SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NO. 000-21325
MANSUR INDUSTRIES INC.
(Exact name of Small Business Issuer as Specified in its Charter)
---------------
FLORIDA 65-0226813
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
8305 N.W. 27TH STREET
SUITE 107
MIAMI, FLORIDA 33122
(305) 593-8015
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:
Common Stock, $.001 par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in PART III of this Form 10-KSB or any amendment to
this Form 10-KSB [X].
State the issuer's revenues for its most recent fiscal year: $7,244,427.
The aggregate market value of the Registrant's Common Stock held by
non-affiliates as of March 25, 1998 was $51,614,878 computed by reference to the
closing bid price of the Common Stock as reported on the NASDAQ SmallCap Market
on such date.
As of March 25, 1998, there were 4,601,309 shares of the Registrant's Common
Stock issued and outstanding.
DOCUMENTS INCOPORATED BY REFERENCE:
The information required by Part III, Items 9-12, is incorporated by reference
from the Registrant's definitive proxy statement (to be filed within 120 days
after the end of the Registrant's fiscal year).
================================================================================
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Mansur Industries Inc., together with its wholly owned subsidiary
SystemOne/registered trademark/ Technologies Inc. (collectively, the "Company"),
designs, manufactures and sells a full line of patented, self-contained,
recycling industrial parts washers for use in the automotive, aviation, marine
and general industrial repair markets. The Company has been awarded eight
patents for its products, which incorporate innovative, proprietary resource
recovery and waste minimization technologies to distill contaminated solvent and
yield pure solvent and a by-product comparable to used motor oil. While the
Company intends to exploit its current full line of industrial washers, and to
continue research and development of new products, it has initially focused its
attention on its General Parts Washer, marketed as SystemOne/registered
trademark/ (the "SystemOne/registered trademark/ Washer"). The
SystemOne/registered trademark/ Washer integrates a distillation and recovery
process which allows the solvent to be used, treated and re-used on demand,
without requiring off-site processing. During the year ended December 31, 1997,
the Company sold 2,986 SystemOne/registered trademark/ Washers, an increase of
2,699 units compared to 1996, and recorded revenues of approximately $7.2
million, an increase of approximately $6.5 million compared to 1996. The Company
commenced the sale of SystemOne/registered trademark/ Washers in July 1996.
Based on financial and trade journal reports, the Company believes that
domestic expenditures in connection with industrial parts cleaning machines
exceed $1.0 billion annually, including costs of equipment, personnel,
materials, storage and transportation. Industrial parts cleaning machines
typically remove lubrication oils from tools and parts through the use of
mineral spirits solvent that becomes progressively more contaminated and less
effective in the cleaning process. Eventually, the solvent becomes saturated
with oil, sludge and other contaminants, and is frequently classified as a
hazardous waste under federal and state regulations. Under the most common
current practice, the contaminated solvent must be stored until pick-up, when
pure solvent is delivered and the contaminated solvent is transported to
regional refining facilities. This delivery and off-site recycling program is
typically scheduled on four to sixteen week cycles. In contrast, the
distillation process used in the Company's SystemOne/registered trademark/
Washer removes all the contaminants from the solvent within the cleaning unit
itself, minimizing the volume of waste by-product and providing pure solvent to
the customer on demand, eliminating the need for the costly and potentially
dangerous storage and transportation of hazardous waste. Moreover, the small
amount of waste by-product yielded in the distillation process used in the
SystemOne/registered trademark/ Washer can typically be recycled or disposed of
together with the customer's used motor oil, which is generally not classified
as hazardous waste. Industrial parts cleaning machines are used by automotive,
aviation and maritime service, repair and rebuilding facilities, gas stations,
transmission shops, parts remanufacturers, machine shops, and general
manufacturing operations of every size and category requiring parts cleaning.
Based on these factors, the Company believes that its product line presents an
attractive and economical alternative to users of parts cleaning machines.
The Company believes that the response of users to its products has
been favorable because the products increase worker productivity as a result of
enhanced cleaning solution utilization, facilitate efficient and economical
compliance with environmental regulations, minimize waste disposal requirements,
and reduce insurance costs. Purchasers of the Company's SystemOne/registered
trademark/ Washer include Waste Management, Florida Detroit Diesel, Greenwich
Air Services, Miami-Dade, Orange, Broward, and Palm Beach Counties, Florida,
Cummins Southeast Power, Houston Lighting & Power, Republic Industries, South
Florida Caterpillar dealers, and a number of automobile dealerships.
RECENT DEVELOPMENTS
To date, substantially all of the Company's sales of
SystemOne/registered trademark/ Washers were made to or through First Recovery,
an affiliate of Ashland, Inc., which has acted as the Company's exclusive
distributor in designated
2
<PAGE>
metropolitan markets since August 1996. Primarily all of the sales of the
Company's SystemOne/registered trademark/ Washers to First Recovery were made
during a period in which the Commission Sales Representation Agreement (the
"Representation Agreement") was in effect between the parties. The Company
selected First Recovery as its SystemOne/registered trademark/ distributor
because it and its affiliates, including the Valvoline Oil Company, maintain an
extensive distribution network including numerous national accounts with
significant requirements for parts washing equipment, and manufacture and
distribute one of the principal mineral spirits solvents used in parts washers.
In November 1997, in an effort to enhance long-term profitability,
preserve strategic opportunities, maximize value for its shareholders and
generally reduce its dependence on First Recovery, the Company announced plans
to develop a direct marketing and distribution organization for its
SystemOne/registered trademark/ product line. Primarily as a result of this
strategic decision, the Company experienced a material reduction in revenues and
unit sales and a material increase in operating expenses during the fourth
quarter of 1997, while ramping up its direct marketing and distribution
capabilities. For the year ended December 31, 1997, the Company incurred a net
loss of approximately $1.2 million compared to a net loss of approximately $2.5
million for the year ended December 31, 1996. The Company anticipates that
reductions in revenues and increases in operating expenses will continue until
such time as the Company completes the ramping up of direct marketing and
distribution capabilities. No assurance can be given, however, that the
Company's efforts in establishing direct marketing and distribution capabilities
will be completed, or if completed, will be successful. In the event the Company
is not successful in its direct marketing and distribution efforts, the
Company's business and future prospects could be adversely affected.
In December 1997, the Company entered into a Purchase and Distribution
Agreement with First Recovery (the "Purchase and Distribution Agreement"), which
agreement replaced the Representation Agreement and extended the exclusive
distribution relationship of the parties in a limited territory through June
1998. Although the Company intends to continue to evaluate and discuss a
long-term distribution agreement or other strategic alliance with First Recovery
or other strategic partner, the Company's immediate focus is on the completion
of the development of its direct marketing and distribution organization. There
can be no assurance that the Company will have any continuing relationship with
First Recovery after the expiration of the Purchase and Distribution Agreement
in June 1998.
In February 1998, the Company consummated a private placement (the
"Private Placement") of $17.0 million in principal amount of 8 1/4% Subordinated
Convertible Notes due 2003 (the "Notes"). Interest on the Notes is payable
semi-annually and during the first two years is payable through the Company's
issuance of additional Notes and thereafter, at the election of the Company, is
payable either in cash or through the issuance of additional Notes. The Notes
are convertible by the holders thereof into shares of the Company's common
stock, $.001 par value (the "Common Stock"), at a conversion price equal to
$17.00 per share (the "Conversion Price") and automatically convert into shares
of Common Stock after February 23, 1999, if the closing price of the Common
Stock, as reported on the Nasdaq SmallCap Market (as defined herein), exceeds
175% of the Conversion Price for a period of twenty consecutive trading days,
including the twenty trading days immediately preceding February 23, 1999. The
Company may redeem the Notes after February 23, 2001 under certain
circumstances. The Company has used and will continue to use the proceeds of the
Private Placement to expand manufacturing operations, accelerate the development
of its direct marketing and distribution organization, and for working capital
and general corporate purposes.
INDUSTRY OVERVIEW AND COMPETITION
Industrial parts cleaning machines are used by automotive, aviation and
maritime service, repair and rebuilding facilities, gas stations, transmission
shops, parts remanufacturers, machine shops, and general manufacturing
operations of every size and category requiring parts cleaning. Based on
financial and trade journal reports, the Company believes that in 1997
businesses in the United States incurred more than $1 billion in expenses to
clean industrial parts using chemical cleaning techniques.
3
<PAGE>
The industrial parts cleaning industry is highly competitive and
dominated by Safety-Kleen Corp. ("Safety-Kleen"), which has substantially
greater financial and other resources than the Company. Safety-Kleen services
the parts cleaning industry through a "closed-loop" recycling system in which
contaminated solvent is removed for recycling and fresh solvent is delivered on
a periodic basis. The Company believes that Safety-Kleen services a significant
portion of the parts washing machines currently in use and that no other
competitor accounts for more than 5% of the parts washer market in the United
States. There can be no assurance that Safety-Kleen will not develop or acquire
technology comparable to the Company's that would allow Safety-Kleen to provide
an on-site recycling service. To the best of the Company's knowledge, no other
company is currently commercially marketing a recycling parts washer with
comparable characteristics. See "--Patents, Trademarks and Proprietary
Technology."
The Company believes that certain of its target customers have
attempted to enhance the capabilities of their existing industrial parts washers
by acquiring stand alone machines capable of distilling solvent. Although there
is a wide variety and types of such machinery currently available to the public,
the Company believes its fully integrated SystemOne/registered trademark/ Washer
provides superior on demand service at a lower cost.
The Company believes that the SystemOne/registered trademark/ Washer
compares favorably with products of its competitors on the basis of, among other
things: (i) delivery of pure solvent on demand without frequent solvent
replacement; (ii) lower overall cost; (iii) reduced time and cost associated
with documenting compliance with applicable environmental and other laws; (iv)
reduced safety and environmental risks associated with competitive machines and
services; (v) customer service; and (vi) difficulty in handling the regulated
substances used and/or generated by competitive machines.
STRATEGY
The Company's strategy is to continue its focus on the manufacture,
marketing and sale of its SystemOne/registered trademark/ Washer. This product
has achieved fairly rapid market penetration in its initial target areas because
of its technological, economic and environmental advantages over competitive
equipment. The Company has commenced the marketing of certain of its other
products and is continuing its research and development programs.
As a result of the Company's arrangements with First Recovery, the
Company began the penetration of the industrial parts cleaning market and the
distribution of its SystemOne/registered trademark/ Washer through First
Recovery in 21 metropolitan areas, 18 of which were open as of December 31,
1997. To date, the Company has sold 2,719 SystemOne/registered trademark/
Washers under agreements with First Recovery, substantially all of which were
purchased by First Recovery for sale to third parties. The Company has begun and
intends to continue, its penetration of the industrial parts cleaning market
through its own direct marketing and distribution efforts. To date, the Company
has opened twelve support centers in connection with its ramping up of direct
marketing and distribution capabilities and intends to open up to 20 additional
support centers in connection with such efforts.
The Company's immediate priority is to capitalize on the opportunities
it has identified for the sale of its industrial parts washers. Its long-range
goals are to develop multiple product lines that utilize its resource recovery
and waste minimization technologies and to expand its sales of all product lines
in new markets. The Company intends to focus on the following initiatives:
/bullet/ ACCELERATE PRODUCT SALES THROUGH DIRECT MARKETING. The Company
intends to continue the penetration of the industrial parts
cleaning market through its own direct marketing and distribution
efforts and anticipates that it will be able to maximize market
share through aggressive factory direct pricing and increased
operating profits, although there is no assurance in this regard.
4
<PAGE>
/bullet/ EVALUATE LONG-TERM RELATIONSHIP WITH FIRST RECOVERY. In light of
the expiration of the Purchase and Distribution Agreement in June
1998, the Company intends to evaluate and discuss a long-term
distribution agreement or other strategic alliance with First
Recovery. In addition to providing for minimum annual purchases,
as in the case of the Purchase and Distribution Agreement, a
long-term agreement would be likely to confer on the Company the
benefits of First Recovery's established broad distribution
capabilities and access to national accounts and marketing
expertise. In any such agreement, the Company intends to retain
control over its products and their utilization by coordinating
its marketing efforts and consumer support programs with First
Recovery and providing high quality service through its network of
regional support centers.
/bullet/ COMMERCIALIZE ADDITIONAL PARTS WASHING EQUIPMENT. The Company
expects to broaden its industrial parts cleaning product line with
aqueous based washers, an alternative to mineral spirits solvent
based washers; immersion washers, which clean complex parts; power
spray washers, which accommodate large or bulky parts; and spray
gun washers, for use in paint thinner recovery. The Company has
obtained patent protection and developed prototypes and/or
commenced limited sales of each of these products.
/bullet/ EXPAND TO INTERNATIONAL MARKETS. The Company believes that
significant opportunities exist for international sales of the
SystemOne/registered trademark/ product line. After domestic
operations have been established, the Company intends to explore
distribution arrangements in other markets through licensing
and/or strategic alliances.
/bullet/ EXPAND PRODUCT LINE. Through its ongoing research and development
initiatives, the Company has identified a number of potential
applications of its core technologies, including commercial
applications in the printing and dry cleaning industries, water
purification, medical waste treatment, and consumer applications.
The Company believes that these applications could be developed
without significant additional research expense, by utilizing the
research that resulted in the commercialization of the
SystemOne/registered trademark/ Washer.
PRODUCTS
The Company's product line includes a variety of self-contained
recycling industrial cleaning and washing equipment, all of which incorporate
proprietary waste minimization technology with respect to which the Company has
obtained or applied for patent protection. The Company expects that all the
products listed below will be available for commercial exploitation at various
times prior to December 31, 2000. All of the Company's products utilize
technology that (i) provides continuously recycled cleaning solution during the
cleaning process, (ii) eliminates the necessity for continual replacement and
disposal of contaminated cleaning solution and residues and (iii) facilitates
practical and cost effective compliance with current environmental laws and
regulations.
SYSTEMONE/registered trademark/ WASHER.
The SystemOne/registered trademark/ Washer is the first of the
Company's products to be available in commercial quantities. During 1997, the
Company manufactured and sold an aggregate of 2,986 SystemOne/registered
trademark/ Washers, substantially all of which were purchased by First Recovery
for sale to third parties. The SystemOne/registered trademark/ Washer provides
users with pure mineral spirit solvent for parts and tools cleaning purposes,
utilizing a low-temperature vacuum distillation process to recycle the used
solvent within the SystemOne/registered trademark/ Washer on demand, so that the
solvent may be reused without any need for off-site processing. The
SystemOne/registered trademark/ Washer minimizes the volume of waste by-product
and eliminates the need for storage and disposal of the hazardous waste solvent.
The Company's SystemOne/registered trademark/ Washer consists of one or
two washing sinks mounted at standing level on top of a metal cabinet; a hinged
lid on top of the washing sink to minimize evaporation of solvent; a five gallon
primary solvent holding tank; a distillation unit which contains a residue
reservoir; and a 30-gallon secondary
5
<PAGE>
solvent holding tank. The SystemOne/registered trademark/ Washer utilizes a
manually operated hose and scrubber which directs the flow of solvent to the
part being cleaned.
The distillation unit separates the solvent from the contaminants that
accumulate in the solvent by heating the solvent solution in a vacuum to a
temperature at which the solvent, but not the residue, vaporizes; and then
cooling the solvent vapor so that the vapor condenses and is converted back into
a liquid. The distilled solvent is channeled to the secondary solvent holding
tank for future use. Accordingly, the solvent may be repeatedly used, distilled
and reused without need for off-site distillation or processing. The residue is
collected and held in the residue reservoir until final disposal. The Company
believes that substantially all of its target customers currently have
established systems for the handling, transportation, recycling and disposal of
used oil. In those instances in which the residue may not be recycled as used
oil, the residue, but not the distilled solvent, shall be periodically picked
up, recycled and/or disposed of by a third party.
The Company has also developed, and obtained patent protection with
respect to, a general parts washer which utilizes an aqueous based cleaning
solution.
The markets for SystemOne/registered trademark/ Washers are automotive,
aviation and maritime service, repair and rebuilding facilities, gas stations,
transmission shops, parts remanufacturers, machine shops, and general
manufacturing operations of every size and category requiring small parts
cleaning.
The SystemOne/registered trademark/ Washer requires service
approximately four times a year for replacement of solvent lost to evaporation
or spillage. The service may be performed by the Company, the owner or a third
party service provider contracted by the customer.
OTHER PRODUCTS
The Company has developed a number of products that utilize the
Company's core recycling, waste minimization and resource recovery technologies.
These products include:
MULTIPROCESS POWER SPRAY WASHER, which is currently manufactured and
marketed on a limited basis. The Power Spray Washer integrates three processes
in one self-contained machine; a power spray wash process, a
recycling/reclamation process and a thermal oxidation process. The Power Spray
Washer is able to accommodate large and bulky parts or units that are too large
for the SystemOne/registered trademark/ Washer. The target market for power
spray washers consists of automotive, aviation and maritime maintenance, repair
and rebuilding facilities, parts remanufacturers, machine shops, transmission
shops, and all facets of general manufacturing requiring maintenance and repair
of mechanical equipment.
