Tanknology-NDE International, Inc. and Subsidiaries
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1999.
[ ] Transition Report Under to Section 13 or 15(d) of the Exchange Act for
the transition period from to .
Commission File Number 1-10361
Tanknology-NDE International, Inc.
(Exact name of business issuer as specified in its charter)
Delaware 95-3634420
(State of Incorporation) (IRS Employer Identification No.)
8900 Shoal Creek Blvd., Bldg. 200 Austin, Texas 78757
(Address of Principal Executive offices)
Issuer's telephone number, including area code (512) 451-6334
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past ninety days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at March 31, 1999
-------------- -----------------------------------
Common 16,774,940
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Tanknology-NDE International, Inc. and Subsidiaries
INDEX
Page Number
PART I Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
March 31, 1999 (Unaudited) and December 31, 1998 ............3
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1999 and March 31, 1998.........4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1999 and March 31, 1998.........5
Notes To Condensed Consolidated Financial Statements (Unaudited)......6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................10
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K.....................................14
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Tanknology-NDE International, Inc. and Subsidiaries
PART I Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and equivalents............................................... $ 178,055 $ 416,189
Trade accounts receivable, less allowance for doubtful accounts of
$1,374,699 at March 31, 1999 and
$1,798,044 at December 31, 1998........................... 13,093,531 18,071,273
Inventories........................................................ 1,216,332 1,218,271
Prepaid expenses and other current assets.......................... 356,054 521,909
-------------- -----------------
Total Current Assets...................................... 14,843,972 20,227,642
Restricted cash.................................................... 3,000,000 3,000,000
Equipment and improvements, net of accumulated depreciation of
$14,039,656 at March 31, 1999 and
$13,470,663 at December 31, 1998.......................... 7,983,012 8,109,097
Goodwill, net of accumulated amortization of $166,605 at
March 31, 1998 and $125,442 at December 31, 1998........ 2,359,953 2,401,115
Patents, licenses and other intangible assets, net of accumulated
amortization of $1,513,686 at March 31, 1998 and
$1,527,761 at December 31, 1998......................... 784,522 1,070,446
Deferred financing costs, net...................................... 617,198 674,531
-------------- -----------------
Total Assets.............................................. $ 29,588,657 $ 35,482,831
============== =================
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
Accounts payable .................................................. $ 2,247,555 $ 4,874,180
Accrued liabilities................................................ 1,508,067 1,649,020
Accrued payroll and payroll taxes.................................. 2,602,127 4,363,312
Current portion of long-term debt.................................. 2,746,773 2,314,991
-------------- -----------------
Total Current Liabilities................................. 9,104,522 13,201,503
Long Term Debt, less current portion .............................. 17,687,623 18,271,743
Deferred License Revenue........................................... 173,047 207,135
Redeemable Convertible Preferred Stock, at redemption value........ 1,500,000 1,500,000
Stockholders' Deficit:
Common stock, $.0001 par value; authorized 50,000,000 shares; issued
and outstanding 16,771,940 shares at March 31, 1999
and 16,735,040 shares at December 31, 1998.............. 1,677 1,674
Warrants...................................................... 321,000 321,000
Additional paid-in capital.................................... 27,699,900 27,733,366
Accumulated deficit........................................... (26,938,025) (25,755,500)
Cumulative foreign currency translation adjustment............ 38,913 1,910
-------------- -----------------
1,123,465 2,302,450
-------------- -----------------
Total Liabilities, Redeemable Convertible Preferred Stock
and Stockholders' Deficit............................ $ 29,588,657 $ 35,482,831
============== =================
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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Tanknology-NDE International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues .................................................. $ 12,580,473 $ 11,697,947
Cost of services .......................................... 10,829,692 9,005,243
-------------- --------------
Gross Margin ..................................... 1,750,781 2,692,704
Selling, general and administrative ....................... 2,904,559 2,316,802
-------------- --------------
Operating Income (Loss) .......................... $ (1,153,778) $ 375,902
Other income (expense):
Interest income ................................... 29,335 32,020
Interest expense .................................. (464,712) (395,517)
Other income (expense), net ....................... 53,416 711
-------------- --------------
Net Income (Loss) Before Provision for Income Taxes (1,535,739) 13,116
Benefit (Provision) for income taxes ..................... 353,220 (4,400)
-------------- --------------
Net Income (Loss) ................................ (1,182,519) 8,716
Less - Preferred stock dividends ......................... (37,500) (37,500)
Net Loss Available to Common Stockholders ........ $ (1,220,019) $ (28,784)
============== ==============
Basic and Diluted Loss per Share ................ $ (0.07) $ --
============== ==============
Weighted Average Number of Shares Outstanding .... 16,739,151 16,044,166
============== ==============
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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Tanknology-NDE International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) ....................................... $(1,182,519) $ 8,716
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by
Operating Activities
Depreciation and amortization ........................... 752,830 690,787
Amortization of discounts and financing costs ........... 57,333 69,161
Deferred license revenue earned ......................... (34,088) (45,833)
Gain on sale of patent .................................. (95,000) --
Other ................................................... 37,003 (9,334)
Changes in Operating Assets and Liabilities
Trade accounts receivable ............................... 4,977,742 147,774
Inventories ............................................. 1,937 (116,200)
