forth in this Agreement.
11.10 Successors and Assigns: This Agreement enures to the benefit of and
is binding upon the parties hereto and their respective successors and permitted
assigns. No party hereto may assign any of its rights under this Agreement
without the prior written consent of the other parties hereto.
11.11 Counterparts: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and which taken
together shall be deemed to constitute one and the same instrument.
30
<PAGE>
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto.
PRECISION TANK TESTING LIMITED
Per: //s// DAVID LOWNDES
David Lowndes,
President
TANKNOLOGY CANADA (1988) INC.
Per: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee,
President
NDE ENVIRONMENTAL CORPORATION
Per: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee,
Chairman
TANKNOLOGY/NDE CORPORATION
Per: //s// JAY ALLEN CHAFFEE
Jay Allen Chaffee,
Chairman
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from NDE
Environmental Inc.'s financial statements as of and for the year ended December
31, 1996.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<CASH> 193,627
<SECURITIES> 0
<RECEIVABLES> 10,923,157
<ALLOWANCES> 1,066,331
<INVENTORY> 482,107
<CURRENT-ASSETS> 11,682,510
<PP&E> 15,865,086
<DEPRECIATION> 11,052,586
<TOTAL-ASSETS> 21,748,818
<CURRENT-LIABILITIES> 10,938,898
<BONDS> 10,589,252
1,500,000
5,000
<COMMON> 1,598
<OTHER-SE> (1,810,930)
<TOTAL-LIABILITY-AND-EQUITY> 21,748,818
<SALES> 38,683,146
<TOTAL-REVENUES> 38,683,146
<CGS> 29,246,121
<TOTAL-COSTS> 37,099,123
<OTHER-EXPENSES> 11,420
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,205,475
<INCOME-PRETAX> (1,314,575)
<INCOME-TAX> 39,060
<INCOME-CONTINUING> (1,353,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,353,635)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