SYSTEMONE/registered trademark/ BRAKE WASHER, which is currently
manufactured and marketed on a full-scale basis, is a mobile telescoping
mini-parts washer designed specifically for the automotive brake industry to
meet Occupational Safety and Health Act standards for the containment of
airborne asbestos particles during auto brake repair operations. As an auxiliary
unit to the SystemOne/registered trademark/ Washer, the SystemOne/registered
trademark/ Brake Washer may be placed directly under the automobile being
serviced and provides clean solvent on demand to the user by utilizing the
SystemOne/registered trademark/ Washer to distill the contaminated solvents. As
of December 31, 1997, the Company had sold 243 SystemOne/registered trademark/
Brake Washers.
SYSTEMONE/registered trademark/ SPRAY GUN WASHER, which is scheduled
for commercial introduction in 1998, incorporates the Company's
recycling/reclamation capabilities for paint thinner recovery. The target market
for spray gun washers consists of automotive, aviation and maritime paint shops
and all general manufacturing operations that utilize paint. The Company
anticipates that the auto paint industry will represent a substantial market.
The MultiProcess Spray Gun Washer facilitates compliance with rigorous
environmental disposal regulations for the paint industry.
6
<PAGE>
MULTIPROCESS IMMERSION WASHER, which is scheduled for commercial
introduction in 1998 integrates an immersion wash process, a
recycling/reclamation process and a thermal oxidation process in one
self-contained machine. The MultiProcess Immersion Washer is designed to clean
complex parts containing substantial integral and highly inaccessible passages
requiring a total immersion washing. The primary target market for immersion
washers consists of radiator rebuilding shops, as well as automotive, aviation
and maritime maintenance, repair and rebuilding facilities, parts
remanufacturers, machine shops, transmission shops, and all facets of general
manufacturing requiring maintenance and repair of mechanical equipment.
MINIDISPOSER, which is scheduled for commercial introduction in 1999 is
a portable mini-thermal oxidizer developed as a practical and efficient means
for the disposal of contaminants by thermal oxidation within a unit measuring
only one cubic foot. The MiniDisposer will be marketed both as optional
equipment with the SystemOne/registered trademark/ Washer and as a stand alone
mini-thermal oxidizer. The Company believes that the size and scope of the
market for the MiniDisposer is substantial and diversified and includes
industrial, commercial and consumer applications that generate small contaminant
waste by-products. The Company is exploring potential markets in medical,
restaurant and other commercial and consumer applications.
MANUFACTURING AND SUPPLY OF RAW MATERIALS
In February 1997, the Company entered into a lease with respect to a
44,000 square foot facility located in Miami, Florida which, following the
installation of manufacturing machinery and equipment in a custom-designed
production line, became the Company's primary manufacturing and research
facility in the fourth quarter of 1997. All of the Company's manufacturing
operations, including design, fabrication, painting and assembly are performed
at this facility. Annual manufacturing capacity of SystemOne/registered
trademark/ Washers at its new facility is approximately 25,000 units as compared
to 2,500 units at the Company's previous manufacturing facility.
The SystemOne/registered trademark/ Washer is an assembly of raw
materials and components all of which the Company believes are readily
obtainable in the United States. The Company does not believe that it is
dependent upon any of its respective current suppliers to obtain the raw
materials and components necessary to assemble and manufacture
SystemOne/registered trademark/ Washers. The Company currently procures raw
materials and components for its SystemOne/registered trademark/ Washers from
approximately 40 sources.
The Company manufactures its other products in amounts required for
testing, test marketing and/or commercial production in its manufacturing
facilities.
MARKETING, SALES AND CUSTOMER SERVICE
Commencing in December 1995, the Company placed an aggregate of 47
SystemOne/registered trademark/ Washers in 38 automotive dealerships, municipal
and private fleet maintenance facilities, repair facilities and other users of
parts cleaning equipment in South Florida. This test program was conducted
primarily to create awareness of its products and to enable the Company to gauge
the potential demand.
In January 1997, following a four-month test program with First
Recovery, the Company and First Recovery entered into the Representation
Agreement pursuant to which First Recovery served as the Company's exclusive
distributor of the SystemOne/registered trademark/ Washers in 21 metropolitan
areas. The Representation Agreement replaced the Company's original limited
pilot program with First Recovery covering the Dallas and Houston, Texas
markets. In December 1997, prior to the expiration of the Representation
Agreement, the Company and First Recovery entered into the Purchase and
Distribution Agreement, effectively terminating and superseding the
Representation Agreement. Notwithstanding the existence of the Representation
Agreement, the Company and First Recovery had been operating under terms similar
to those contained in the Purchase and Distribution Agreement during the
majority of 1997.
7
<PAGE>
Pursuant to the Purchase and Distribution Agreement, First Recovery was
granted the exclusive right to purchase SystemOne/registered trademark/ Washers
from the Company and market and distribute such products through sale or lease
in a territory consisting of 21 major metropolitan markets throughout the United
States and to national customers operating in more than one state and in more
than fifteen locations. Within the State of Florida, during the term of the
Purchase and Distribution Agreement, First Recovery may solicit trial placements
of SystemOne/registered trademark/ Washers on behalf of the Company as a
commissioned sales agent only. Pursuant to the Purchase and Distribution
Agreement, First Recovery purchased, net ninety days, 400 SystemOne/registered
trademark/ Washers and 243 SystemOne/registered trademark/ Brake Washers during
December 1997 and agreed to purchase, net ninety days, a minimum of 600
SystemOne/registered trademark/ Washers during the first quarter of 1998.
In an effort to enhance long-term profitability, preserve strategic
opportunities and maximize value for its shareholders, in November 1997, the
Company announced plans to develop a direct marketing and distribution
organization for its SystemOne/registered trademark/ product line. The Company
is currently in the process of ramping up its direct marketing and distribution
capabilities and expects that the investment in its direct distribution
infrastructure will result in a long-term operating strategy that maximizes
market share through aggressive factory direct pricing and increased operating
profits. No assurance can be given that the Company's efforts in establishing
direct marketing and distribution capabilities will be completed, or if
completed, will be successful.
Through December 31, 1997, the Company had sold 3,273
SystemOne/registered trademark/ Washers, 2,655 units of which were purchased by
First Recovery for sale to third parties. To assist in the marketing and support
of sales to First Recovery under the Purchase and Distribution Agreement, as
well as under the Representation Agreement, as of December 31, 1997, the Company
agreed to establish 21 support centers throughout First Recovery's exclusive
distribution territory, 18 of which were open as of December 31, 1997.
The Company intends to continue to generate consumer awareness of its
SystemOne/registered trademark/ Washer through the efforts of its marketing
staff, general advertisements in trade publications, and participation in trade
conventions.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company has been awarded eight United States patents, seven of
which relate to its SystemOne/registered trademark/ Washer, Power Spray Washer,
Spray Gun Washer, Immersion Washer and MiniDisposer (thermal oxidizer) and one
relates to a System and Method of Vapor Recovery in Industrial Washing Equipment
was allowed by the U.S. Patent Office in October, 1997 and is expected to issue
in May, 1998. The Company intends to apply for additional patents as
appropriate. The Company's patents have terms commencing September 1994 and
continue through September 2014. The Company has secured three patents with
respect to the SystemOne/registered trademark/ Washer. The Company currently has
four additional patents pending relating to vapor recovery systems, machinery
and processes using SystemOne/registered trademark/ technology. The Company also
holds patents in Mexico and Japan relating to its SystemOne/registered
trademark/ technology and has applied for international patents in Canada,
Japan, Europe and Mexico.
The Company believes that patent protection is important to its
business. There can be no assurance as to the breadth or degree of protection
which existing or future patents, if any, may afford the Company, that any
patent applications will result in issued patents, that patents will not be
circumvented or invalidated or that the Company's competitors will not commence
marketing self-contained washers with similar technology. In the event the
Company products or processes infringe patents or proprietary rights of others,
the Company may be required to modify the design of its products or obtain a
license.
The Company has received a federal trademark registration with respect
to the mark "SystemOne" and design.
The Company also relies on trade secrets and proprietary know-how and
employs various methods to protect the concepts, ideas and documentation of its
proprietary information. However, such methods may not
8
<PAGE>
afford complete protection and there can be no assurance that others will not
independently develop such know-how or obtain access to the Company's know-how,
concepts, ideas and documentation. Although the Company has and expects to have
confidentiality agreements with its employees, suppliers and appropriate
vendors, there can be no assurance that such arrangements will adequately
protect the Company's trade secrets. Since the Company believes that its
proprietary information is important to its business, failure to protect such
information could have a material adverse effect on the Company.
DIRECT SALES FINANCING
The Company makes its SystemOne/registered trademark/ Washers available to the
public through a third party leasing program. The Company is party to an
agreement (the "Product Financing Agreement") with First Sierra Inc., formerly
known as Oakmont Financial Services, Inc. ("First Sierra"), pursuant to which
First Sierra provides third party leasing services. Pursuant to the Product
Financing Agreement, the Company provides First Sierra with certain information,
including credit information, with respect to each proposed lessee. First Sierra
may reject a lease application if, in its sole discretion, the proposed
transaction does not comply with First Sierra's then applicable criteria. If
First Sierra elects to provide lease financing, First Sierra purchases the
SystemOne/registered trademark/ Washer in the manner and for an amount agreed to
by the Company and First Sierra from time to time, upon First Sierra's receipt
of required documentation.
The Product Financing Agreement provides that, upon the customer's
satisfaction of all of its lease payment obligations to First Sierra, the
Company may, at its option, repurchase the subject equipment from First Sierra
at a cash purchase price equal to the fair market value of the subject equipment
plus applicable sales tax. The Product Financing Agreement states that the fair
market value of a SystemOne/registered trademark/ Washer shall be determined by
the mutual agreement of the Company and First Sierra or, if such an agreement is
not reached, by an appraiser selected by mutual agreement of the Company and
First Sierra.
Under the Product Financing Agreement, the Company has agreed, for a
fee, to utilize a reasonable and non-discriminatory approach to assist First
Sierra in reselling any SystemOne/registered trademark/ Washers with respect to
which a customer has failed to discharge its payment obligations to First
Sierra. The Product Financing Agreement provides that First Sierra does not have
recourse against the Company for a customer's failure to discharge its
obligations to First Sierra unless the Company has breached and failed to cure
certain warranties made to First Sierra.
The Product Financing Agreement has a term of one year, which
automatically renews for successive one-year terms. Under the Product Financing
Agreement, either the Company or First Sierra may terminate the agreement with
or without cause upon 60 days notice, without affecting the rights and
obligations of either party with respect to previous sales. In addition, if
First Sierra declines any five lease applications within a 30-day period, which
lease applications are accepted and funded by a third party on terms declined by
First Sierra, the Company may, upon 10 days notice, terminate the Product
Financing Agreement. The Company and First Sierra are currently negotiating
certain modifications to the Product Financing Agreement.
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1996 and 1997, the Company expended
$684,000 and $415,000, respectively, in connection with research and development
activities.
The Company plans to continue to focus significant resources on the
development of additional products utilizing the Company's core recycling
technologies. The Company recognizes that the industrial parts cleaning industry
may be entering a phase of rapid technological change and progress and the
Company will seek to retain what the Company perceives as its technological
superiority over its competitors' products. Accordingly the Company intends to
continue to seek means of refining and improving its SystemOne/registered
trademark/ Washer. In order to keep
9
<PAGE>
pace with the rate of technological change, the Company also intends to devote
considerable resources in time, personnel and funds on research and development
for future products. The Company recognizes that many of its competitors have
far greater financial and personnel resources than the Company which may be
devoted to research and development, and can provide no assurance that it will
maintain a technological advantage over its competitors. Additionally, there can
be no assurance that the Company will ever develop any new products capable of
commercialization, the Company intends to continue its programs to develop new
products, some of which may utilize the Company's patented products and
processes.
GOVERNMENT REGULATION
The Company believes that federal and state laws and regulations have
been instrumental in shaping the industrial parts washing industry. Federal and
state regulations dictate and restrict to varying degrees what types of cleaning
solvents may be utilized, how a solvent may be stored and utilized, and the
manner in which contaminated solvents may be generated, handled, transported,
recycled and disposed of.
Although the federal and state laws and regulations discussed below
regulate the behavior of the Company's customers, and not the Company, the
Company believes that customer demand for its SystemOne/registered trademark/
Washer is partially a function of the legal environment in which the Company's
customers conduct business. The Company's SystemOne/registered trademark/ Washer
was designed to help minimize the cost of complying with existing federal and
state environmental laws and regulations. Any changes, relaxation or repeal of
the federal or state laws and regulations which have shaped the industrial parts
washing industry may significantly affect demand for the Company's products and
the Company's competitive position.
REGULATION OF SOLVENT TYPES. Federal and state regulations have
restricted the types of solvents that may be utilized in industrial parts
cleaning machines. Prior to December 1995, methyl chloroform was a widely used
cleaning solvent. The Clean Air Act of 1990 mandated the elimination of methyl
chloroform by December 1995.
REGULATION OF HANDLING AND USE OF SOLVENTS. Stoddard solvents, more
commonly known as mineral spirits and solvent naphtha, are the cleaning solvents
typically used in the industrial parts washers of the Company's closest
competitors. The Company intends to use mineral spirits with a minimum of 140
degrees Fahrenheit ignitable limits in its SystemOne/registered trademark/
Washer. Such mineral spirits do not exhibit the ignitability characteristic for
liquid hazardous wastes as defined in the Resource Conservation and Recovery Act
of 1976, as amended (the "RCRA")., and the implementing regulations of that
statute adopted by the United States Environmental Protection Agency (the
"EPA"). Certain machines of the Company's competitors use mineral spirits with
lower ignitable limits, which may, after use, render such mineral spirits
subject to regulation as a hazardous waste. The Company believes that the
ability to recycle the mineral spirits used in its SystemOne/registered
trademark/ Washer provides an economic benefit to the Company's customers by
allowing them to avoid the expenses and potential liability associated with the
disposal of such solvent as a hazardous waste. See "Government
Regulation--Regulation of Generation, Transportation, Treatment, Storage and
Disposal of Contaminated Solvents."
Federal, state and many local governments have adopted regulations
governing the handling, transportation and disposal of such solvents. On the
federal level, under the Hazardous Materials Transportation Act ("HMTA"), the
United States Department of Transportation has promulgated requirements for the
packaging, labeling and transportation of mineral spirits in excess of specified
quantities. The Company does not intend to transport mineral spirits in
quantities that would trigger compliance with HMTA requirements.
Relative to the handling and disposal of mineral spirits, many states
and local governments have established programs requiring the assessment and
remediation of hazardous materials that have been improperly discharged into the
environment. Liability under such programs is possible for unauthorized release
of mineral spirits in violation of applicable standards.
10
<PAGE>
Civil penalties and administrative costs may also be imposed for such
violations.
REGULATION OF GENERATION, TRANSPORTATION, TREATMENT, STORAGE AND
DISPOSAL OF CONTAMINATED SOLVENTS. The generation, transportation, treatment,
storage and disposal of contaminated solvents is regulated by the federal and
state governments.
At the federal level, the RCRA authorized the EPA to develop specific
rules and regulations governing the generation, transportation, treatment,
storage and disposal of hazardous wastes as defined by the EPA. The EPA's
definition of hazardous waste appears under Chapter 40 CFR Part 261. The Company
believes that none of the residue by-products, the used solvent before
distillation or the solvent recycled in a SystemOne/registered trademark/ Washer
used in accordance with its intended purpose and instructions is subject to
regulation as a "hazardous waste." In contrast, the Company believes that the
mixture of solvent and contaminants which is periodically recovered from the
machines of many of its competitors is subject to regulation as "hazardous
waste."
The Company believes that the ability to recycle and dispose of its
residue by-product as used oil rather than as a hazardous waste is economically
attractive to the Company's customers for a number of reasons. The Company
believes that substantially all of its target customers currently have
established systems for the handling, transportation, recycling and/or disposal
of used oil. Accordingly, the classification of the residue as used oil would
enable the Company's customers to: (i) dispose of or recycle the residue at no
significant additional cost; and (ii) avoid certain costs associated with
establishing and disposing of wastes in compliance with a hazardous waste
disposal system.
Even if the residue by-product was required to be handled, transported,
recycled and/or disposed of as a hazardous waste, the fact that the
SystemOne/registered trademark/ Washer effects a substantial reduction in the
volume of waste product requiring disposal would still serve to minimize
disposal costs.
The RCRA establishes the basic framework for federal regulation of
hazardous waste. The RCRA governs the generation, transportation, treatment,
storage, and disposal of hazardous waste. In contrast to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), which
is discussed below, RCRA is designed to anticipate and prevent harm to human
health and the environment, rather than to respond to the release of hazardous
wastes.