Prepaid expenses and other current assets ............... 165,855 373,368
Accounts payable ........................................ (2,626,625) (66,556)
Accrued liabilities ..................................... (140,953) 150,694
Accrued payroll and payroll taxes ....................... (1,761,185) (34,778)
-------------- --------------
Net cash provided in operating activities ............... 152,330 1,167,799
Cash Flows from Investing Activities
Additions to equipment and improvements ................. (504,657) (641,094)
-------------- --------------
Net cash used in investing activities ................... (504,657) (641,094)
Cash Flows from Financing Activities
Net activity in revolving line of credit ................ 650,000 (42,667)
Preferred stock dividends ............................... (37,500) (37,500)
Proceeds from issuance of common stock .................. 4,031 --
Proceeds from long-term debt ............................ 141,949 --
Payments on long-term debt .............................. (644,287) (496,502)
Deferred financing costs ................................ -- (143,663)
-------------- --------------
Net cash provided by (used in) financing activities ..... 114,193 (720,332)
Net decrease in cash and equivalents .................... (238,134) (193,627)
Cash and equivalents at beginning of period ............. 416,189 193,627
Cash and equivalents at end of period ................... 178,055 --
============== ==============
</TABLE>
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Tanknology-NDE International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1: ACCOMPANYING UNAUDITED FINANCIAL STATEMENTS
Basis of Presentation: The consolidated financial statements of
Tanknology-NDE International, Inc. and its subsidiaries (the "Company") included
herein have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission, and, in the opinion of management,
reflect all adjustments necessary to present fairly the results of operations
for such interim periods. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations; however, management believes that the disclosures are adequate to
make the information presented not misleading. The accompanying unaudited
financial statements for the three months ended March 31, 1999 and 1998 contain
all adjustments, consisting of only normal recurring accruals, necessary to
present fairly the financial position of the Company as of March 31, 1999 and
1998 and the results of operations and cash flows for the three months then
ended. The results of operations for the Company's interim periods are not
necessarily indicative of the results to be expected for the entire year. It is
suggested that these financial statements be read in conjunction with the
audited financial statements and notes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1998. In 1999, the Company
is required to file Form 10-Q and Form 10-K in accordance with Regulation S-X
under the 1933 and 1934 Securities Acts. The Company no longer meets the
definition of a "Small Business Issuer" as defined in Regulation S-B under the
1933 and 1934 Acts.
NOTE 2: INCOME (LOSS) PER SHARE CALCULATIONS
The following table sets forth the calculation of basic and diluted income
(loss) per share:
Three Months Ended
-------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
Numerator:
Net income (loss) ................... $ (1,182,519) $ 8,716
Preferred stock dividends ........... (37,500) (37,500)
-------------- --------------
Numerator for basic income (loss) per
share -income available to common
shareholders ........................ (1,220,019) (28,784)
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Tanknology-NDE International, Inc. and Subsidiaries
Three Months Ended
-------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
Denominator:
Denominator for basic income (loss) per
share - weighted-average shares ....... 16,739,151 16,044,166
Effect of dilutive securities:
Stock options ......................... -- --
Warrants .............................. -- --
Convertible preferred stock ........... -- --
-------------- --------------
Dilutive potential common shares ...... -- --
Denominator for diluted earnings (loss)
per share - adjusted weighted- average
shares and assumed conversions ....... -- --
============== ==============
Basic income (loss) per share ......... $ (0.07) $ --
============== ==============
Diluted income (loss) per share ....... $ (0.07) $ --
============== ==============
NOTE 3: COMPREHENSIVE INCOME
Total non-stockholder changes in equity include all changes in equity
during a period except those resulting from investments by and distributions to
stockholders. Total comprehensive income for the three month periods ended March
31, 1999 and 1998 was as follows:
Three Months Ended
-------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
Net income (loss) ...................... $ (1,220,019) $ (28,784)
Foreign currency translation gain (loss) 37,003 (9,334)
-------------- --------------
Total comprehensive income (loss) ...... $ (1,183,016) $ (38,118)
============== ==============
NOTE 4: SEGMENT INFORMATION
The Company manages its business segments primarily along two lines of
business, Field Services and Management Services. Field Services comprises all
services that are typically performed out of the Company's regional offices by
field technicians operating from the Company's fleet of rolling stock.
Management Services comprises all Compliance Management Services, International,
Remote Monitoring, Maintenance Management and Construction Services. These
services are primarily "back office" functions whereby the Company manages
customers' information, oversees compliance or construction projects or performs
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Tanknology-NDE International, Inc. and Subsidiaries
technology licensing. These services are primarily performed out of the
Company's corporate office in Texas (Compliance Management, Remote Monitoring,
International) or offices in California (Maintenance Management) and Georgia
(Construction Management).
The accounting policies of the two segments are the same as those described
in the "Summary of Significant Accounting Policies" in Note 1 to the 1998
financial statements. The Company evaluates the performance of its segments
based on segment profit. Segment profit is defined as segment revenues less
those direct costs associated with the operations and does not include
depreciation, amortization, interest expense, income taxes or certain corporate
expenses that are managed outside the reportable segment such as the costs of
the finance, marketing, information technology, legal, executive management and
national sales groups. The Company does not allocate and manage its assets by
segment. Accordingly, the Company considers all assets to be corporate assets
and as such no allocation of assets has been made.