RCRA requires that facilities that generate, treat, store or dispose of
hazardous wastes comply with certain operating and permitting standards. RCRA
provides standards for permitting, maintenance and operation of facilities
handling hazardous wastes, including requirements for testing and maintenance of
equipment, contingency plans and emergency procedures, secondary containment,
recordkeeping and reporting to government agencies. The recordkeeping and
reporting requirements of RCRA are significant. Before transportation and
disposal of hazardous wastes off-site, generators of such waste must package and
label their shipments consistent with detailed regulations and prepare a
manifest to be filed with the appropriate governmental agency identifying the
material and stating its destination. The transporter must deliver the hazardous
waste in accordance with the manifest and to a facility with an appropriate RCRA
permit (a "TSD Facility"). Failure to comply with the manifesting requirements
may result in the imposition of civil and/or criminal penalties. Many states and
local governments have adopted regulatory programs which parallel the RCRA
regulatory system, many of which programs are in certain ways more restrictive
and burdensome than the RCRA system.
With regard to regulation of "used oil", the EPA ruled in 1992 that
used oil is not a hazardous waste under RCRA. Like the RCRA regulations
pertaining to hazardous wastes, the EPA's used oil regulations provide standards
for permitting, the maintenance and operation of used oil facilities, including
requirements for testing and maintenance of equipment, contingency plans and
emergency procedures, secondary containment, recordkeeping and reporting.
However, there are some material differences between RCRA's regulation of
hazardous waste and used oil. In contrast to hazardous wastes, used oil need not
be processed solely at sites with treatment, storage and disposal permits. In
addition, the generators of used oil are not required to file a shipping
manifest with government agencies with respect to each shipment of used oil.
Many state and local governments have adopted regulatory programs which parallel
the EPA's program for regulating used oil, many of which
11
<PAGE>
programs are in certain ways more restrictive or burdensome than the EPA's
program. For instance, certain state and local governments continue to regulate
used oil as a hazardous waste.
CERCLA, as amended by the Superfund Amendments and Reauthorization Act
of 1986 ("SARA"), sets forth national policy and procedures for containing and
removing releases of hazardous substances, and identifying and remediating sites
contaminated with hazardous substances. CERCLA created an $8.5 billion fund (the
"Superfund"), financed from taxes on petroleum and various chemicals, to be
administered by the EPA to fund cleanup of hazardous waste sites. SARA
significantly expanded the scope of hazardous waste cleanup and imposed more
stringent cleanup requirements. The Superfund's most notable objective, however,
is to provide criteria and financial assistance for site cleanups and to impose
liability on parties responsible for such contamination--namely, owners and
operators of vessels or facilities from which such releases occur, and persons
who generated, transported, or arranged for the transportation of hazardous
substances to a facility from which a release or threatened release occurs.
Most states, including Florida, have created programs similar to
Superfund. These state programs are principally designed to help finance the
state's share of remediation costs of sites under the federal Superfund and to
finance cleanups at state sites that are not considered a priority for
remediation under the federal program.
The CERCLA definition of hazardous substances provides a major
exception for petroleum, including used oil if recycled. However, liability
under CERCLA is possible if petroleum products are released that contain
hazardous substances as additives or that are tainted with hazardous substances
during their use and disposal.
The Company believes that the demand for its SystemOne/registered
trademark/ Washer is enhanced as a result of certain federal and state
environmental laws and regulations. Although the demand for industrial parts
cleaning machines and services may be substantial in certain international
markets, the level of demand for the Company's SystemOne/registered trademark/
Washer may not be substantial in certain countries as a result of permissive
regulatory systems which allow the use of less environmentally stringent
cleaning and waste disposal methods.
PRODUCT LIABILITY AND INSURANCE
The Company is subject to potential product liability risks which are
inherent in the design and use of industrial parts cleaning machines. The
Company has implemented strict quality control measures and currently maintains
product liability insurance with respect to such potential liabilities.
EMPLOYEES
At December 31, 1997, the Company had 66 employees, of which 5 were in
corporate management, 2 were in research and development, 3 were in sales and
marketing, 29 were in manufacturing, 5 were in administration and 22 were in
field support. In connection with the Company's development of direct marketing
and distribution capabilities, the Company had hired 18 direct salespersons as
of March 31, 1998.
ITEM 2. PROPERTIES.
The Company maintains its corporate headquarters and, commencing in
December 1997, its manufacturing and research and development facilities in a
new 44,000 square foot building located in Miami, Florida. The initial term of
the lease for this facility commenced on August 1, 1997 and expires September
30, 2002. This lease provides for a renewal term of five years and is
exercisable at the Company's option upon six months prior written notice. The
Company's annual lease payments under this lease are approximately $288,600,
subject to an annual 4.5% increase, which amount does not include the Company's
obligation to pay all utilities charges and the Company's proportionate share of
the facilities maintenance and operating expenses. The Company has the right to
cancel this lease upon three months prior written notice, subject to certain
conditions. The Company has also been granted a right of first refusal with
respect to vacant space adjoining these facilities.
12
<PAGE>
Pursuant to this right of first refusal, the landlord is required to provide the
Company with written notice of any adjacent space which becomes vacant during
the initial or extended term of the lease.
Prior to moving into its new facilities, the Company maintained its
corporate headquarters, research and development laboratory and manufacturing
facilities in a 10,000 square foot building located in Miami, Florida pursuant
to a lease expiring on December 31, 1998. The annual lease payments under such
lease were approximately $61,000. In early 1997, the Company exercised its
option to terminate the lease without penalty and notified the landlord of such
intention.
To date, the Company has opened 21 support centers in support of its
agreements with First Recovery and 12 support centers in connection with the
ramping up of its direct marketing and distribution efforts. The Company intends
to open up to an additional 20 support centers in connection with its direct
marketing and distribution efforts. Such support centers, which are typically
leased on an annual basis, average approximately 1,500 square feet and require
average annual rental payments of approximately $10,000.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not presently involved in any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has traded in the Nasdaq SmallCap Market
("Nasdaq") under the symbol "MANS" since September 27, 1996. The following table
sets forth, for the periods indicated, the high and low closing bid quotations
for the Common Stock as reported by Nasdaq. The Nasdaq quotations represent
quotations between dealers without adjustment for retail markups, markdowns or
commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH BID PRICE LOW BID PRICE
-------------- -------------
1997
----
<S> <C> <C>
First Quarter............................... $16.00 $7.6875
Second Quarter.............................. $27.375 $13.125
Third Quarter............................... $27.00 $19.25
Fourth Quarter ............................. $24.25 $14.00
1996
----
Third Quarter (from September 27, 1996).... $9.25 $8.125
Fourth Quarter............................. $8.625 $7.00
</TABLE>
<PAGE>
As of March 25, 1998, there were 55 holders of record of the Company's
Common Stock. The Company believes that there are in excess of 500 beneficial
owners of the Common Stock. On March 25, 1998, the closing bid price of the
Common Stock was $20.75 per share.
To date, the Company has not declared or paid any dividends on its
Common Stock. Pursuant to the Notes, the Company may not declare or pay any
dividends or make any other distributions, except dividends or distributions
payable in equity securities. The payment of dividends, if any, is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements and financial condition, contractual
restrictions and other relevant factors. The Board does not intend to declare
any dividends in the foreseeable future, but instead intends to retain future
earnings, if any, for use in the Company's business operations.
In February 1998, the Company consummated the Private Placement of
$17.0 million of Notes generating net proceeds of approximately $15.7 million.
To date, the Company has used and will continue to use the proceeds from the
Private Placement to expand manufacturing operations, accelerate development of
the Company's direct marketing and distribution organization, establish
additional regional support and service centers and for working capital and
general corporate purposes. The Private Placement was made pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933, as amended, and Rule 506 promulgated thereunder.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements, including the notes thereto, contained elsewhere
in this report.
THE FOLLOWING, AS WELL AS THE DESCRIPTION UNDER PART I "BUSINESS"
CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), WHICH
REPRESENTS THE COMPANY'S EXPECTATIONS OR BELIEFS, INCLUDING, BUT NOT LIMITED TO,
STATEMENTS CONCERNING (I) TRENDS AFFECTING THE COMPANY'S FINANCIAL CONDITION OR
RESULTS OF OPERATIONS; (II) THE COMPANY'S CONTINUED GROWTH AND OPERATING
STRATEGY; AND (III) TRENDS IN GOVERNMENTAL REGULATION. FOR THIS PURPOSE, ANY
STATEMENTS CONTAINED HEREIN ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED
TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE,"
"INTEND," "COULD," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS
THEREOF OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE COMPANY'S CONTROL. READERS ARE
CAUTIONED THAT ANY SUCH FORWARD LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED
IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. THE
ACCOMPANYING INFORMATION CONTAINED HEREIN INCLUDING WITHOUT LIMITATION THE
INFORMATION SET FORTH UNDER THE HEADINGS "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS," IDENTIFIES
IMPORTANT FACTORS THAT COULD CAUSE SUCH DIFFERENCES.
GENERAL
The Company was incorporated in November 1990 and, as a development
stage company, devoted substantially all of its resources to research and
development programs related to its full line of self contained, recycling
industrial parts washers until June 1996. The Company commenced its planned
principal operations in July 1996. The Company has only recently begun to
generate significant revenue from product sales and has only had one quarter of
profitability. Inasmuch as the Company's operating expenses have increased and
can be expected to continue to increase significantly in connection with the
Company's rapid expansion, development of a direct marketing and distribution
organization for its SystemOne/registered trademark/ product line, establishment
of additional regional technological support centers and a service fleet,
development of new products through the application of the Company's core
technologies and the purchase of raw materials, the Company anticipates that
negative operating cash flow will continue until such time, if ever, as the
Company is able to generate sufficient revenues to offset its operating costs
and the costs of continued expansion and development.
In October 1996, the Company consummated an underwritten initial public
offering (the "IPO") of 1,100,000 shares of its Common Stock for aggregate net
proceeds of $6,034,660. The net proceeds have been used for the development,
sales and marketing of the Company's products, establishment of regional
technological
14
<PAGE>
support and service centers and a service fleet, development of manufacturing
facilities and for working capital and general corporate purposes.
In February 1998, the Company consummated the Private Placement of
$17.0 million of Notes generating net proceeds of approximately $15.7 million.
To date, the Company has used and will continue to use the proceeds from the
Private Placement to expand manufacturing operations, accelerate development of
the Company's direct marketing and distribution organization, establish
additional regional support and service centers and for working capital and
general corporate purposes.
Under the Company's Product Financing Arrangement, the Company
recognizes revenue from the sale of parts washers at the time the equipment is
delivered by the Company. In general, the revenue recognized approximates the
discounted present value of the payment stream related to the underlying lease.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The Company commenced the sale of its products in July 1996 and had no
revenues prior to June 30, 1996. Accordingly, comparisons between results in
1996 and 1997 may not be meaningful.
Revenues increased by $6,508,682 to $7,244,427 during 1997 compared to
$735,745 during 1996 primarily due to increased sales of SystemOne/registered
trademark/ Washers during 1997. The Company sold 2,986 SystemOne/registered
trademark/ Washers during 1997, an increase of 2,699 units compared to 287 units
sold during 1996.
Cost of goods sold increased by $4,079,524 to $4,660,785 during 1997
compared to $581,261 during 1996 primarily due to increased sales of
SystemOne/registered trademark/ Washers. As a percentage of net sales, cost of
goods sold represented 64.3% and 79.0% for the years ended December 31, 1997 and
1996, respectively.
Selling, general and administrative expenses during 1997 were
$3,461,246, an increase of $1,790,863 compared to selling, general and
administrative expenses of $1,670,383 during 1996. The increase in selling,
general and administrative expenses was primarily the result of the hiring of
additional personnel in connection with the Company's establishment of 23
support centers, ramping up of direct marketing and distribution capabilities
and the leasing of additional manufacturing capacity in order to support the
Company's increased production.
During 1997, the Company's research and development expenses decreased
by $269,039, or 39.3%, from $684,467 during 1996 to $415,428 in 1997. The
decrease was primarily the result of the Company's completion of its prototype
testing program during 1996 and increased focus on the manufacturing and
distribution of SystemOne/registered trademark/ Washers during 1997.
The Company recognized net interest income of $104,108 during 1997, an
increase of $57,763 compared to interest income of $46,345 during 1996. The
increase in interest income was primarily due to the investment for a full year
of the remaining proceeds from the Company's IPO.
For the year ended December 31, 1996, the Company paid dividends on
redeemable preferred stock of $147,000. The Company also incurred an exchange
expense of $344,631 in connection with the conversion during June 1996 of all
outstanding shares of preferred stock. No preferred stock was issued and
outstanding during 1997.
As a result of the foregoing, the Company incurred net losses of
$1,188,924 and $2,498,652 for 1997 and 1996, respectively. The Company's net
losses to common shares for 1997 and 1996 were $1,188,924 and $2,645,652,
respectively.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had net working capital of $4,203,213
and cash and cash equivalents aggregating $2,243,172 compared to net working
capital of $6,089,346 and cash and cash equivalents of $5,320,608 at December
31, 1996.
The Company's primary sources of working capital are the net proceeds
from the Company's Private Placement of Notes consummated in February 1998 and
IPO consummated in October 1996, a receivables factoring arrangement entered
into in November 1997 and its lease financing arrangement with First Sierra.
In February 1998, the Company consummated the Private Placement of
Notes generating net proceeds approximately $15.7 million. Interest on the Notes
is payable semi-annually through the Company's issuance of additional Notes
during the first two years and thereafter, at the election of the Company,
either in cash or through the issuance of additional Notes. The Notes are
convertible by the holders thereof into shares of Common Stock at a Conversion
Price of $17.00 per share. The Notes automatically convert into shares of Common
Stock after February 23, 1999, if the closing price of the Common Stock, as
reported on the Nasdaq SmallCap Market, exceeds 175% of the Conversion Price for
a period of twenty consecutive trading days, including the twenty trading days
immediately preceding to February 23, 1999. The Company may redeem the Notes
after February, 2001, under certain circumstances. The Company has used and will
continue to use the proceeds of the Private Placement to expand manufacturing
operations, accelerate the development of its direct marketing and distribution
organization, and for working capital and general corporate purposes.
In November 1997, the Company entered into an agreement with a third
party providing for the factoring of the Company's accounts receivable (the
"Factoring Agreement"). Pursuant to the Factoring Agreement, the Company
effectively assigned all eligible receivables due from First Recovery to the
third party for a period of six months. The Company may borrow up to 70% of all
eligible receivables. In connection with this factoring relationship, the
Company is required to pay a semi-annual commission in an amount equal to the
greater of .5% of all factored receivables or $12,000. Any borrowings by the
Company against eligible accounts receivable bear interest at a per annum rate
equal to the greater of 9% or prime plus 1%. During the year ended December 31,
1997, the Company factored $4,785,285 of receivables from First Recovery of
which the Company borrowed and repaid $1,000,000 prior to December 31, 1997. The
Company paid $25,510 in interest and commissions relating to this agreement
during 1997.
The Company's cash and cash equivalents balance decreased by
$3,077,436, or 57.8%, from $5,320,608 as of December 31, 1996 to $2,243,172 as
of December 31, 1977, primarily as a result of net cash used to fund operating
activities. Substantially all of such cash and cash equivalents represent
proceeds from the IPO. Since the Company commenced the sale of its products, the
Company has experienced negative cash flow from operations. During 1997, this
negative cash flow was primarily a result of extending 90-day payment terms on
sales to First Recovery and increases in inventory in order to meet anticipated
sales volume on demand. On December 31, 1997, the Company's accounts receivable
had increased to $1,006,000, or 76.5%, from approximately $570,000 on December
31, 1996. During 1997, the Company's inventories increased to approximately
$1,824,000 from approximately $617,000 in order to meet anticipated increased
sales volume.
The Company's material financial commitments relate principally to its
obligations to make lease payments pursuant to certain real property and
equipment leases (currently approximately $75,162 per month), and installment
payments for manufacturing equipment (currently approximately $17,132 per
month). The Company anticipates that its material commitments will increase
significantly over the next 12 months in connection with the Company's continued
expansion and development of direct marketing and distribution capabilities.
In 1997, the Company developed a plan to deal with the Year 2000 issue
and will begin upgrading its computer systems to be Year 2000 compliant. The
plan provides for the upgrade efforts to be completed by the end of 1998. The
year 2000 issue is the result of computer programs being writen using two digits
rather than four to define the applicable year. The total cost of the project is
estimated to be approximately $36,000 and is being funded through operating cash
flows. The Company will expense all costs associated with these system changes
as the costs are incurred. As of December 31, 1997 $0 had been expensed.
Capital requirements relating to the implementation of the Company's
business plan have been and will continue to be significant. The Company
believes that its ability to generate cash from operations is dependent upon,
among other things, increased demand for its products and services and the
successful development of direct
16
<PAGE>
marketing and distribution capabilities. In order to reduce certain of the
Company's up-front capital requirements associated with manufacturing operations
as well as service center and service fleet development, the Company leases and
intends to continue to lease rather than purchase, to the extent possible,
equipment and vehicles. There can be no assurance that the Company will have
sufficient capital resources to permit the Company to continue implementation of
its business plan.
As of December 31, 1997, the Company's accumulated deficit totaled
$5,918,790. Since its inception, the Company has financed its operations through
a number of stock and debt issuances and conversions.
The Company believes, based on currently proposed plans and assumptions
relating to its operations, that the proceeds from the Private Placement and the
Company's existing financing arrangements, together with cash flow from
operations will be sufficient to satisfy its cash requirements for a period of
at least 12 months. In the event that the Company's plans change, its
assumptions change or prove to be inaccurate or the proceeds from the Private
Placement or available financing arrangements prove to be insufficient to fund
the Company's rapid expansion and development efforts, the Company would be
required to seek additional sources of financing. There can be no assurance that
any additional financing will be available to the Company on acceptable terms,
or at all. If adequate funds are not available, the Company's business
operations could be materially adversely affected.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements of the Company required by Form 10-KSB are attached
hereto following Part III of this report commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Incorporated by reference from the Company's definitive proxy statement to be
filed within 120 days after the end of the Registrant's fiscal year.
ITEM 10. EXECUTIVE COMPENSATION.
Incorporated by reference from the Company's definitive proxy statement to be
filed within 120 days after the end of the Registrant's fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference from the Company's definitive proxy statement to be
filed within 120 days after the end of the Registrant's fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
17
<PAGE>
Incorporated by reference from the Company's definitive proxy statement to be
filed within 120 days after the end of the Registrant's fiscal year.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) EXHIBITS
EXHIBIT DESCRIPTION
3.1 Restated Articles of Incorporation of Registrant(1) 3.2 Bylaws of
Registrant, as amended(1) 4.1 Certificate for Shares of Common Stock,
par value $.001(1)
4.3 Representatives' Warrant Agreement between the Registrant and the
Underwriter(1) 10.1 Registrant's Executive Incentive Plan(1) 10.2
Master Lease and Distribution Agreement, effective August 1, 1996,
among the Registrant, The Valvoline Company and First Recovery(1)
10.3 Form of Indemnification Agreement between the Registrant and each of
its director and executive officers(1)
10.4 Employment Agreement between Pierre G. Mansur and the Registrant dated
September 1, 1995(1) 10.5 Employment Agreement between Paul I. Mansur
and the Registrant dated September 1, 1995(1) 10.6 Employment Agreement
between the Company and Charles W. Profilet, dated as of November 27,
1995(1)
10.7 Vendor Lease Plan Agreement between the Registrant and Oakmont
Financial Services, dated as of May 28, 1996(1)
10.8 A Manufacture Agreement between the Registrant and EMJAC Industries,
Inc., dated as of May 7, 1996(1)
10.9 Lease Agreement, dated October 29, 1994, between Registrant and Marvin
L. Duncan(1) 10.10 Security Agreement between the Registrant and The
CIT Group/Equipment Financing, Inc. for one (1) TRUMPF TC 200 CNC
Punching Machine, Serial No. 070080 with tolling package, dated as of
October 25, 1995(1)
10.11 Term Life Insurance Policy for Pierce G. Mansur with the Equitable Life
Assurance Society of the United States, dated as of November 9, 1994(1)
10.12 Term Life Insurance Policy for Paul I. Mansur with the Equitable Life
Assurance Society of the United States, dated as of May 24, 1996(1)
10.13 United States Patent No. 5,277,208 for Multi-Process Power Spray Washer
Apparatus dated January 11, 1994(1) 10.14 United States Patent No.
5,349,974 for SystemOne(TM) Washer dated September 27, 1994(1) 10.15
United States Patent Application No. 08/394,290 for Improved
SystemOne(TM) Washer allowed April 2, 1996(1)
10.16 United States Patent No. 5,388,601 for Spray Gun Washer dated February
14, 1995(1)
10.17 United States Patent No. 5,518,013 for Immersion Washer dated May 21,
1996(1)
10.18 United States Patent Applications NO. 08/364,785 for apparatus for
disposal of refuse by thermal oxidation allowed June 26, 1996(1)
10.19 Short Term Note, dated as of September 9, 1996, between Maria G.
Jackson and the Registrant in the principal amount of $100,000(1)
10.20 Short Term Note, dated as of September 9, 1996, between First Malro and
the Registrant in the principal amount of $250,000(1)
10.21 Short Term Note, dated as of September 9, 1996, between Martin E. Samy
and the Registrant in the principal amount of $50,000(1)
10.22 Short Term Note, dated as of September 9, 1996, between Crestwell
Corporation and the Registrant in the principal amount of $100,000(1)
18
<PAGE>
10.23 Employment Agreement, dated as of July 31, 1996, between Richard P.
Smith and the Registrant (1) 10.24 Lease, dated as of September 1, 1996
between Y.F.G., Inc. and the Registrant (1) 10.25 Lease, dated as of
September 15, 1996 between Business Enterprises of Pinellas Limited and
the Registrant (1)
10.26 United States Patent No. 5,549,128 for improved general parts washer
dated August 27, 1996(1)
10.27 United States Patent No. 5,579,704 for apparatus for disposing of
refuse by thermal oxidation dated December 31, 1996 (1)
10.28 United States Patent Application for floor washing apparatus dated
December 3, 1996 (1) 10.29 United States Patent Application for system
and method of vapor recovery in industrial washing equipment dated
December 19, 1996 (1)
10.30 United States Patent Application for a process for integrated recycling
of cleaning solution in industrial washing equipment dated February 26,
1997 (1).
10.31 Commission Sales Representative Agreement, dated January 16, 1997,
among the Valvoline Oil Company, Ecogard, Inc. and the Registrant (2)
10.32 United States Patent Officer Notice of Allowance (3)
10.33 Intertek Testing Services Listing, Labeling, and Follow-up Service
Agreement (3)
10.34 United States Patent Office Notice of Allowance (4)
10.35 Factoring Agreement between the Registrant and Capital Factors, Inc.
("Capital") dated November 26, 1997
10.36 Security Agreement Supplement between the Registrant and Capital
10.37 License Agreement between the Registrant and Capital dated November 26,
1997.
10.38 Purchase and Distribution Agreement between First Recovery and
SystemOne Technologies, Inc.
27.1 Financial Data Schedule
(1) Incorporated by reference to the exhibit of the same number filed with
the Company's Registration Statement on Form S-1 (No. 333-08657).
(2) Incorporated by reference to the Company's Current Report on Form 8-K
dated January 22, 1997.
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the Quarterly Period Ended June 30, 1997. (4) Incorporated
by reference to the Company's Quarterly Report on Form 10-QSB for the
Quarterly Period Ended September 30, 1997.
(B) REPORTS OF FORM 8-K
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MANSUR INDUSTRIES INC.
Dated: March 31, 1998 By: /s/ PAUL I. MANSUR
-----------------------------
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/S/ PIERRE G. MANSUR Chairman of the Board and President; March 31, 1998
- --------------------
Pierre G. Mansur Director
/S/ PAUL I. MANSUR Chief Executive Officer; Principal March 31, 1998
- --------------------
Paul I. Mansur Executive Officer; Director
/S/ RICHARD P. SMITH Chief Financial Officer; Principal Financial March 31, 1998
- --------------------
Richard P. Smith Accounting Officer
- -------------------- Director March 31, 1998
Elias F. Mansur
/S/ DR. JAN HEDBERG Director March 31, 1998
- --------------------
Dr. Jan Hedberg
/S/ JOSEPH E. JACK Director March 31, 1998
- --------------------
Joseph E. Jack
</TABLE>
20
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report F-2
Balance Sheets as of December 31, 1997 and 1996 F-3
Statements of Operations for the years ended
December 31, 1997 and 1996 F-4
Statements of Stockholders' Equity for the years
ended December 31, 1997 and 1996 F-5
Statement of Cash Flows for the years ended
December 31, 1997 and 1996 F-6
Notes to Financial Statements F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mansur Industries Inc.:
We have audited the accompanying balance sheets of Mansur Industries Inc. (the
"Company") as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity 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 financial position of Mansur Industries Inc. as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/S/ KPMG PEAT MARWICK LLP
- -------------------------
KPMG Peat Marwick LLP
Miami, Florida
February 28, 1998
F-2
<PAGE>
MANSUR INDUSTRIES INC.
BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,243,172 5,320,608
Accounts receivable 1,006,227 569,926
Inventory, net 1,824,181 617,465
Other assets 213,452 29,700
---------- ----------
Total current assets 5,287,032 6,537,699
Intangible assets, net 71,894 46,166
Property and equipment, net 1,354,993 373,513
Other assets 74,269 -
---------- ----------
Total assets $ 6,788,188 6,957,378
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses 758,872 297,747
Deferred revenue 169,913 95,160
Interest payable 2,156 -
Current installments of obligations under capital leases 152,878 55,446
---------- ----------
Total current liabilities 1,083,819 448,353
Obligations under capital leases,
excluding current installments
502,700 118,432
---------- ----------
Total liabilities 1,586,519 566,785
---------- ----------
Stockholders' equity:
Common stock, $0.001 par value. Authorized 25,000,000 shares,
issued and outstanding 4,601,309 in 1997 and 1996 4,601 4,601
Additional paid-in capital 11,115,858 11,115,858
Accumulated deficit (5,918,790) (4,729,866)
---------- ----------
Total stockholders' equity 5,201,669 6,390,593
---------- ----------
Total liabilities and stockholders' equity $ 6,788,188 6,957,378
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
MANSUR INDUSTRIES INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenue $ 7,244,427 735,745
Costs of goods sold (4,660,786) (581,261)
--------- ---------
Gross profit 2,583,641 154,484
--------- ---------
Operating expenses:
Selling, general and administrative 3,461,245 1,670,383
Research and development 415,428 684,467
--------- ---------
Total operating expenses 3,876,673 2,354,850
--------- ---------
Loss from operations (1,293,032) (2,200,366)
Interest expense (46,008) (41,432)
Interest income 150,116 87,777
Exchange expense on redeemable preferred stock - (344,631)
--------- ---------
Net loss (1,188,924) (2,498,652)
Dividends on redeemable preferred stock - (147,000)
--------- ---------
Net loss to common shares $ (1,188,924) (2,645,652)
========= =========
Basic and diluted net loss
per common share $ (0.26) (0.78)
==== ====
Weighted average shares outstanding 4,601,309 3,378,008
========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
MANSUR INDUSTRIES INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------
PREFERRED STOCK ADDITIONAL
-------------------------- PAID-IN
SHARES AMOUNT SHARES PAR CAPITAL
------ ------ ------ --- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 490,000 $ 2,573,863 2,673,129 $2,673 $438,132
Issuance of common stock in exchange for
services rendered
- - 30,000 30 104,970
Conversion of note payable into common stock - - 20,000 20 99,980
Accrued dividends on preferred stock - 147,000 - - (147,000)
Exchange of preferred stock and accrued dividends
to common stock (490,000) (2,720,863) 628,180 628 3,064,866
Issuance of common stock resulting from initial
public offering including conversion of notes
payable to common stock, net of costs - - 1,150,000 1,150 6,896,910
Issuance of common stock for underwriter
overallotment, net of costs - - 100,000 100 658,000
Net loss - - - - -
------- ------------ --------- ----- ----------
Balance at December 31, 1996 - - 4,601,309 4,601 11,115,858
Net loss - - - - -
------- ------------ --------- ----- ----------
Balance at December 31, 1997 - $ - 4,601,309 $4,601 $11,115,858
======= ============ ========= ===== ==========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIT)
------- ---------
<S> <C> <C>
Balance at December 31, 1995 $(2,231,214) $(1,790,409)
Issuance of common stock in exchange for
services rendered
- 105,000
Conversion of note payable into common stock - 100,000
Accrued dividends on preferred stock - (147,000)
Exchange of preferred stock and accrued dividends
to common stock - 3,065,494
Issuance of common stock resulting from initial
public offering including conversion of notes
payable to common stock, net of costs - 6,898,060
Issuance of common stock for underwriter
overallotment, net of costs - 658,100
Net loss (2,498,652) (2,498,652)
---------- ----------
Balance at December 31, 1996 (4,729,866) 6,390,593
Net loss (1,188,924) (1,188,924)
---------- ----------
Balance at December 31, 1997 $(5,918,790) $ 5,201,669
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
MANSUR INDUSTRIES INC.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,188,924) (2,498,652)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 96,927 48,172
Stock issued for services - 105,000
Interest expense on notes payable converted to common stock - 9,000
Changes in operating assets and liabilities:
Accounts receivable (436,301) (569,926)
Inventory (1,206,716) (423,627)
Other assets (258,022) (11,410)
Intangible assets (25,977) (46,166)
Accounts payable and accrued expenses 463,280 78,270
Deferred revenue 74,753 95,160
----------- ----------
Net cash used in operating activities (2,480,980) (3,214,179)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment, net (1,078,156) (97,277)
--------- ----------
Net cash used in investing activities (1,078,156) (97,277)
--------- ----------
Cash flows from financing activities:
Proceeds from capital lease obligations 539,366 -
Repayment of capital lease obligations (57,666) -
Proceeds from notes payable and line of credit - 1,512,500
Repayment of notes payable - (176,110)
Proceeds from issuance of common stock - 6,034,660
Exchange expense on preferred stock exchanged for common stock - 344,631
----------- ----------
Net cash provided by financing activities 481,700 7,715,681
----------- ----------
Net (decrease) increase in cash and cash equivalents (3,077,436) 4,404,225
Cash and cash equivalents, beginning of year 5,320,608 916,383
----------- ----------
Cash and cash equivalents, end of year $ 2,243,172 5,320,608
=========== ==========
Supplemental cash flow disclosure:
Interest paid $ 46,008 41,432
=========== ==========
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
During 1996, the Company exchanged 490,000 shares of preferred stock in the
amount of $2,374,596 plus related accrued dividends of $346,267 for
628,180 shares of common stock. In connection with this transaction, the
Company recorded an exchange expense of 12 percent in the amount of
$344,631 [note 7(a)].
See accompanying notes to financial statements.
F-6
<PAGE>
MANSUR INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mansur Industries Inc. (the "Company") is primarily engaged in research
and development, marketing, and production of industrial parts cleaning
equipment for use in automotive, marine, aviation and general
manufacturing industries. The Company's focus is on the design,
development and manufacture of industrial cleaning equipment which
incorporates continuous recycling and recovery technologies for
solvents and solutions, thereby reducing the need to replace and
dispose of contaminated solvents and solutions.
(A) OPERATIONS AND LIQUIDITY
The Company was incorporated in November 1990 and, as a
development stage company, devoted substantially all of its
resources to research and development programs related to its
full line of self contained, recycling industrial parts
washers until June 1996. The Company commenced its planned
principal operations in July 1996. The Company has only
recently begun to generate significant revenue from product
sales. As indicated in the accompanying financial statements
as of December 31, 1997 and 1996, the Company's accumulated
deficit totaled $5,918,790 and $4,729,866, respectively.
In October 1996, the Company consummated an underwritten
initial public offering (the "IPO") of 1,100,000 shares of its
Common Stock for aggregate net proceeds of $6,034,660. The net
proceeds have been used for the development, sales and
marketing of the Company's products, establishment of regional
technological support and service centers and a service fleet,
development of manufacturing facilities and for working
capital and general corporate purposes.
In February 1998, the Company consummated a private placement
(the "Private Placement") of $17.0 million of subordinated
convertible notes (the "Notes") generating net proceeds of
approximately $15.7 million (see Note 5). The Company has used
and will continue to use the proceeds from the Private
Placement to expand manufacturing operations, accelerate
development of the Company's direct marketing and distribution
capabilities, establish additional regional support and
service centers and for working capital and general corporate
purposes.
Since November 1990, the Company has financed its operations
through a number of stock and debt issuances and conversions.
The Company believes, based on currently proposed plans and
assumptions relating to its operations, that the proceeds from
the Private Placement and the Company's existing financing
arrangements, together with cash flows from operations will be
sufficient to satisfy its cash requirements for a period of at
least 12 months. In the event that the Company's plans change,
its assumptions change or prove to be inaccurate or the
proceeds from the Private Placement or available financing
arrangments prove to be insufficient to fund the Company's
rapid expansion and development efforts, the Company would be
required to seek additional sources of financing. There can be
no assurance that any additional financing will be available
to the Company on acceptable terms, or at all. If adequate
funds are not available, the Company's business operations
could be materially adversely affected.
(B) REVENUE RECOGNITION
Under the Product-Financing Agreement (note 10), the Company
recognizes revenue from the sale of industrial parts cleaning
equipment at the time that the equipment is delivered by the
Company. Revenue recognized is recorded based on the
approximate present value of the payment stream related to the
underlying lease.