Summary information by segment as of and for the periods ended March 31,
1999 and 1998 is as follows:
1999 1998
---------------- ---------------
Field Services:
Segment revenues ................... $ 9,879,106 $ 9,243,113
Segment profit ..................... 1,916,892 2,035,691
Management Services:
Segment revenues ................... 2,911,842 2,471,067
Segment profit (loss) .............. $ (81,676) $ 444,474
A reconciliation of the Company's segment revenues and segment profit to
the corresponding consolidated amounts as of and for the years ended March 31,
1999 and 1998 is as follows:
1999 1998
---------------- ---------------
Segment revenues: ...................... $ 12,790,948 $ 11,714,180
Field Services revenues from
Management Services .................... (210,475) (16,233)
---------------- ---------------
Consolidated revenues .................. $ 12,580,473 $ 11,697,947
================ ===============
1999 1998
---------------- ---------------
Segment net profit: ...................... $ 1,835,216 $ 2,480,165
Corporate expenses ....................... (2,236,164) (1,413,476)
Depreciation and amortization ............ (752,830) (690,787)
Interest income .......................... 29,335 32,020
Interest expense ......................... (464,712) (395,517)
Other income/expense ..................... 53,416 711
Income taxes ............................. 353,220 (4,400)
Extraordinary gain ....................... -- --
---------------- ---------------
Net Income ............................... $ (1,182,519) $ 8,716
================ ===============
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Tanknology-NDE International, Inc. and Subsidiaries
NOTE 5: COMMITMENTS AND CONTINGENCIES
Veeder-Root Company and DH Holdings Corp.
On February 8, 1999, the Company invoked the dispute resolution provision
of the Distribution, Services and Marketing Agreement, dated as of December 23,
1997, by and between the Company and Veeder-Root Company (the "DSM Agreement").
In response to the Company's notice, on February 12, 1999, Veeder-Root Company's
counsel advised the Company's counsel that DH Holdings and Veeder-Root Company
may have certain claims against the Company and that Veeder-Root Company
intended to invoke the dispute resolution provisions of the DSM Agreement. On
April 14, 1999, the Company filed a demand for arbitration in which it sought an
interpretation of the DSM. In response to the Company's filing, Veeder- Root
Company filed an answer and counterclaims regarding both declaratory judgement
matters and allegations for damages. The Company believes that the result of
these arbitration proceedings with Veeder- Root Company will not have a
significant adverse effect on the balance sheet at March 31, 1999, or the
results of operations for the period ended March 31, 1999.
Additionally, the Company believes any potential claims DH Holdings Corp.
may have regarding the Note, Preferred Stock and Warrant Purchase Agreement,
dated as of December 23, 1999, and the associated Note Payable, Preferred Stock
and Warrants will not have a significant adverse effect on the balance sheet at
March 31,1999, or the results of operations for the period ended March 31, 1999.
Gilbarco Note
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, 1998 and was due in October
2000. In the first quarter of 1999, the Company entered into an agreement to
reassign the patents back to Gilbarco in exchange for the note and the accrued
interest thereon. The Company recorded a small gain from the sale of these
patents in the first quarter 1999.
There have been no material changes in the information reported as of
December 31, 1998, as reported on Form 10-KSB in Footnote 11 accompanying the
audited financial statements.
NOTE 6: IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
None.
NOTE 7: SUBSEQUENT EVENTS
During April 1999, the Company renegotiated certain terms of the Revolving
Line of Credit to increase the maximum borrowings from $9 million to $12.5
million. The expiration date of the facility is December 31, 2000.
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Tanknology-NDE International, Inc. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table reflects the percentage relationship to net revenue of
certain items included in the Company's statements of operations for the three
month periods ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Revenues ................................................. 100% 100%
Cost of Sales ............................................ 86% 77%
-------------- --------------
Gross Margin ............................................. 14% 23%
Selling, General and Administrative ...................... 23% 20%
-------------- --------------
Operating Income ( Loss) ................................. (9)% 3%
Other Income (Expense) ................................... (3)% (3)%
Net Income (Loss) Before Provision for Income Taxes ...... (12)% --
Provision for Income Taxes ............................... 3% --
Net Income (Loss) ........................................ (9)% --
============== ==============
</TABLE>
Revenues
Revenues for the three months ended March 31, 1999 were $12,580,473
compared to $11,697,947 in the 1998 period, an increase of $882,526, or 8%. The
increase in revenues from 1998 is primarily due to the following factors; (i)
revenues of $373,246 generated by the Maintenace Management Division which did
not begin operations until the third quarter of 1998, (ii) an increase of 61% in
Compliance Management Services revenue, and (iii) an over 42% increase in
cathodic protection installation, maintenance, repair and inspection revenues.
Cost of Services
Cost of services for the three months ended March 31, 1999 were $10,829,692
or 86% of revenue compared to $9,005,243 or 77% of revenue in 1998, an increase
of $1,824,449, or 20%. Gross margin was $1,750,781 or 14% of revenue for 1998,
compared to $2,692,704 or 23% of revenue for 1998. The decrease in gross margin
percentage is largely due to the increase in cost of services in 1998 which were
sustained in the first quarter of 1999. During the first quarter of 1999 the
company realized a 44% drop in revenues compared to the fourth quarter of 1999.
Cost of services decreased disproportionately by 29% in first quarter of 1999
when compared to the fourth quarter of 1998. This was primarily due to under
utilization of fixed costs in the first quarter of 1999, which had been
increased over the last six months of 1998 to keep pace with the demand for the
Company's Underground Storage Tank (UST) services. These services were in great
demand due to the December 22, 1998 deadline set by the Environmental Protection
Agency that required UST facilities to be tested and upgraded by the deadline.
Management has implemented a plan to cut fixed costs and reduce day to day
expenses.
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Tanknology-NDE International, Inc. and Subsidiaries
Selling, General and Administrative
Selling, general, and administrative expense for the three months ended
March 31, 1999 was $2,904,559 or 23% of revenue compared to $2,316,802 or 20% of
revenue, an increase of $587,757 or 25% compared to the three months ended March
31, 1998. The increase in selling, general, and administrative expenses is due
to the addition of sales and administrative resources to support the growth in
revenue and to support an increase in the varieties of services offered.
Earnings before Depreciation, Amortization, Interest and Taxes (EBITDA)
For the three months ended March 31, 1999, EBITDA was $(347,532) or (3)% of
revenues compared to $1,066,689 or 9% of revenues in 1998. The decrease in
EBITDA, was primarily due to the increased cost of services in the first quarter
of 1999 compared to the first quarter of 1998. 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. It is commonly used to analyze and
compare companies on the basis of operating performance, leverage and liquidity.
However, EBITDA is not intended to be a performance measure that should be
regarded as an alternative to, or more meaningful than, either operating income
or net income as an indicator of operating performance or cash flows as a
measure of liquidity, as determined in accordance with generally accepted
accounting principles. Also, EBITDA, as computed by the Company, is not
necessarily comparable to similarly titled amounts of other companies.
Interest Expense
Interest expense for the three months ended March 31, 1999 was $464,712 or
4% of revenue compared to $395,517 or 3% of revenue in 1998, an increase of
$69,195 or 17%. The increase in interest expense is due to to the increase in
the amount outstanding on the line of credit compared to the same prior year
period.
Net Income (Loss)
For the three months ended March 31, 1999, the Company had a net loss of
$(956,168) before preferred stock dividend requirements compared to a net income
of $8,716 in 1998 for the same period, a decrease of ($964,884). The decrease in
net income (loss) was primarily due to the increase of cost of services in the
first quarter of 1999 compared to the first quarter of 1998 and to the lower
than expected level of first quarter revenues.
Liquidity and Capital Resources
At March 31, 1999, the Company had working capital of $5,739,450 compared
to working capital of $7,026,139 at December 31, 1998. Cash provided by
operating activities of $152,330 for the three months ended March 31, 1999
decreased by $1,015,469 as compared to Cash provided by operating activities of
$1,167,799 in 1998. Collections on accounts receivables of $4,977,742 during the
first quarter were used to pay down accounts payables and accrued liabilities.
Cash used in investing activities (consisting solely of capital
expenditures) totaled $504,657 for the three months ended March 31, 1999
compared to cash used for capital expenditures of $641,094 in the 1998 period.
At March 31, 1999, the Company had outstanding long-term debt (including
current maturities) of $20,434,396 compared to $20,586,734 at December 31, 1998.
Required term-loan principal repayments of $300,000, a net $650,000 addition on
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Tanknology-NDE International, Inc. and Subsidiaries
the revolving credit line and net other debt repayments of $202,338 were made
during the quarter. At March 31, 1999, the Company had $1,525,000 available for
additional borrowing under its revolving credit agreement. As of March 31, 1999,
the Company was in compliance with the financial debt covenants related to its
long-term financing agreements.
Impact of Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. The Company's
computer equipment and software and devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
Tanknology has undertaken various initiatives intended to ensure that its
computer equipment and software will function properly with respect to dates in
the year 2000 and thereafter. For this purpose, the term "computer equipment and
software" includes systems that are commonly thought of as information
technology ("IT") systems, including accounting, data processing, and
telephone/PBX systems, scanning equipment and other miscellaneous systems, as
well as systems that are not commonly thought of as IT systems, such as alarm
systems, fax machines or other miscellaneous systems. Both IT and non-IT systems
may contain imbedded technology, which complicates the Company's Year 2000
identification, assessment, remediation and testing efforts. Based upon its
identification and assessment efforts to date, the Company believes that certain
of the computer equipment and software it currently uses will require
replacement or modification. In addition, in the ordinary course of replacing
computer equipment and software, the Company attempts to obtain replacements
that it believes are Year 2000 compliant. Utilizing both internal and external
resources to identify and assess needed Year 2000 remediation, the Company
currently anticipates that its Year 2000 identification, assessment,
remediation, and testing efforts, which began in February 1998, will be
completed by June 30, 1999, and that such efforts will be completed prior to any
currently anticipated impact on its computer equipment and software. The Company
estimates that as of March 31, 1999, it had completed approximately 30% of the
initiatives that it believes will be necessary to fully address potential Year
2000 issues relating to its computer equipment and software. The projects
comprising the remaining 70% of the initiatives are in process and expected to
be completed on or about June 30, 1999.
The company is currently evaluating field service equipment, test equipment
and gauges at remote sites for Year 2000 compliance. The company's Year 2000
identification, assessment, remediation, and testing efforts will include the
current and future evaluation of all products, equipment and gauges used in the
field.
The Company's primary systems are at less risk of date related problems
due, primarily, to the fact that the average age of the systems is less than 5
years and were developed to operate beyond the year 2000.