F-7
<PAGE>
MANSUR INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
Under the Marketing Agreements (note 11), the Company
recognizes revenue upon shipment of the industrial parts
cleaning equipment from the Company's manufacturing facility.
(C) DEFERRED REVENUE
A portion of the sales price that represents shipping and
handling fees for sales that are made to First Recovery
pursuant to the Marketing Agreements (note 11), are deferred
until the unit is sold by First Recovery to the end user. In
addition, a portion of sales that is made for a five-year
solvent replenishment program is deferred and recognized over
the five-year period.
(D) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand
deposits, and short-term investments with original maturities
of three months or less.
(E) INVENTORY, NET
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method for all
inventories. Inventory consists of the following at December
31, 1997 and 1996:
1997 1996
---- ----
Raw materials $ 872,871 355,690
Work in progress and finished goods 1,015,048 261,775
--------- -------
1,887,919 617,465
Less allowance for obsolete
inventories 63,738 -
--------- -------
$ 1,824,181 617,465
========= =======
(F) PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost, less accumulated
depreciation. Property and equipment under capital leases are
stated at the present value of minimum lease payments.
Depreciation is calculated using the straight-line method over
the shorter of the lease term or the estimated useful life of
the respective assets. Property and equipment held under
capital leases and leasehold improvements are amortized using
the straight-line method over the shorter of the lease term or
estimated useful life of the asset.
(G) INTANGIBLE ASSETS, NET
Intangible assets, net, consist of patents, patent
applications and rights that are stated at acquisition cost.
Amortization is recorded using the straight-line method over
the legal lives of the patents, generally for a period ranging
up to 17 years. The carrying value of intangible assets is
periodically reviewed by the Company and impairments are
recognized when the expected future cash flows from operations
derived from intangible assets is less than their carrying
value. At December 31, 1997 and 1996,
F-8
<PAGE>
MANSUR INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
intangible assets, net include accumulated amortization of
approximately $500 and $-0-, respectively.
(H) FINANCIAL INSTRUMENTS
In assessing the fair value of financial instruments, at
December 31, 1997 and 1996, the Company has used a variety of
methods and assumptions, which were based on estimates of
market conditions and risks existing at that time. The
carrying amount of obligations under capital leases
approximates fair value at December 31, 1997 and 1996,
respectively. For certain instruments, including accounts
payable and accrued expenses, and current installments of
obligations under capital leases, the carrying amount
approximates fair value due to their short maturity.
(I) RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of costs
incurred in connection with engineering activities related to
the development of industrial parts cleaning machinery and are
expensed as incurred.
(J) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date.
(K) NET LOSS PER COMMON SHARE
For the years ended December 31, 1997 and 1996, net loss per
common share is computed based on weighted-average number of
common shares outstanding of 4,601,309 and 3,378,008,
respectively. Common stock equivalents are excluded from the
net loss per common share in periods in which they have an
anti-dilutive effect. For the years ended December 31, 1997
and 1996, common stock equivalents were excluded from the net
loss per common share computation because of the anti-dilutive
effect.
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128 "Earnings Per Share," which specifies the
computation, presentation and disclosure requirements for
earnings per share ("EPS"). It replaces the presentation of
primary and fully diluted EPS with basic and diluted EPS.
Basic EPS excludes all dilution and is based upon the
weighted-average number of common shares outstanding during
the year. Diluted EPS, reflects the potential dilution that
would occur if securities or other contracts to issue common
stock were exercised or converted into common stock. The
Company
F-9
<PAGE>
MANSUR INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
has adopted the provisions of SFAS 128 which is effective for
periods ending after December 15, 1997. The Company has
restated, as appropriate, all previously reported, per share
amounts, to conform to the new presentation.
(L) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in
conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(M) STOCK-BASED COMPENSATION
Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. As such,
compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company
adopted Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue
to apply the provisions of APB Opinion No. 25 and provide the
pro forma disclosure provisions of SFAS No. 123.
(N) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of
an asset of future net cash flows expected to be generated by
the asset. If such an asset is considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of are reported at the lower of
the carrying amount of fair value less costs to sell. Adoption
of this statement did not have a material impact on the
Company's financial position, results of operations, or
liquidity.
(O) PRODUCT WARRANTY OBLIGATIONS AND PRODUCT LIABILITY
The Company provides a five-year warranty on its products from
the date of delivery. The Company warrants that its products
during the warranty period will be free of material defects
and if properly used in accordance with the operator manual,
it will not generate hazardous waste under current
interpretations of applicable federal and state regulations.
Estimated future warranty obligations related to units sold
are
F-10
<PAGE>
MANSUR INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
accrued for by charges to operations in the period in which
the related revenue is recognized.
(P) RISKS AND UNCERTAINTIES
During 1997, substantially all of the Company's revenue was
derived from sales made directly to First Recovery pursuant to
the Commission Sales Representation Agreement ("Representation
Agreement") and the Purchase and Distribution Agreement (the
"Purchase and Distribution Agreement") (note 11). Sales made
directly to First Recovery pursuant to the Marketing
Agreements (note 11) amounted to approximately 91 percent
and 0 percent of sales in 1997 and 1996, respectively. Amounts
due from sales made directly to First Recovery pursuant to the
Marketing Agreements (note 11) amounted to approximately 98
percent and 0 percent of total accounts receivable at December
31, 1997 and 1996, respectively. Although the Company intends
to continue to evaluate and discuss a long-term distribution
agreement or other strategic alliance with First Recovery , no
assurance can be given that the Company and First Recovery
will enter into such an agreement or that First Recovery will
continue to purchase the Company's products at current levels.
Additionally, there can be no assurance that the Company will
have any continuing relationship with First Recovery after the
expiration of the Purchase and Distribution Agreement in June
1998. If the Company does not enter into a new agreement with
First Recovery or if the Purchase and Distribution Agreement
is terminated, the Company's business and future prospects
could be adversely affected.
In November 1997, the Company began development of direct
marketing and distribution capabilities of its industrial
parts washers. No assurance can be given, however, that the
Company's efforts in estabilishing direct marketing and
distribution capabilities will be completed, or if completed,
will be successful. In the event the Company is not successful
in its direct marketing and distribution efforts, the
Company's business and future prospects could be adversely
affected.
(Q) NEW ACCOUNTING DEVELOPMENTS
In February 1997, FASB issued Statement of Financial
Accounting Standards No. 129, "Disclosure of Information About
Capital Structure" which establishes standards for disclosing
information about an entity's capital structures. This
statement is effective for financial statements for periods
ending after December 15, 1997. Adoption of this statement did
not have a material impact on the Company.
In June 1997, FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" which
establishes standards for reporting and display of
comprehensive income and its components (revenue, 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. This statement is effective for fiscal
years beginning after December 15, 1997.
F-11
<PAGE>
MANSUR INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
(2) PROPERTY AND EQUIPMENT, NET
Property and equipment, net as of December 31, 1997 and 1996 consists
of the following:
1997 1996 Useful life
---- ---- -----------
Furniture and equipment $ 226,079 90,711 5 years
Machinery and equipment 978,728 380,582 10 years
Leasehold improvements 172,979 10,852 5 years
Construction in progress 182,516 -
--------- --------
$ 1,560,302 482,145
Less accumulated depreciation 205,309 108,632
--------- -------
$ 1,354,993 373,513
========= =======
Depreciation expense for the years ended December 31, 1997 and 1996\
amounted to $96,927 and $48,172, respectively.
(3) DUE TO OFFICERS/SHAREHOLDERS
The balance in due to officers/shareholders at December 31, 1995
consisted of notes payable in the amounts of $100,000 and $150,000 to a
shareholder and the chief executive officer, respectively. During the
second quarter of 1996, the note due to the shareholder was converted
into 20,000 shares of the Company's common stock at a conversion rate
of five dollars per share. The note payable to the chief executive
officer was paid off in its entirety in May 1996.
In June 1996 and September 1996, the Company issued cumulative
convertible redeemable notes payable, with interest of 4 percent per
annum until September 30, 1996 and 12 percent thereafter, in the
aggregate amount of $1,512,500, of which $303,750 was due to certain
directors of the Company. These notes were automatically converted into
150,000 shares of common stock simultaneously with the IPO of the
Company.
(4) LEASE AGREEMENTS
The Company leases operating facilities and equipment under fixed rent
operating leases. The facilities have lease terms ranging from nine
months to five years. In February 1997, the Company entered into a
lease obligation on a 30,000 square foot facility for its new corporate
headquarters. The lease obligation was amended in August 1997 to
include an additional 14,000 square feet, bringing the total facility
to 44,000 square feet. The initial term of the lease for this facility
commences on August 1, 1997 and expires on September 30, 2002. This
lease provides for a renewal term of five years and is exercisable at
the Company's option upon six months prior written notice. The
Company's annual lease payments under this lease are approximately
$288,600 subject to an annual increase of 4.5 percent, which does not
include utilities and the Company's proportionate share of the
facility's maintenance and operating expenses.
Total rent expense for the years ended December 31, 1997 and 1996
amounted to $541,426 and $85,327, respectively.
F-12
<PAGE>
MANSUR INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
The Company is obliged under various capital leases for certain
machinery and equipment that expire at various dates during the next
five years. At December 31, 1997 and 1996, the gross amount of property
and equipment and related accumulated amortization recorded under
capital leases consists of the following:
1997 1996
---- ----
Machinery and equipment $ 832,519 304,984
Less accumulated amortization 112,663 69,516
------- --------
$ 719,856 235,468
======= =======
Amortization of assets held under capital leases is included with
depreciation expense.
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) and
future minimum capital lease payments as of December 31, 1997 are:
Year ending Capital Operating
December 31, leases leases
1998 $ 205,583 435,699
1999 182,824 402,856
2000 136,674 336,895
2001 136,674 348,359
2002 130,563 273,026
------- ----------
Total minimum lease payments $ 792,318 1,796,835
=========
Less amount representing interest (at
rates ranging from 6.35% to 12.5%) 136,740
Present value of net minimum capital
lease payments 655,578
Less current installments of obligations
under capital leases 152,878
-------
Obligations under capital leases,
excluding current installments $ 502,700
=======
(5) SUBORDINATED CONVERTIBLE NOTES
In February 1998, the Company consummated the Private Placement of
$17.0 million in principal amount of 8.25 percent subordinated
convertible notes due 2003 (the "Notes"). Interest on the Notes is
payable semi-annually and during the first two years is payable through
the Company's issuance of additional Notes and thereafter, at the
election of the Company, is payable either in cash or through the
issuance of additional Notes. The Notes are convertible by the holders
thereof into shares of the Company's common stock, $.001 par value (the
"Common Stock"), at a conversion price equal to $17.00 per share (the
"Conversion Price") and automatically convert into shares of Common
Stock after February 23, 1999, if the closing price of the Common
Stock, as reported, in the SmallCap Market of the National Association
of Securities Dealers Automated Quotation System, exceeds 175 percent
of the Conversion Price for a period of 20 consecutive trading days,
including the 20 trading days immediately preceding February 23, 1999.
The Company may redeem the Notes at any time after 36 months from their
date of issuance at a price equal to (i) 104 percent of the principal
amount plus accrued interest if such redemption occurs after thirty-six
months but prior to 48 months; or (ii) 102 percent of the principal
amount plus accrued interest if such redemption occurs after 48 months.
F-13
<PAGE>
MANSUR INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
(6) INCOME TAXES
There is no current or deferred tax expense for the years ended
December 31, 1997 and 1996.
The actual income tax expense differs from the "expected" income tax
effect (computed by applying the U.S. federal corporate tax rate of 34
percent to earnings before income taxes) for the years ended December
31, 1997 and 1996 as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Computed "expected" income tax benefit $ (404,234) (849,542)
State income tax benefit, net of U.S. federal income tax
benefit (72,843) (88,266)
Change in valuation allowance 755,117 915,000
Income taxes from prior years (283,137) 19,550
Other 5,097 3,258
-------- --------
Income tax expense $ - -
======== ========
</TABLE>
At December 31, 1997 and 1996, the Company had deferred tax assets with
full valuation allowances. Temporary differences between financial
statement carrying amounts and tax basis of assets and liabilities that
give rise to significant portions of the deferred tax assets and
liabilities as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss $ 1,471,776 603,224
Deferred revenue 63,938 -
Warranty 35,586 -
Start-up costs 266,800 348,892
Research and development 267,106 343,422
Patent 456,713 495,583
Capital loss - 5,372
-------------- ---------
Total gross deferred tax assets 2,561,919 1,796,493
Less valuation allowance 2,510,117 1,755,000
--------- ---------
Net deferred tax asset 51,802 41,493
----------- -----------
Deferred tax liabilities:
Depreciation 51,802 41,493
----------- -----------
Total gross deferred tax liabilities 51,802 41,493
----------- -----------
Deferred tax assets, net $ - -
----------- -----------
</TABLE>
(Continued)
F-14
<PAGE>
MANSUR INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
The valuation allowance for deferred tax assets as of January 1, 1997,
was $1,755,000. The change in the total valuation allowance for the
year ended December 31, 1997, was an increase of $755,117, resulting
from assessment of the future taxable income of the Company and the
realizability of the deferred tax assets.
The net operating losses of the Company will expire in varying amounts
through the year 2013. In addition, if certain substantial changes in
ownership should occur there would be an annual limitation of the
amount of tax attribute carry forwards which can be utilized in the
future.
(7) REDEEMABLE PREFERRED STOCK
(A) SERIES A PREFERRED STOCK
In April 1995, the Company issued 490,000 shares of 12 percent
cumulative convertible redeemable preferred stock (the "Series A") as
part of a second private placement within the meaning of Rule 144 of
the Securities Act of 1933 (the "Act") at an offering price of $5 per
share. The issuance raised $1,950,000 in cash and converted an existing
$500,000 unsecured convertible promissory note into Series A shares.
The Series A were convertible into common stock, one for one, at any
time during the first 18 months following the issuance of the stock at
the option of the shareholder. All then outstanding shares of Series A
were to be redeemed no later than June 30, 1996. Dividends were payable
at the time of conversion or redemption.
On April 27, 1996, the board of directors of the Company approved an
offer to exchange all of the Series A plus the aggregate amount of
dividends accrued through June 30, 1996 in the amount of $346,267 for
628,180 shares of common stock. In June 1996, 100 percent of the Series
A shareholders accepted the Company's offer to exchange all of their
preferred shares together with their dividends. As such, included in
the accompanying statements of operations for the year ended December
31, 1996 is an amount of $344,631 relating to the expense recognized by
the Company in connection with this exchange.
(8) STOCKHOLDERS' EQUITY
(A) CONVERTIBLE NOTE PAYABLE
In May 1996, the Company converted a $100,000 note payable
into 20,000 shares of common stock at a price of $5 per share
pursuant to an amendment to the note signed in January 1996.
(B) COMMON STOCK
As discussed in note 1, on October 2, 1996, the Company
consummated an IPO whereby it made available to the public
1,100,000 shares of its common stock at a public offering
price of $7.50 per share. The Company received proceeds of
approximately $6 million, net of underwriting discounts and
other direct IPO costs. In addition, notes payable in the
amount of $500,000 were converted into common stock in
connection with the IPO.
In connection with the IPO, the Company agreed to sell to the
underwriters, for nominal consideration, warrants to purchase
from the Company 100,000 shares of common stock at a price of
$9.00 per share. The warrants are initially exercisable for a
period of four years commencing one year after September 27,
1996. As of December 31, 1997 the underwriters have not
exercised their warrants.
(Continued)
F-15
<PAGE>
MANSUR INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
(C) STOCK-BASED COMPENSATION
In 1996, the Company adopted an executive incentive
compensation plan (the "Plan") pursuant to which the Company's
board of directors may grant stock options, stock appreciation
rights, restricted stock, deferred stock, other stock related
awards and performance or annual incentive awards that may be
settled in cash, stock or other property to officers and key
employees. The Plan authorizes grants of options to purchase
up to 375,000 shares of authorized but unissued common stock.
Stock options are granted with an exercise price equal to the
stock's fair market value at the date of grant. All stock
options have seven-year terms and vest and become fully
exercisable after three years from the date of grant.
At December 31, 1997, there were 261,820 additional shares
available for grant under the Plan. The per share
weighted-average fair value of stock options granted during
1997 and 1996 was $4.21 and $2.86 on the date of grant using
the Black Scholes option-pricing model with the following
weighted-average assumptions: 1997-expected dividend yield -0-
percent, risk-free interest rate of 5.57 percent, expected
life of seven years and a volatility rate ranging from 52 to
76 percent; 1996-expected dividend yield -0- percent,
risk-free interest rate of 6.85 percent, expected life of
seven years and a volatility rate of approximately 53 percent.