PERCENT
YEAR 2000 INITIATIVE TIME FRAME COMPLETE
-------------------------------------- ------------ ------------------
Initial IT systems identification and
assessment............................ 2/98-12/98 100%
Remediation and testing regarding
central system issues................. 8/98-5/99 85%
Remediation and testing regarding
departmental system issues............ 10/98-4/99 90%
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Tanknology-NDE International, Inc. and Subsidiaries
PERCENT
YEAR 2000 INITIATIVE TIME FRAME COMPLETE
-------------------------------------- ------------ ------------------
Remediation and testing regarding tank
Testing and truck equipment system
issues................................ 11/98-6/99 45%
Remediation and testing regarding
telephone/PBX......................... 11/98-12/98 100%
Electronic data interchange trading
partner conversions................... 10/98-4/99 70%
Identification, assessment, remediation,
and testing regarding desktop and
individual system issues.............. 10/98-4/99 90%
Identification and assessment regarding
non-IT system issues.................. 8/98-4/99 80%
Remediation and testing regarding non-
IT system issues...................... 10/98-6/99 40%
The Company has also mailed letters to its significant vendors and service
providers and has verbally communicated with strategic customers to determine
the extent to which interfaces with such entities are vulnerable to Year 2000
issues and whether the products and services purchased from or by such entities
are Year 2000 compliant.
The Company believes that the cost of its Year 2000 identification,
assessment, remediation and testing efforts, as well as currently anticipated
costs to be incurred by the Company with respect to Year 2000 issues of third
parties, will not exceed $150,000, which expenditures will be funded from
operating cash flows. All of the $150,000 relates to analysis, repair or
replacement of existing software, upgrades to existing software, or evaluation
of information received from significant vendors, service providers or
customers. The Company presently believes that the Year 2000 issue will not pose
significant operational problems for the Company. However, if all Year 2000
issues are not properly identified, or assessment, remediation and testing are
not effected timely with respect to Year 2000 problems that are identified,
there can be no assurance that the Year 2000 issue will not materially adversely
impact the Company's results of operations or adversely affect the Company's
relationships with customers, vendors or others. Additionally, there can be no
assurance that the Year 2000 issues of other entities will not have a material
adverse impact on the Company's systems or results of operations.
The Company has not begun a comprehensive analysis of the operational
problems that would be reasonably likely to result from the failure by the
Company and certain third parties to complete efforts to achieve Year 2000
compliance on a timely basis. A contingency plan has not been developed for
dealing with the most reasonably likely worst case scenario, and such scenario
has not yet been clearly identified. The Company currently plans to complete
such analysis and contingency planning by June 30, 1999.
The Company will engage an independent expert to evaluate its Year 2000
identification, assessment, remediation, and testing efforts.
This Form 10-Q contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All forward looking statements involve risks
and uncertainties. The forward looking statements in this document are intended
to be subject to the safe harbor protection provided by Sections 27A and 21E.
- 13 -
<PAGE>
Tanknology-NDE International, Inc. and Subsidiaries
For a discussion identifying some important factors that could cause actual
results to differ materially from those anticipated in the forward looking
statements, see the Company's Form 10-KSB page 15 "Management's Discussion and
Analysis or Result of Operations" for the fiscal year ended December 31, 1998.
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are filed herewith:
No. Exhibit
------- -----------------------------------------------------------------
10.69 Amendment No. 6 to Loan Agreement 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.
27.01 Selected Financial Data
Reports on Form 8-K:
None.
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Tanknology-NDE International, Inc.
(Registrant)
Date: May 17, 1999 /s/ A. DAN SHARPLIN
-------------------------------------
President and Chief Financial Officer
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Tanknology-NDE International, Inc. financial statements as of and for the period
ended March 31, 1999.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 178,055
<SECURITIES> 0
<RECEIVABLES> 14,468,230
<ALLOWANCES> 1,374,699
<INVENTORY> 1,216,332
<CURRENT-ASSETS> 14,843,972
<PP&E> 22,022,668
<DEPRECIATION> 14,039,656
<TOTAL-ASSETS> 29,588,657
<CURRENT-LIABILITIES> 9,104,522
<BONDS> 17,687,623
1,500,000
0
<COMMON> 1,677
<OTHER-SE> 1,121,788
<TOTAL-LIABILITY-AND-EQUITY> 29,588,657
<SALES> 12,580,473
<TOTAL-REVENUES> 12,580,473
<CGS> 10,829,692
<TOTAL-COSTS> 13,734,251
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 464,712
<INCOME-PRETAX> (1,535,739)
<INCOME-TAX> (353,220)
<INCOME-CONTINUING> (1,182,519)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,182,519)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
Exhibit 10.69
AMENDMENT NO. 6 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. 6 ("Sixth Amendment") to the 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, TANKNOLOGY-NDE CONSTRUCTION SERVICES, INC., a Delaware corporation,
and OUTBOUND SERVICES, INC., a California corporation (collectively, "Borrower")
and BANK ONE, TEXAS, N.A., a national banking association (the "Bank") is
entered into this 30th day of March 1999.
W I T N E S S E T H:
WHEREAS, Borrower and Bank entered into the Loan Agreement on October 25,
1996, as amended by the First Amendment dated April 10, 1997, the Second
Amendment dated May 20, 1997, the Third Amendment dated December 23, 1997, the
Fourth Amendment dated June 26, 1998 and the Fifth Amendment dated November 5,
1998 (the "Loan Agreement");
WHEREAS, Borrower desires to increase the Revolving Commitment under the
Loan
Agreement;
WHEREAS, Borrower has requested that Bank release and terminate its
security interest in and to certain Collateral;
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.
Article I, DEFINITIONS, is amended by adding the following definitions:
1
<PAGE>
"Intangible Assets" means all the assets of Borrower that, in
accordance with GAAP, are not classified as tangible assets.
"Ryder System Note" means that certain promissory note dated May 12,
1998 executed by NDE in the face amount of $757,775.00 made payable to
the order of Ryder System.
"Sixth Amendment" means Amendment No. 6 to this Loan Agreement,
executed by Borrower and Bank on March 30, 1999.
Article I, DEFINITIONS, is amended by revising the following definitions in
their entirety to read as follows:
"Adjusted Net Worth" means Consolidated Net Worth minus Intangible
Assets plus Subordinated Debt, and outstanding principal under (i) the
OSI Unsecured Note and (ii) the Ryder System Note.
"Maximum Commitment Amount" $9,000,000.00 as of the date of the Fourth
Amendment; and $12,500,000.00 upon the satisfaction of all the
conditions under Article IV of the Sixth Amendment as acknowledged by
Bank's written notice to Borrower as specified under Article V
thereof.
"Revolving Note" means that certain promissory note in the original
face amount of $12,500,000.00 dated of even date with the Sixth
Amendment made by Borrower payable to the order of the Bank in the
form attached as Exhibit "A-1" to the Sixth 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.
Article V, AFFIRMATIVE COVENANTS, of the Loan Agreement is hereby amended
by revising the following section in its entirety to read as follows:
5.20 Net Worth Requirement. Maintain its Adjusted Net Worth as of
March 31, 1999, which shall not be less than $4,000,000.00 at that
time, and each calendar quarter thereafter, increasing on an annual
basis by 70% of positive annual Net Income beginning the year ending
December 31, 1999.
"Exhibit A-1," the form of Revolving Note attached to the Loan Agreement,
as amended and restated pursuant to the Third, Fourth and Fifth Amendments is
hereby replaced with Exhibit "A-1" attached to this Sixth Amendment.
"Exhibit B," the form of Compliance Certificate attached to the Loan
Agreement, as amended by the Third, Fourth and Fifth Amendments, is hereby
replaced with Exhibit "B" attached to this Sixth Amendment.
2
<PAGE>
"Schedule 1.01(a), Collateral" attached to the Loan Agreement, as amended
by the Second, Third, Fourth, and Fifth Amendments, is hereby amended by
deleting the reference to Pledged Certificates of Deposit in subpart (b) at the
end of the section entitled "Tanknology-NDE International, Inc."
"Schedule 3.10, Collateral Documents" attached to the Loan Agreement, as
amended by the Fourth and Fifth Amendments, is hereby further amended by adding
the following information to the identified subpart:
3. Financing Statements:
Tanknology/NDE Corporation
FLORIDA: Secretary of State"
II. Conditions to the Effectiveness of the Sixth Amendment (Other than the
Increase in the Maximum Commitment Amount). As a condition to the effectiveness
of the Sixth Amendment, other than the increase in the Maximum Commitment,
Borrower has satisfied the following conditions:
A. Receipt of Amended and Restated Revolving Note, Sixth Amendment
Certificate of Compliance and other Security Documents. The Bank shall have
received the Amended and Restated Revolving Note (the form which is
attached hereto as Exhibit "A-1"), multiple counterparts of this Sixth
Amendment as requested by the Bank, the Compliance Certificate duly
executed by an authorized officer for each Borrower (the form of which is
attached hereto as Exhibit "B") and any other Security Documents Bank may
reasonably request.
B. Receipt of Certified Copy of Corporate Proceedings and Certificate
of Incumbency of Borrower. 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 Sixth Amendment and the execution of this
Sixth 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 Sixth Amendment, (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.
C. Facility Fee. As partial consideration for its agreement to the
terms of the Sixth Amendment, Bank shall have received $35,000.00 prior to
or contemporaneous with the execution of the Sixth Amendment.
3
<PAGE>
D. Borrower's Opinion of Counsel. Bank shall have received from
counsel for Borrower a written opinion in form and substance satisfactory
to Bank covering the matters set forth on Exhibit "C" attached to the Sixth
Amendment.
E. Payment of Indebtedness. Bank shall have received written
authorization and wiring instructions (or other form of disbursement) for
the application of proceeds from the liquidation of the Certificate of
Deposit for the repayment of $3,000,000.00 of outstanding principal
indebtedness of Borrower evidenced by the Revolving Note, the Term Note or
outstanding principal due under the Subordinated Indebtedness.
III. Release of Collateral. Upon the satisfaction of all the foregoing
conditions precedent, Bank shall execute and deliver to Borrower a release and
termination of that certain Pledge of Certificate of Deposit dated May 20, 1997,
by and among NDE (then known as NDE Environmental Corporation) and Bank.
IV. Conditions to the Effectiveness of the Increase in the Maximum
Commitment Amount. As a condition to the effectiveness of the increase of the
Maximum Commitment, Borrower has satisfied the following conditions:
A. Receipt of the Certified Copy of Corporate Proceedings and
Certificate of Incumbency of DH Holdings. Bank shall have received from DH
Holdings Corp. ("DHH"), copies of all resolutions of their boards of
directors with respect to the transactions contemplated by the this Sixth
Amendment and the Second Amendment to the Intercreditor and Subordination
Agreement, 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 DHH a
certificate of incumbency signed by the Secretary or an Assistant Secretary
setting forth (a) the names of the officers executing the Second Amendment
to the Intercreditor and Subordination Agreement, (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.