The Company applies Accounting Principles Board Opinion No. 25
in accounting for its Plan and, accordingly, no compensation
cost has been recognized for its stock options in the
financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net loss would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net loss As reported $ 1,188,924 2,645,652
Pro forma 1,633,852 2,650,790
Net loss per common share
As reported $ 0.26 0.78
Pro forma 0.36 0.78
</TABLE>
Pro forma net loss reflects only options granted since
December 31, 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not
reflected in the pro forma net loss amounts presented above
because compensation cost is reflected over the options'
vesting period of three years and compensation cost for
options' granted prior to January 1, 1996 is not considered.
(Continued)
F-16
<PAGE>
MANSUR INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
Stock-option activity during the period indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Balance at December 31, 1995 - $ -
Granted 15,000 7.71
Exercised - -
Forfeited - -
Expired - -
-----------
Balance at December 31, 1996 15,000 7.71
Granted 99,180 13.34
Exercised - -
Forfeited (1,000) 0.13
Expired - -
------------
Balance at December 31, 1997 113,180 $ 12.59
============
</TABLE>
At December 31, 1997, the range of exercise prices and
weighted-average remaining contractual life of outstanding
options was $7.50 - $15.86 and 6.2 years, respectively.
At December 31, 1997 and 1996, the number of options
exercisable was -0- and 5,000, respectively, and the
weighted-average exercise price of those options was $-0- and
$7.71, respectively.
(9) COMMITMENTS
(A) EMPLOYMENT AGREEMENT
On September 1, 1993, the Company entered into an employment
agreement with the president of the Company. Under the terms
of this agreement, the Company agreed to pay the president a
salary of $66,000 per annum for two years from the date of the
agreement. In September 1995, this agreement was renewed for
an additional two years. In December 1996, the Company amended
the employment agreement pursuant to a board of directors
meeting held December 1996 to provide for an annual salary of
$120,000. In September 1997, this agreement was renewed for an
additional year.
In September 1995, the Company entered into a two year
employment agreement with the chief executive officer of the
Company which provided for an annual base salary of $48,000
and discretionary bonuses, based on performance, as determined
by the compensation committee of the board of directors. In
December 1996, the Company amended the employment agreement
pursuant to a board of directors meeting held December 1996 to
provide for an annual salary of $120,000. In September 1997,
this agreement was renewed for an additional year.
(Continued)
F-17
<PAGE>
MANSUR INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
(B) SUPPLY AGREEMENT
On May 7, 1996, the Company entered into an agreement (the
"Supply Agreement") with a supplier (the "Supplier") pursuant
to which the Supplier agreed to supply to the Company with a
stipulated number of machine units per year at established
prices and in accordance with a delivery schedule. During the
fourth quarter of 1996, the Company terminated the Supply
Agreement. In accordance with the termination of the Supply
Agreement the parties entered into a mutual release agreement
pursuant to which the Company agreed to pay $139,673 to the
Supplier for amounts outstanding under the Supply Agreement,
inclusive of a $50,000 advance.
(10) PRODUCT-FINANCING AGREEMENT
In May 1996, the Company entered into an agreement (the
"Product-Financing Agreement") with a leasing company which agrees to
purchase machines produced by the Company and subsequently lease these
machines to customers with terms ranging between 12 and 60 months. The
Company markets the machines and provides the leasing company with
credit information on potential customers which the leasing company may
either accept or reject. The Product-Financing Agreement states that
the leasing company does not have recourse against the Company for
customer failures to discharge their obligations to the leasing company
unless the Company has breached and failed to cure certain warranties.
Under the Product-Financing Agreement, the Company, in some instances,
has agreed to provide periodic service for the machines and replace
solvent used in the machines. Revenue from providing such services is
deferred and recognized over the lease term of the machine. In
addition, upon the leasing company's request, the Company agrees to
assist the leasing company in remarketing any repossessed or
surrendered equipment for a fee. At the end of each customer lease, the
Company has the option to purchase the machine from the leasing company
at its fair market value.
(11) MARKETING AGREEMENTS
In January 1997, the Company and First Recovery entered into the
Representation Agreement pursuant to which First Recovery served as the
Company's exclusive distributor of the industrial parts washers in a
territory comprising certain markets throughout the United States. In
December 1997, prior to the expiration of the Representation Agreement,
the Company and First Recovery entered into the Purchase and
Distribution Agreement, effectively, terminating and superseding the
Representation Agreement. Collectively, these agreements are referred
to as the Marketing Agreements. Notwithstanding the existence of the
Representation Agreement, the Company and First Recovery had been
operating under terms similar to those contained in the Purchase and
Distribution Agreement during the majority of 1997. The Purchase and
Distribution Agreement has a term of seven months and either party may
terminate the Purchase and Distribution Agreement at any time, with
cause, upon 30-60 days prior written notice. During 1997, substantially
all of the Company's revenues were derived from sales made directly to
First Recovery. Pursuant to the terms of the Purchase and Distribution
Agreement, First Recovery has a minimum purchase commitment that must
be fulfilled.
(12) FACTORING AGREEMENT
In November 1997, the Company entered into an agreement with a third
party providing for the factoring of the Company's accounts receivable
(the "Factoring Agreement"). Pursuant to the Factoring Agreement, the
Company effectively assigned all eligible accounts receivable due from
First Recovery to the third party for a period of six months. The
Company may borrow up to 70 percent of all eligible accounts
receivable. In connection with this factoring relationship, the Company
is required to pay a semi-annual commission in an amount equal to the
greater of 0.5 percent of all factored receivables or $12,000. Any
borrowings by the Company against eligible accounts receivable bear
interest at a per annum rate equal to the greater of 9 percent or prime
plus 1 percent. During the year ended December 31, 1997, the Company
factored $4,785,285 of receivables from First Recovery of which the
Company borrowed and repaid $1,000,000 prior to December 31, 1997. The
Company paid $25,510 in interest and commissions relating to this
agreement during 1997.
F-18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.35 Factoring Agreement between the Registrant SystemOne Technologies Inc.
and Capital Factors, Inc.
10.36 Security Agreement Supplement between the Registrant and Capital
Factors, Inc.
10.37 License Agreement between the Registrant and Capital Factors, Inc.
10.29 Purchase and Distribution Agreement between First Recovery and
SystemOne Technologies Inc.
27.1 Financial Data Schedule
EXHIBIT 10.35
The parties hereto have entered into a separate License Agreement under certain
Intellectual Property as defined in the License Agreement which allows Licensee
to do any and all things with respect to any inventory obtained as a result of
any liens or security interests granted hereunder as if Licensee were the owner
of all Intellectual Property covering such inventory.
CAPITAL FACTORS, INC.
FACTORING AGREEMENT
Date: November 26, 1997
From: Mansur Industries, Inc.
8305 NW 27th Street, Suite 107
Miami, FL 33122
and: Systemone Technologies, Inc.
8305 NW 27th Street, Suite 107
Miami, FL 33122
To: Capital Factors, Inc.
120 E. Palmetto Park Road, 5th Floor
Boca Raton, FL 33432
Gentlemen:
Upon your written acceptance, to be noted at the foot of this Agreement, the
following will state the terms and conditions under which you are to act as our
sole factor:
1. APPOINTMENT AND SALE OF ACCOUNTS: We hereby appoint you our sole factor,
and hereby sell and assign to you, making you absolute owner thereof, all of our
accounts due from Ecogard, Inc. and such other accounts as you may agree to
purchase from us from time to time, contract rights, notes, bills, acceptances
and all other obligations to us (hereinafter referred to as "Receivables") for
the payment of money, in cash or in kind, together with all proceeds thereof,
all security and guarantees therefor, and all of our rights to the goods and
property represented thereby. You shall have all the rights of an unpaid seller
or provider of the goods or services, the sale or rendering of which gives rise
to each Receivable, including the rights of stoppage in transit, reclamation and
replevin. Upon each sale of goods or rendering of services, we shall execute and
deliver to you such confirmatory assignments of our Receivables as you may
require, in form and manner satisfactory to you, together with copies of
invoices, all shipping or delivery receipts, and such other proof of sale and
delivery or performance as you may, at any time or from time to time, require to
effect collection of our Receivables. We shall make appropriate notations upon
our books and records indicating the sale and assignment of our Receivables to
you. All invoices or other statements to our customers concerning Receivables
shall clearly state, in language satisfactory to you, that each such Receivable
has been sold and assigned to you and is payable to you and to you only. Copies
of Receivables sold and assigned to you shall also bear this language. During
the term of this Agreement, we agree not to sell, negotiate, pledge, assign or
grant any security interest in any or all of our Receivables to anyone other
than you. If we are or become engaged in finishing or improving goods, we agree,
notwithstanding any credit approval you may have given on the customer(s)
involved, to assert promptly, at our expense and upon your demand, any lien
rights provided by law on goods in our possession. We will remit to you the
proceeds of sale of such goods to satisfy the amounts owed to you by the owner
of the goods. It is understood that your credit approval is limited to the net
amount of the customer's obligation after the sale and disposition of such
goods.
2. ADDITIONAL COLLATERAL: In addition to Receivables and all proceeds
thereof, we also assign to you all right, title and interest, and grant to you a
security interest in, the following collateral to secure all of our present and
future obligations and indebtedness to you: (1) all deposit, savings, passbook
or like accounts maintained at any bank, savings and loan or similar
institution; and (2) the proceeds of any tax refund due or to become due to us
by the state or federal government.
3. CREDIT RISK: You will assume the credit risk only on Receivables for
which you have given credit approval in writing ("Credit Approvals"). In the
absence of such written Credit Approval from you, the Receivable is at our risk.
If we ship merchandise or provide services based on a verbal approval, we
acknowledge our responsibility to ensure that such approval is received by us in
writing in a timely manner. We acknowledge that Credit Approvals may be
withdrawn, either orally or in writing, in your discretion at any time if, in
your opinion, a customer's credit standing becomes impaired before actual
delivery of merchandise or rendering of services. Credit Approvals shall be
limited to the specific terms and amounts indicated, and, notwithstanding any
information subsequently provided to us by you, such credit approvals are
automatically rescinded and withdrawn if the terms of sale vary from the terms
approved by you, or if the terms of sale are changed by us
<PAGE>
Page 2 of 9
without your written Credit Approval on the new terms, or if the Receivable is
not assigned to you promptly (within five days) after creation. We further
acknowledge that if we ship merchandise or provide services to a customer who
has outstanding Receivables from us, and such customer's credit line and/or
outstanding Credit Approvals have been withdrawn by you, and the Receivables
created thereby, whether or not they are sold and assigned to you, exceed ten
percent (10%) of the amount outstanding on your books, that any credit approvals
applying to those Receivables outstanding on your books are cancelled and all
outstanding Receivables from that customer are at our risk. If a customer, after
receiving and accepting delivery of goods or services (subject to all warranties
herein) for which you have given written Credit Approval, fails to pay a
Receivable when due, and such nonpayment is due solely to financial inability to
pay, you shall bear any loss thereon. If nonpayment is due to any other reason,
however, you shall not be responsible. Specifically, you shall not be
responsible for any nonpayment of a Receivable: (a) because of the assertion of
any claim or dispute by a customer for any reason whatsoever, including, without
limitation, disputes as to price, terms of sale, delivery, quantity, quality, or
other, or the exercise of any counterclaim or offset (whether or not such claim,
counterclaim or offset relates to the specific Receivable); (b) where nonpayment
is a consequence of enemy attack, civil commotion, strikes, lockouts, the act or
restraint of public authorities, acts of God or force majeure; or (c) if any
representation or warranty made by us to you in respect of such Receivable has
been breached. The assertion of a dispute by a customer shall have the effect of
negating any Credit Approval on the affected Receivable(s) and such
Receivable(s) shall be at our risk until paid or otherwise cleared from your
books. With regard to sales without Credit Approval or in excess of any Credit
Approval as to any given customer, we agree that any payments or credits
applying to any Receivables owing by such customer will be applied: FIRST, to
any Credit-Approved Receivables outstanding on your books; second, to any Client
Risk Receivables outstanding on your books; and, THIRD, to any Receivables
outstanding on our books. This order of payment applies regardless of the
respective dates the sales occurred and regardless of any notations on payment
items. If you fail to collect a Receivable for which you have given Credit
Approval within 120 days of its maturity, and your failure to collect such
Receivable is due solely to the customer's financial inability to pay, you shall
pay to us the net amount of such Receivable then owing on the Wednesday next
following the week during which said 120 days expired. Any Receivable for
freight, samples, or miscellaneous sales (including, without limitation, the
sale of merchandise and/or in quantities not regularly sold by us) is always
assigned to you at our risk, notwithstanding any written credit approval from
you. You shall have no liability of any kind for declining or refusing to give,
or for withdrawing, revoking, or modifying, any Credit Approval pursuant to the
terms of this Agreement, or for exercising or failing to exercise any rights or
remedies you may have under this Agreement or otherwise. In the event you
decline to give your Credit Approval on any order received by us from a
customer, and in advising us of such decline you furnish us with information as
to the credit standing of the customer, such information shall be deemed to have
been requested of you by us and your advice containing such information is
recognized as a privileged communication. We agree that such information shall
not be given to our customer or to our salesman. If necessary, we shall merely
advise our customer that credit has been declined on the account and that any
questions should be directed to you.
4. CLIENT RISK RECEIVABLES: Any sale of goods or rendering of services by
us for which we have not received written Credit Approval, or for which Credit
Approval has been withdrawn or revoked, shall be known as a "Client Risk
Receivable." Any Client Risk Receivable(s) assigned to and purchased by you are
with recourse to us and at our sole credit risk. You shall have the right to
charge back to our account the amount of such Client Risk Receivable(s) at any
time and from time to time, either before or after maturity. We agree to pay you
on demand the full amount thereof, and, failing to do so, we agree to pay all
expenses incurred by you up to the date of such payment in attempting to collect
or enforce payment of such Receivable(s). However, in no event shall you have
any credit risk on the first $ 0 of any Receivable, notwithstanding the fact
that such Receivable has been credit approved by you. For purposes of
determining your credit risk hereunder, the Receivable balance due you from any
given customer shall be calculated as the aggregate amount owed by that customer
less any credits to which such customer may be entitled, and is not to be
construed to mean individual invoices owed by that customer.
5. PURCHASE PRICE:
(a) The purchase price you shall pay to us for each Receivable shall
equal the Net Invoice Amount thereof less your factoring commission, as
specified below. As used herein, the term "Net Invoice Amount" means the gross
invoice amount of the Receivable, less returns (whenever made), all selling
discounts (at your option calculated on shortest terms) made available or
extended to our customer, whether taken or not, and credits or deductions of any
kind allowed or granted to or taken by the customer at any time. Unless
specifically shown on the invoice sold and assigned to you, no discount, credit,
allowance, or deduction with respect to any Receivable shall be granted, or
approved, by us to any customer without your prior written consent.
<PAGE>
Page 3 of 9
(b) The purchase price (as computed above), less (i) any reasonable
reserves or credit balance that you, in your sole discretion, determine to hold,
(ii) monies remitted, paid, or otherwise advanced by you to us or for our
account (including any amounts which you may be obligated to pay in the future),
and (iii) any other charges to our account provided for by this Agreement, shall
be payable by you to us on the date of collection. Monies shall be deemed to
have been collected on the date of receipt thereof by you plus THREE (3)
business days for clearing.
(c) You shall be entitled to withhold a reserve of sums otherwise due
us, and may revise the amount of such reserve at any time and from time to time
if you deem it necessary to do so in order to protect your interests.
Furthermore, at your request, we shall maintain a credit balance ("credit
balance" or "reserve" shall be defined for purposes of this subparagraph 5(c) as
credit for amounts due us and not a "cash balance") with you in such amount as
you determine to be commensurate with the volume and character of the business
conducted by us and sufficient to protect you against all possible returns,
claims of our customers, indebtedness owing by us to you, or any other
contingencies. We shall pay you any debit balance in our account on demand.
(d) In your sole discretion, in accordance with the terms of this
Agreement, you may from time to time advance to us, against the purchase price
of Receivables purchased by you hereunder, sums up to SEVENTY PERCENT (70%) of
the aggregate purchase price of Receivables outstanding at the time any such
advance is made, less: (1) Any such Receivables that are in dispute; (2) Any
such Receivables that are not credit approved; and (3) Any fees, actual or
estimated, that are chargeable to our reserve account. Unless otherwise
specified in any promissory note, or loan or other agreement, executed in
connection with such advance, any such advance shall be payable on demand and
shall bear interest at the rate set forth in subparagraph (e) below from the
date such advance is made until the date you would otherwise be obligated
hereunder to pay the purchase price of the Receivable(s) against which such
advance was made.