B. Receipt of the Second Amendment to Intercreditor and Subordination
Agreement. Borrower, DHH and Bank shall have entered into a Second
Amendment to Intercreditor and Subordination Agreement in the form and
substance satisfactory to Bank.
C. Receipt of the Third Amended and Restated Standby Commitment.
Bank, Borrower and Proactive Partners, L.P. shall have entered into a Third
Amended and Restated Standby Commitment in the form and substance
satisfactory to Bank.
V. Written Notice to Borrower of Satisfaction of Conditions to Increase in
Maximum Commitment Amount. Upon the satisfaction of the conditions as set forth
in Article IV hereof and provided no Unmatured Event of Default or Event of
Default has occurred and is continuing, Bank shall contemporaneously provide a
letter of notice to Borrower stating "Bank One, Texas, N.A. is satisfied that
4
<PAGE>
the conditions set forth in Article IV of the Sixth 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 Maximum
Commitment Amount shall equal $12,500,000.00.
VI. Reaffirmation of Representations and Warranties. To induce Bank to
enter into this Sixth Amendment, Borrower hereby reaffirms, as of the date
hereof, its representations and warranties contained in Article IV of the Loan
Agreement, as amended, and in all other documents executed pursuant thereto, and
additionally represents and warrants as follows:
A. The execution and delivery of this Sixth Amendment and the
performance by Borrower of its obligations under this Sixth 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 Sixth 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.
VII. Defined Terms. Except as amended hereby, terms used herein that are
defined in the Loan Agreement shall have the same meanings herein.
VIII. Reaffirmation of Loan Agreement. This Sixth 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.
IX. 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.
X. Governing Law. THIS SIXTH 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 Sixth Amendment has been entered into in Harris
County, Texas, and it shall be performable for all purposes in Harris County,
5
<PAGE>
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 Sixth
Amendment or any other Loan Document; and venue in any such dispute whether in
federal or state court shall be laid in Harris County, Texas.
XI. Severability. Whenever possible each provision of this Sixth Amendment
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Sixth 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 Sixth Amendment.
XII. Execution in Counterparts. This Sixth 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.
XIII. Section Captions. Section captions used in this Sixth Amendment are
for convenience of reference only, and shall not affect the construction of this
Sixth Amendment.
XIV. Successors and Assigns. This Sixth 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.
XV. Non-Application of Chapter 346 of Texas Finance Code. The provisions of
Chapter 346 of the Texas Finance Code 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.
XVI. Notice. THIS SIXTH 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.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sixth 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:
Jay Allen Chaffee
Chairman of the Board
TANKNOLOGY/NDE CORPORATION
By:
Jay Allen Chaffee
Chairman of the Board
TANKNOLOGY-NDE CONSTRUCTION
SERVICES, INC.
By:
Jay Allen Chaffee
Chairman of the Board
PROECO, INC.
By:
Jay Allen Chaffee
Chairman of the Board
7
<PAGE>
2368692 CANADA, INC. (formerly known as
TANKNOLOGY CANADA (1988) INC.)
By:
Jay Allen Chaffee
President
OUTBOUND SERVICES, INC.
By:
Jay Allen Chaffee
Chairman of the Board
BANK:
BANK ONE, TEXAS, N.A.
By:
Lisa Kasling
Senior Vice President
8
<PAGE>
EXHIBIT "A-1"
AMENDED AND RESTATED REVOLVING NOTE
$12,500,000.00 March 30, 1999
FOR VALUE RECEIVED, 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, TANKNOLOGY- NDE CONSTRUCTION SERVICES, INC., a
Delaware corporation, and OUTBOUND SERVICES, INC., a California 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 TWELVE MILLION FIVE
HUNDRED THOUSAND DOLLARS ($12,500,000.00) 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 Revolving Note which lawfully permits the charging and collection of the
highest permissible lawful, non-usurious rate of interest on this Revolving
Note. To the extent federal law permits Bank to contract for, charge or receive
a greater amount of interest, Bank will rely on federal law instead of the Texas
Finance Code for the purpose of determining the Maximum Rate. Additionally, to
the maximum extent permitted by applicable law now or hereafter in effect, Bank
may, at its option and from time to time, implement any other method of
computing the Maximum Rate under the Texas Finance Code or under other
applicable law, by giving notice, if required, to Borrower as provided by
--------------
Initial for
Identification
A-1
<PAGE>
applicable law now or hereafter in effect. Notwithstanding anything to the
contrary contained herein or in any of the other Loan Documents, it is not the
intention of Bank to accelerate the maturity of any interest that has not
accrued at the time of such acceleration or to collect unearned interest at the
time of such acceleration.
In no event shall Chapter 346 of the Texas Finance Code (which regulates
certain revolving loan accounts and revolving tri-party accounts) apply to this
Note. To the extent that Chapter 303 of the Texas Finance Code is applicable to
this Note, the "weekly ceiling" specified in such Chapter 303 is the applicable
ceiling; provided that, if any applicable law permits greater interest, the law
permitting the greatest interest shall apply.
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
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 amended
by that First Amendment dated April 10, 1997, that Second Amendment dated May
20, 1997, that Third Amendment dated December 23, 1997, the Fourth Amendment
dated June 26, 1998, the Fifth Amendment dated November 5, 1998 and the Sixth
Amendment dated of even date herewith (as the same may be further 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
--------------
Initial for
Identification
A-2
<PAGE>
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 Tanknology-NDE Construction Services, 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, as amended and restated by the Second,
Third, Fourth and Fifth Amendments (the "Prior Note"); it being acknowledged and
agreed by Borrower that the indebtedness evidenced by this Note consti tutes an
extension 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.
A-3
<PAGE>
EXECUTED this 30th day of March, 1999.
MAKER:
TANKNOLOGY-NDE INTERNATIONAL, INC.
(formerly known as NDE ENVIRONMENTAL
CORPORATION)
By:
Jay Allen Chaffee
Chairman of the Board
TANKNOLOGY/NDE CORPORATION
By:
Jay Allen Chaffee
Chairman of the Board
PROECO, INC.
By:
Jay Allen Chaffee
Chairman of the Board
2368692 CANADA, INC. (formerly known as
TANKNOLOGY CANADA (1988) INC.)
By:
Jay Allen Chaffee
President
A-4
<PAGE>
TANKNOLOGY-NDE CONSTRUCTION
SERVICES, INC.
By:
Jay Allen Chaffee
Chairman of the Board
OUTBOUND SERVICES, INC.
By:
Jay Allen Chaffee
Chairman of the Board
A-5
<PAGE>
EXHIBIT "B"
Compliance Certificate
I, ______________________, the _______________________ of TANKNOLOGY- NDE
INTERNATIONAL, INC. (the "Company"), pursuant to Section 5.05 of the Loan
Agreement dated as of October 25, 1996, as amended by the First Amendment dated
April 10, 1997, the Second Amendment dated May 20, 1997, the Third Amendment
dated December 23, 1997, the Fourth Amendment dated June 26, 1998, the Fifth
Amendment dated November 5, 1998 and the Sixth Amendment dated March 30, 1999 by
and among BANK ONE, TEXAS, N.A. ("Bank") and the Company et al. (the
"Agreement") do hereby certify, as of the date hereof, that to my knowledge:
1. No Event of Default (as defined in the Agreement) has occurred
and is continuing, and no Unmatured Event of Default (as defined
in the Agreement) has occurred and is continuing except for the
following events (include actions taken to cure such situations);
2. No material adverse change has occurred in the condition,
financial or otherwise, of the Company since ________________;
3. Except as otherwise stated in the Schedule, if any, attached
hereto, each of the representations and warranties of the Company
contained in Article IV of the Agreement is true and correct in
all respects; and
4. The Company's financial condition for the month ending __________
is as follows:
<TABLE>
<CAPTION>
Financial Covenant Time Period Required Ratio Actual Ratio
<S> <C> <C> <C>
================================ ============ ===================================================== ============================
(a) Adjusted Net Worth Term of Loan Not less than the Adjusted Net Worth as of 3/31/99,
which shall not be less than $4,000,000.00, and each
calendar quarter thereafter, increasing on an annual
basis by 70% of Borrower's annual Net Income (if
positive) beginning the year ending 12/31/99.
(b) Capital Expenditures Term of Loan Not more than $6,800,000 for fiscal 1998 and
$2,000,000 for each year thereafter.
(c) Debt Service Coverage Ratio Term of Loan Not less than 1.2 to 1.0
(d) Adjusted Liabilities to Term of Loan 9/30/98 - 3/31/99 not more than 2.25 to 1.0;
Adjusted Net Worth 4/1/99 - 6/30/99 not more than 2.00 to 1.0;
7/1/99 - 3/31/2000 not more than 1.75 to 1.0;
4/1/2000 - 9/30/2000 not more than 1.25 to 1.0;
and after 9/30/2000 not more than 1.0 to 1.0.
================================ ============ ===================================================== ============================
</TABLE>
This certificate is executed this ___ day of ___________ 199__.
TANKNOLOGY-NDE INTERNATIONAL, INC.
By:
Its:
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EXHIBIT "C"
Form of Opinion of Counsel for Borrower
Baker & Botts, L.L.P.
(1) The Borrower and the Subsidiaries are corporations duly organized,
existing, and in good standing under the Laws of their respective states of
incorporation [naming such states] and are qualified to transact business and
are in good standing in those states where the nature of business or property
owned by them requires qualification, as set forth in Schedule 4.01, attached
hereto and made a part hereof, and, to the knowledge of such counsel, are not
required to be qualified as a foreign corporation in any other jurisdiction;
(2) The Borrower has the power to execute and deliver this Sixth Amendment,
to borrow money hereunder, to grant the Collateral required hereunder, to
execute and deliver the Amended and Restated Revolving Note, and Collateral
Documents, and to perform its obligations hereunder and thereunder;
(3) All corporate actions by the Borrower and all consents and approvals of
any Persons necessary to the validity of this Sixth Amendment, the Amended and
Restated Revolving Note, the Collateral Documents, and each other document to be
delivered hereunder have been duly taken or obtained, and this Sixth Amendment,
Amended and Restated Revolving Note, and the Collateral Documents, and such
other documents do not conflict with any provision of the charter or by-laws of
the Borrower, or of any applicable Laws, or any other agreement binding the
Borrower or its property of which, after reasonable inquiry, such counsel has
knowledge; and
(4) This Sixth Amendment, the Amended and Restated Revolving Note, and
Collateral Documents to be delivered hereunder have been duly executed by, and
each is a valid and binding obligation of, the Borrower; each of the foregoing
documents is in all respects sufficient to achieve its purported function and is
enforceable in accordance with its terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting
creditors' rights generally or by general equitable principles.
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