(e) Interest upon the daily net balance of any monies remitted, paid,
advanced or otherwise charged to us or for our account before the payment date
(including any advance made pursuant to subparagraph 5(d) above), and interest
applicable to the charges or to the expenses referred to in this Agreement,
shall be charged to our reserve account as of the last day of each month at a
rate the greater of nine percent (9%) per anum or ONE PERCENT (1%) above the
Prime Rate. The Prime Rate shall mean, at any time, the rate of interest quoted
in the Wall Street Journal, Money Rates Section as the "Prime Rate" (currently
defined as the base rate on corporate loans posted by at least 75% of the
nation's thirty (30) largest banks). In the event that the Wall Street Journal
quotes more than one rate, or a range of rates as the Prime Rate, then the Prime
Rate shall mean the highest of the quoted rates. In the event that the Wall
Street Journal ceases to publish a Prime Rate, then the Prime Rate shall be the
average of the three largest U.S. money center commercial banks, as determined
by Capital Factors, Inc. If, during any month, our reserve account or credit
balance, subject to the terms and conditions of this Agreement, shall be in a
net credit balance (i.e., the reserve or credit balance exceeds outstanding
Receivables), then you agree to credit our reserve account as of the last day of
each month with interest at a rate equal to THREE PERCENT (3%) below the Prime
Rate. All such interest, whether charged or credited to our reserve account,
shall be computed for the actual number of days elapsed on the basis of year
consisting of 360 days. Any adjustment in your interest rate, whether downward
or upward, will become effective on the first day of the month following the
month in which the prime rate of interest is reduced or increased. HOWEVER, in
no event shall the rate of interest agreed to or charged to us hereunder exceed
the maximum rate of interest permitted to be agreed to or charged to us under
applicable law. IT IS THE INTENTION OF THE PARTIES HERETO NOT TO MAKE ANY
AGREEMENT VIOLATIVE OF THE LAWS OF THE STATE OF FLORIDA OR THE UNITED STATES
RELATING TO USURY. IN NO EVENT, THEREFORE, SHALL ANY INTEREST DUE HEREUNDER BE
AT A RATE IN EXCESS OF THE HIGHEST LAWFUL RATE, i.e., IN NO EVENT SHALL YOU
CHARGE OR SHALL WE BE REQUIRED TO PAY ANY INTEREST THAT, TOGETHER WITH ANY OTHER
CHARGES HEREUNDER THAT MAY BE DEEMED TO BE IN THE NATURE OF INTEREST, HOWEVER
COMPUTED, EXCEEDS THE MAXIMUM LAWFUL RATE OF INTEREST ALLOWABLE UNDER THE LAWS
OF THE STATE OF FLORIDA AND/OR OF THE UNITED STATES. SHOULD ANY PROVISION OF
THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN US BE CONSTRUED TO REQUIRE THE
PAYMENT OF INTEREST THAT EXCEEDS SUCH MAXIMUM LAWFUL RATE, ANY SUCH EXCESS SHALL
BE AND IS EXPRESSLY HEREBY WAIVED BY YOU. SHOULD ANY EXCESS INTEREST IN FACT BE
PAID, SUCH EXCESS SHALL BE DEEMED TO BE A PAYMENT OF THE PRINCIPAL AMOUNT OF
OUTSTANDING INDEBTEDNESS OWING BY US TO YOU AND SHALL BE APPLIED TO SUCH
PRINCIPAL.
6. FACTORING COMMISSIONS.
<PAGE>
Page 4 of 9
(a) For your services hereunder, we shall pay and you shall be
entitled to receive a factoring commission equal to ONE-HALF PERCENT (.5%) of
the gross Invoice Amount of each Receivable, which commission shall be due and
payable to you on the date such Receivable arises. Factoring commissions shall
be chargeable to our account with you. You shall be entitled to receive a
surcharge equal to ONE PERCENT (1%) of the gross Invoice Amount of all
Receivables arising out of our sales to Debtors-In-Possession. The minimum
factoring commission on each invoice or credit memo shall be $0.
(b) Your commission, specified in paragraph 6(a) above, is based upon
our maximum selling terms of NINETY (90) days, and no more extended terms or
additional dating will be granted by us to any customer without your prior
written approval. If and when such extended terms or additional dating are given
to our customers, your commission with respect to the Receivables represented
thereby shall be increased by twenty-five percent (25%) for each 30 days, or
portion thereof, of extended or additional dating.
(c) The minimum aggregate factoring commissions payable under this
Agreement for each contract period hereof shall be TWELVE THOUSAND DOLLARS
($12,000.00), which shall be payable at the rate of TWO THOUSAND DOLLARS
($2,000.00) per month. To the extent of any deficiency (after giving effect to
commissions payable under the foregoing subparagraphs), the difference between
the minimum and the amount already charged shall be chargeable to our account
with you.
7. STATEMENT OF ACCOUNT: Once each month you shall render a statement
(Client Ledger) to us with respect to the Receivables purchased by you during
the previous month, any advances made by you, collections received by you, and
charges made to our account under this Agreement. Our account shall be charged
with all discounts (at your option, calculated on shortest terms) made available
to customers on assigned Receivables, all returns, allowances, deductions and
credits, and your reasonable expenses, including, without limitation, postage on
invoices, bank wire fees, filing fees, UCC search and similar charges. We will
also be charged with interest at the rate specified in paragraph 5(e) above,
with respect both to Receivables as to which a credit is issued after the
payment date applicable thereto, and any Receivables collected or charged back
after such credit, or to the date of collection or chargeback, as the case may
be. A discount, credit or allowance after issuance or granting may be claimed
solely by the customer. Each statement, report, or accounting rendered or issued
by you to us shall be deemed accepted by us and shall be conclusive and binding
upon us, unless within thirty (30) days after the date thereof we notify you to
the contrary by registered or certified mail, setting forth with specificity the
reasons why we believe such statement, report, or accounting is incorrect and
what we believe to be the correct amount thereof. Moreover, if we fail to
receive a monthly statement, we shall likewise be obligated to notify you in the
same manner as if we fail to accept the statement, and our failure to do so
shall relieve you of any responsibility or liability arising out of our not
receiving such monthly statement.
8. REPRESENTATIONS AND WARRANTIES: We hereby represent and warrant to you
that: (i) each Receivable is a bona fide existing obligation created by a
customer's express order for, and the actual sale and physical delivery of, or
legal passage of title to, goods or the rendering of services to customers in
the ordinary course of business, which goods, prior to sale, we owned free and
clear of any liens or encumbrances, and which Receivable is then unconditionally
owing to us without dispute, defense, offset, or counterclaim; (ii) the
customers, which are not affiliated with us, have received and have accepted the
goods or services, and the invoices therefor, without dispute, offset, or claim
of any kind as to price, terms, quality, quantity, delay in shipment, offsets,
counterclaims, contra accounts or any other defense of any other kind and
character; (iii) the Receivables will not be subject to discounts, deductions,
allowances, offsets, counterclaims or other contra items, nor to any other
special terms of payment that are not shown on the face of the invoice thereof;
(iv) the Receivables will not represent delivery of merchandise upon
"consignment," "guaranteed sale," "sale or return," "payment on reorder," or
similar terms; and (v) the Receivables will not represent "pack, bill and hold"
transactions unless we have furnished you with a copy of our customer's purchase
order soon after its receipt, and you have obtained such customer's agreement to
grant you a security interest in the merchandise and pay for such merchandise at
maturity of our invoice irrespective of whether or not we have received
instructions to deliver the same; (vi) we are solvent; (vii) we have full right
and authority to sell or assign to you, and to grant to you a security interest
in, our Receivables; (viii) we have not granted and will not hereafter grant to
any other person a security interest in, or grant to any other person any right
to purchase, our Receivables, or, without your prior written consent, grant to
any other person a security interest in any of our inventory at any time during
the term of this Agreement and until all security interests or purchases granted
hereunder have been terminated; (ix) we have paid all taxes which have become
due and payable and there are no judgements, assessments, or liens filed against
us or any of our property, real or personal.
<PAGE>
Page 5 of 9
9. SECURITY: As collateral security for any and all of our (and our
parent's subsidiaries' and affiliates') indebtedness and obligations to you (and
to your parent, subsidiaries and affiliates), whether matured or unmatured,
absolute or contingent, now existing or hereafter arising (including under
indemnity or reimbursement agreements or by subrogation), and however acquired
by you, whether arising directly between us or acquired by you by assignment,
whether relating to this Agreement or independent hereof, including all
obligations incurred by us to any other person factored or financed by you
(collectively, the "Obligations"), we do hereby grant to you a security interest
in all of our accounts, contract rights, computer software, programs, stored
data, aging schedules, customer lists, and general intangibles and any of the
royalties and other fees which become due for the use of any patents,
trademarks, or copyrights, whether or not otherwise specifically assigned to you
in this Agreement, now existing or hereafter acquired, and in the proceeds and
products thereof, any security and guarantees therefor, in the goods and
property represented thereby, in all of our books and records relating to the
forgoing, and in all reserves, credit balances, sums of money at any time to our
credit with you, and any of our property at any time in your possession. We
hereby irrevocably authorize and direct you to charge at any time to our account
any Obligations, and to pay any Obligations owing by us to your parent,
subsidiaries or affiliates, by so charging our account. We agree to execute
financing statements and any and all other instruments and documents that may
now or hereafter be provided for by the Uniform Commercial Code or other law
applicable thereto reflecting security interests granted to you hereunder. We
hereby appoint you as our attorney-in-fact and authorize you to sign such
financing statements on our behalf as debtor or to file such financing
statements without our signature, signed only by you as secured party. We shall
be liable for, and you may charge our account with, all reasonable costs and
expenses of filing such financing statements (including any filing or recording
taxes), making lien searches, and any attorney's fees and expenses that may be
incurred by you in perfecting, protecting, preserving, or enforcing your
security interests and rights hereunder.
10. TERM: This Agreement shall continue in full force and effect for a
period of SIX (6) MONTHS from the date hereof and shall be deemed renewed from
year to year thereafter unless we give you notice in writing, by registered or
certified mail, not less than thirty (30) and not more than sixty (60) days
prior to the expiration of the original term of this Agreement (or any renewal
term thereof), of our intention to terminate this Agreement as of the end of
such term. You may terminate this Agreement at any time upon thirty (30) days
prior written notice to us. Further, termination of the Agreement shall not
serve to terminate the separate License Agreement between the parties.
Notwithstanding the foregoing, if we become insolvent or unable to meet our
debts as they mature, fail, close, suspend, or go out of business, commit an act
of bankruptcy, file or become the subject of a petition under the Bankruptcy Act
or law permitting the appointment of a receiver, liquidator, conservator, or
similar functionary, breach or become in default under this Agreement or any
other agreement with you (or your parent, subsidiaries or affiliates), or any
Obligation to you, or if there is a material change (by death or otherwise) in
our principal stockholders or owners as a result of their sale or transfer of
shares of capital stock, then, notwithstanding the foregoing, you shall have the
right to terminate this Agreement at any time without notice; provided, however,
that nothing contained in the foregoing shall prevent Mansur Industries issuance
and sale of common stock or preferred stock or other securities convertible into
common stock or require Mansur Industries to obtain consent of Capital Factors
in connection with Mansur Industries' issuance and sale of common stock or
preferred stock or other securities convertible into common stock. In the event
you elect to terminate this Agreement, and your decision to do so is a result of
a breach of this Agreement by us, then, notwithstanding any other provisions
contained herein, you shall be entitled to charge our account, and we agree to
pay to you, the monthly minimum factoring fee specified in paragraph 6(c) herein
for the later of ninety (90) days from the effective date of termination or
until any and all of our indebtedness to you pursuant to this Agreement shall
have been paid in full. Your rights and our Obligations arising out of
transactions having their inception prior to the termination date shall not be
affected by any termination or notice thereof. Termination of this Agreement
shall not terminate, extinguish, or remove any liens or security interests
granted to you hereunder until we have fully paid and discharged any and all of
our Obligations to you, and we shall continue to furnish to you confirmatory
assignments and schedules of Receivables previously assigned to you and all
proceeds in respect thereof. After the giving of any notice of termination
hereunder, and until the full liquidation of our account, we shall not be
entitled to receive any payments from you. From and after the effective date of
termination, all amounts charged or chargeable to our account hereunder, and all
our Obligations to you, shall become immediately due and payable without further
notice or demand.
11. MISCELLANEOUS:
(a) Any goods rejected or returned by any customer shall be your
property held by us in trust for you separate and apart from any other goods,
and, upon your demand and in accordance
<PAGE>
Page 6 of 9
with your instructions, shall forthwith be delivered to you or disposed of by us
without charge to you, with the proceeds of such disposition to be remitted
promptly to you. We shall promptly report to you, in writing, all disputes and
claims made by our customers, the refusal of any services, and the rejection or
return of or offer to return any goods, and we will promptly and diligently
prosecute, defend or settle all such claims and disputes at our expense. WE
AGREE TO PREPARE AND ASSIGN TO YOU ALL CREDIT MEMOS TO WHICH OUR CUSTOMERS HAVE
BECOME ENTITLED SINCE THE DATE OF OUR LAST ASSIGNMENT, and our failure to do so
entitles you to charge our account with any expenses incurred by you as a
result. As absolute owner of each Receivable, you may, in your sole discretion,
enforce, effect any compromise regarding settlement, or adjust any Receivable,
in your name or ours, without affecting or limiting our obligations to you under
this Agreement, whether or not any such Receivable shall have been charged back
to us. You reserve the right at any time to charge back to our account the full
amount of the Receivable(s) involved in any claim, dispute, rejection, or return
asserted or made by our customers, and we agree to pay you upon demand the full
amount thereof. The chargeback to our account of the amount of any such
Receivable shall not be deemed a reassignment to us, and title thereto and to
the proceeds thereof, all security and guarantees therefor, and our interest in
the goods represented thereby shall remain in you. We shall indemnify you for,
and hold you harmless against, any loss, liability, claim or expense of any kind
arising from any claims of, or disputes with, our customers as to terms, price,
quality, quantity, or otherwise, relating to any Receivable, including any claim
for return or reimbursement of any payments therefor. We agree to notify you
promptly when a customer asserts a dispute or claim of any kind, and upon your
notice to us of a customer dispute or claim, we agree to contact the customer
promptly to effect a resolution of such dispute or claim.
(b) If any check, draft, note, acceptance, cash collection or payment
in any form is received by us on any Receivable, WE SHALL IMMEDIATELY TRANSMIT
AND DELIVER IT TO YOU IN THE FORM RECEIVED, and our failure to do so entitles
you to charge our account with any expenses incurred by you as a result. Until
our delivery of each such payment to you, it shall be held by us in trust for
you. We agree that you, and any such person or entity as you may from time to
time designate, shall have the right to sign and/or endorse our name on all
remittances and all papers, bills of lading, receipts, instruments and documents
relating to the Receivables and the transactions between us. You shall have the
right to deposit any checks or other remittances received on Receivables
regardless of notations or conditions placed thereon by our customers or
deductions reflected thereby and to charge the amount of any such deduction to
our account.
(c) In the event a sales or excise tax is levied by State or Federal
authorities, in such form that you are required to pay a tax on sales
represented by any Receivable(s), we agree to reimburse you for the full amount
of taxes payable and agree that all such amounts may be charged to our account.
(d) We agree to keep proper books of record and accounts in
accordance with sound and accepted accounting practices, which books shall at
all times be open to inspection by you. You and such accountant or other agents
as you may from time to time designate shall have the right, at our expense, to
visit and inspect our properties, assets and books, and to discuss our affairs,
finances and accounts with our officers and employees at such reasonable times
as you may designate, and to make and take away copies of our records. We agree
to do all things necessary or appropriate to permit you to fully exercise your
rights under this Paragraph. We also agree to make available to you from time to
time, upon your request, copies of financial statements prepared by an
accountant acceptable to you. Unless specifically waived in writing, such
financial statements are to be provided to you on a quarterly basis.
(e) Your failure at any time to insist upon performance of any term
or provision of this Agreement shall not be deemed a waiver of any right
reserved to you, and the waiver of one provision shall not be deemed to be a
waiver of any other provision.
(f) This Agreement is our complete and final agreement, reflects our
mutual understanding, supersedes any prior agreement or understanding between
us, and may not be modified or amended orally. We acknowledge that, but for the
promises and representations expressly contained in this Agreement, no other
promise or representation of any kind has been made to us to induce us to
execute this Agreement. Furthermore, we acknowledge that if any such promise or
representation has been made, we have not relied upon it in deciding to enter
into this Agreement.
(g) This Agreement is deemed made in the State of Florida and shall
be governed, interpreted, and construed in accordance with the laws of the State
of Florida. No modification, amendment, waiver, or discharge of this Agreement
shall be binding upon you unless in writing and signed by you. TRIAL BY JURY IS
HEREBY WAIVED by us in any action, proceeding or counterclaim brought by either
of us against the other on any matters whatsoever arising out of or in any way
<PAGE>
Page 7 of 9
connected with this Agreement, or the relations created hereby, whether for
contract, tort, or otherwise, and we hereby consent to the jurisdiction of the
courts of the State of Florida and of any Federal Court in such state for
determination of any dispute as to any such matters. In connection therewith, we
hereby waive personal service of any summons, complaint, or other process, and
agree that service thereof may be made by registered or certified mail directed
to us at our address set forth above or such other address of which we shall
have previously notified you by registered or certified mail. In the event that
you obtain counsel for the purpose of collecting any indebtedness due you from
us or seeking to enforce any right you are entitled to under the factoring
agreement, we agree to pay the reasonable attorneys' fees and expenses
(including all such fees incurred at trial and the appellate levels) of your
counsel. In addition, in the event you are sued by us or any other party for any
claim or cause of action related to or arising under this Agreement or the
factoring relationship, or you are required to defend any suit regarding any
duty you are alleged to have breached, whether in the form of a contract duty,
tort or otherwise, we agree that if you prevail at trial or on appeal we shall
be obligated to reimburse you for all of the reasonable attorneys' fees you
incur. We also agree that you may charge and/or set off against our account all
such fees and expenses as such fees or expenses are incurred. Your books and
records shall be admissible as prima facie evidence of the status of the
accounts between us. This Agreement shall be binding upon and inure to the
benefit of each of us and our respective heirs, executors, administrators,
successors and assigns, but we may not assign this Agreement or any of our
rights hereunder to any person without your prior written consent.
(h) As used in this Agreement the terms "our", "we" and "us" or words
of similar import shall mean and refer to each of Mansur, Inc. and Systemone
Technologies, Inc., their successors and assigns, jointly and severally unless
the context of this Agreement otherwise so states.
(i) We agree and acknowledge that you and your authorized
representatives are engaged in the provision of factoring services pursuant to
this Agreement. By entering into this Agreement, we expressly acknowledge that
we will not seek advice or counsel from you or any of your representatives with
respect to the management and/or operation of our business, or any other entity
affiliated or controlled by us, and if we deem such advice or counsel to have
been offered, directly or indirectly, we will evaluate it and act or decline to
act upon it based upon our own careful analysis and/or the advice or counsel of
our own independent expert(s) or consultant(s). WE AGREE THAT WE WILL NOT SEEK
OR ATTEMPT TO ESTABLISH A FIDUCIARY RELATIONSHIP BETWEEN YOU AND/OR YOUR
REPRESENTATIVES AND OURSELVES, OR ANY OTHER ENTITY AFFILIATED OR CONTROLLED BY
US. WE HEREBY EXPRESSLY WAIVE ANY RIGHT TO ASSERT, NOW OR IN THE FUTURE, THAT
THERE WAS OR IS A FIDUCIARY RELATIONSHIP BETWEEN US IN ANY ACTION, PROCEEDING OR
CLAIM FOR DAMAGES.
MANSUR INDUSTRIES, INC.
By: /S/ RICHARD P. SMITH
-----------------------------
Richard P. Smith, Chief Financial
Officer
and
SYSTEMONE TECHNOLOGIES, INC.
By: /S/ RICHARD P. SMITH
------------------------------
Richard P. Smith, Chief Financial
Officer
The foregoing is acknowledged, accepted and agreed to:
CAPITAL FACTORS, INC.
By: /S/ JOHN W. KIEFER
----------------------
John W. Kiefer, President
CORPORATE RESOLUTION
<PAGE>
Page 8 of 9
WHEREAS, the company will benefit from the services of a factor in
connection with the handling of its accounts receivable; and
WHEREAS, the Board has considered a proposed Factoring Agreement with
CAPITAL FACTORS, INC., a Florida corporation, under which CAPITAL FACTORS, INC.
would act as the Company's exclusive factor;
NOW, THEREFORE, BE IT AND IT IS HEREBY RESOLVED THAT:
The proposed Factoring Agreement is approved, and appropriate officers of
the company are authorized and directed to execute and deliver a Factoring
Agreement with CAPITAL FACTORS, INC. in the form or substantially the form
outlined herein, and to do and perform all things contemplated herein on behalf
of this company.
As of the date of this Agreement, the following are the officers/employees
authorized to act on behalf of the company:
/S/ PIERRE G. MANSUR
- -------------------------
Pierre G. Mansur, President
/S/ PAUL I. MANSUR
- -------------------------
Paul I. Mansur, C.E.O.
/S/ RICHARD P. SMITH
- -------------------------
Richard P. Smith, C.F.O.
_________________________
IN WITNESS WHEREOF, the undersigned hereby certifies that the foregoing
Resolution was duly adopted at a meeting of the Board of Directors held on
November 24, 1997, at which a quorum was present, and that said Resolution has
not been modified, amended, or rescinded and remains in full force and effect as
of the date set forth below.
MANSUR INDUSTRIES, INC.
By: /S/ PAUL I. MANSUR
----------------------
Paul I. Mansur
Its: C.E.O.
ATTEST:
/s/ PIERRE G. MANSUR (SEAL)
- ----------------------
Secretary
CORPORATE RESOLUTION
<PAGE>
Page 9 of 9
WHEREAS, the company will benefit from the services of a factor in
connection with the handling of its accounts receivable; and
WHEREAS, the Board has considered a proposed Factoring Agreement with
CAPITAL FACTORS, INC., a Florida corporation, under which CAPITAL FACTORS, INC.
would act as the Company's exclusive factor;
NOW, THEREFORE, BE IT AND IT IS HEREBY RESOLVED THAT:
The proposed Factoring Agreement is approved, and appropriate officers of
the company are authorized and directed to execute and deliver a Factoring
Agreement with CAPITAL FACTORS, INC. in the form or substantially the form
outlined herein, and to do and perform all things contemplated herein on behalf
of this company.
As of the date of this Agreement, the following are the officers/employees
authorized to act on behalf of the company:
/S/ PIERRE G. MANSUR
- -------------------------
Pierre G. Mansur, President
/S/ PAUL I. MANSUR
- -------------------------
Paul I. Mansur, C.E.O.
/S/ RICHARD P. SMITH
- -------------------------
Richard P. Smith, C.F.O.
_________________________
IN WITNESS WHEREOF, the undersigned hereby certifies that the foregoing
Resolution was duly adopted at a meeting of the Board of Directors held on
November 26, 1997, at which a quorum was present, and that said Resolution has
not been modified, amended, or rescinded and remains in full force and effect as
of the date set forth below.
MANSUR INDUSTRIES, INC.
By: /S/ PAUL I. MANSUR
----------------------
Paul I. Mansur
Its: C.E.O
ATTEST:
/s/ PIERRE G. MANSUR (SEAL)
- ----------------------
Secretary
EXHIBIT 10.36
The parties hereto have entered into a separate License Agreement under certain
Intellectual Property as defined in the License Agreement which allows Licensee
to do any and all things with respect to any inventory obtained as a result of
any liens or security interests granted hereunder as if Licensee were the owner
of all Intellectual property covering such inventory.
SECURITY AGREEMENT SUPPLEMENT - INVENTORY
From: Mansur Industries, Inc.
8305 NW 27th Street, Suite 107
Miami, FL 33122
and
Systemone Technologies, Inc.
8305 NW 27th Street, Suite 107
Miami, FL 33122
To: CAPITAL FACTORS, INC.
120 East Palmetto Park Rd, 5th Floor
Boca Raton, Florida 33432
Gentlemen:
This is a security agreement supplement to our underlying Factoring
Agreement with you executed on the 26 day of November, 1997. It is hereby
incorporated into said Factoring Agreement (hereinafter sometimes called "The
Agreement"), and is a part thereof. Each of the terms defined in the Agreement,
unless otherwise defined herein, shall have the same meaning when used herein.
Where two or more entities have executed this agreement and the Agreement, the
obligations of such entities shall be joint and several, and each
representation, warranty, covenant and agreement set forth herein and in the
Factoring Agreement and any other agreement entered into between the parties
hereto shall be deemed to have been made jointly and/or severally by each such
entity unless the context of this agreement otherwise so states.
1. In addition to your other security, we hereby pledge to you and
grant you a continuing general lien on and security interest in all Inventory
now and hereafter owned by us and all substitutions, additions and replacements
thereof. The term "Inventory" means and includes all merchandise intended for
sale by us and all raw materials, goods in process, finished goods, materials
and supplies of every nature used or usable in connection with the manufacture,
packing, shipping, advertising or sale of such merchandise. We warrant that all
Inventory is and will be owned by us, free of all other liens, security interest
and encumbrances, and that we are the owners of the Inventory at wholesale and
are not a mercantile establishment selling at retail. All of such Inventory will
be kept at our address shown above and in the event of any change in location,
we will immediately notify you; but your lien and security interest will be
maintained despite the location of the Inventory. We will, at our expense,
defend the Inventory against any claims or demands adverse to your interest
therein, and will promptly pay, when due, all claims, taxes or assessments
levied against us on the Inventory. In the event we fail to pay such claims,
taxes and assessments, or fail to keep the Inventory free from any other lien or
security interest, you may make expenditures for such purposes and any amount so
expended shall be secured hereby and will be repaid with interest on demand at
the maximum rate allowable by law.
2. Your lien and security interest shall extend and attach to
Inventory which is presently in existence and which is owned by us or in which
we have an interest, and all Inventory which we purchase or in which we may
acquire an interest at any time and from time to time in the future, whether
such Inventory is in transit or in our constructive, actual or exclusive
occupancy or possession or not, or held by us or others for your account and
wherever the same may be located, including, but without limiting the generality
of the foregoing, all Inventory which may be located on our premises or upon the
premises of any carriers, forwarding agents, truckers, warehousemen, vendors,
selling agents, finishers, converters or other third parties who may have
possession of the collateral.
3. Your lien on the Inventory shall continue through all stages of
manufacture and shall, without further act, attach to goods in process, to the
finished goods, to the accounts receivable or other proceeds resulting from the
sale or other disposition thereof and to all such Inventory as may be returned
to us by customers. Forthwith and from time to time hereafter,
<PAGE>
-2-
we shall provide you with one or more separate written statements, dated and
signed by us, describing, designating, identifying and evaluating all Inventory
now and hereafter owned by us, confirming your lien and security interest. Upon
the sale, exchange or other disposition of the Inventory, the security interest
and lien created and provided for herein shall without break in continuity and
without further formality or act continue in and attach to the instruments for
the payment of money, accounts, contract rights, documents of titles, shipping
documents, chattel paper and all other cash and non-cash proceeds of such sale,
exchange or disposition, including Inventory returned or rejected by customers
or repossessed by either of us. As to any such sale, exchange or disposition,
you shall have all of the rights of an unpaid seller, including stoppage in
transit, replevin and reclamation.
4. The Inventory shall be additional security for all obligations to
you under The Agreement as originally existing and as hereby and at any time
heretofore or hereafter supplemented or amended as well as for all other loans
and advances to us or for our account by you, whether now existing or hereafter
arising, and for all commissions, obligations, indebtedness, interest charges
and expenses chargeable to our account or due from us from time to time, however
created and however arising, whether or not evidenced by notes or other
instruments, including any and all obligations and indebtedness of any
subsidiary or affiliate (including any parent company) of ours, and including
officers of such, to you or your subsidiaries and affiliates (including any
parent company) all hereinafter called the "Obligations". With respect to all
Inventory as well as all accounts, Accounts Receivables, and other security, you
shall be entitled to all of the rights and remedies set forth in The Agreement.
5. Upon our request, you may make Advances to us prior to our sale of
Inventory, and if you so require, we will execute a note or notes or other
instruments of indebtedness in form satisfactory to you evidencing any loans or
advances to us. Any such Advances will be made at your sole discretion, will be
charged by you to us and will bear interest payable in the manner and at the
rate specified in The Agreement, unless such advance is evidenced by a note or
an instrument of indebtedness, in which event the terms thereof shall be
controlling. All such Advances shall be payable by us on demand (unless
otherwise provided in a note or instrument of indebtedness) and recourse to the
security therefor will not be required at any time. The amount of all such loans
and advances and the relation thereof to the value of the Inventory will be
determined by you alone.
6. We shall be obligated to maintain a ratio of N/A the amount of
Inventory to the amount of the loan on Inventory at all times in acceptable
Inventory valued at cost or market, whichever is lower, excluding all obsolete
Inventory.
7. Except for sales made in the regular course of our business, we
shall not sell, encumber or dispose of or permit the sale, encumbrance or
disposal of any Inventory without your prior written consent. As sales are made
in the regular course of business, we shall, in accordance with the provisions
of The Agreement, immediately execute and deliver to you schedules and
assignments of all Receivables created by us. Any collateral assigned to you
under The Agreement or this supplement shall be additional security for the
payment of all sums owing by us to you for loans or advances pursuant to this
supplement. If sales are made for cash, we shall immediately deliver to you the
identical checks, cash or other forms of payment which we receive. All payments
received by you on account of cash sales of Inventory, as well as on account of
Receivables, will be credited to our account in accordance with the provisions
of The Agreement.
8. If any Inventory remains in the possession or control of any of
our agents or processors, we shall notify such agents or processors of your
lien, and upon request shall instruct them to hold all such Inventory for your
account and subject to your instructions. We agree to maintain books and records
pertaining to the Inventory in such detail, form and scope as you shall require,
and we agree to notify you promptly of any change in our name, mailing address,
principal place of business or location of the Inventory. We will also advise
you promptly, in sufficient detail, of any substantial change relating to the
type, quantity or quality of the Inventory, or any event which would have a
material effect on the value of the Inventory or on the lien and security
interest granted to you herein. A physical listing of all Inventory, wherever
located, shall be taken by us whenever requested by you, and a copy of each such
physical listing shall be supplied to you. You may examine and inspect the
Inventory at any time. We will execute and deliver to you from time to time,
upon demand, such supplemental agreements or documents relating to Inventory, or
instruments of indebtedness, in order that the full intent and purpose of this
agreement may be carried into effect.
<PAGE>
-3-
9. We warrant and represent that we have not and will not during the
period that we are indebted to you for any loans, advances or Obligations, enter
into any agreement of any kind, the effect of which will create any prior or
superior rights, security interests or liens upon any of our assets in which you
have a security interest in favor of any person, firm or corporation.
10. At our own expense, we shall keep the Inventory (whether or not in
transit) continuously insured in amounts not less than its full insurable value
by a reputable and highly rated insurance company or companies acceptable to you
against loss or damage from fire, hazards included within the term "extended
coverage", theft and such other risks as you may require, in such form and for
such periods as shall be satisfactory to you. Each insurance policy shall
provide, that loss and proceeds thereunder shall be payable to you as your
interest may appear, and which policy shall provide at least ten (10) days'
written notice of cancellation to you. We shall deliver to you on demand all
such insurance policies or other evidence of compliance satisfactory to you and
we shall renew each policy at our own expense and shall deliver satisfactory to
you and we shall renew each policy at our own expense and shall deliver
satisfactory evidence thereof to you not less than thirty (30) days before its
expiration date. If we fail to do so, you may procure such insurance and the
cost of such insurance shall be secured hereby and will be payable to you with
interest on demand at the maximum rate allowable by law. You may act as
attorney-in-fact for us in obtaining, adjusting, settling and cancelling such
insurance and endorsing any instruments relating thereto, and in the event of
loss or damage to the Inventory, your option to the Obligations (whether or not
matured) or to the repair or replacement of the Inventory after receiving proof
satisfactory to you of such repair or replacement.
11. If we should default in the payment of any Obligation due to you
hereunder or otherwise, or in the performance of any provision of The Agreement
(including, without limitation, this supplement and any other supplements
thereto), or if a petition under the Bankruptcy Act is filed by or against us,
or action in receivership instituted, or if we make an assignment for benefit of
creditors, suspend business or become insolvent, or if an attachment be levied
or tax lien be filed against any of the Inventory, or if you deem yourself or
your security insecure, then you may declare this agreement in default and all
amounts owing under The Agreement (including, without limitation, this
supplement and any other supplements thereto) and all other Obligations owing by
us to you shall, without demand or notice, immediately become due and payable
(notwithstanding that the maturity date or dates expressed in any evidence of
such indebtedness may be otherwise) and you may foreclose your lien or security
interest in the Inventory in any way permitted by law, and shall have, without
limitation, the remedies of a secured party under the Florida Uniform Commercial
Code or any other applicable law. You may thereupon enter our premises without
legal process and without incurring liability to us remove the same to such
place as you may deem advisable, or you may require us to assemble and make the
Inventory available to you at a convenient place, or take and maintain
possession on our premises and, with or without having the Inventory at the time
or place of sale, you may sell or otherwise dispose of all or any part of the
Inventory whether in its then condition or after further preparation or
processing, either at public or private sale or at any broker's board, in lots
or in bulk, for cash or for credit, at any time or place, in one or more sales,
and upon such terms and conditions as you may elect. At any such sale you may be
the purchaser. If any Inventory shall require rebuilding, repairing,
maintenance, preparation, or is in process or other unfinished state, you shall
have the right, at your option, to do such rebuilding, repairing, preparation,
processing or completion of manufacturing, for the purpose of putting the
Inventory in such saleable form as you shall deem appropriate. IF YOU USE LEGAL
PROCESS, CONTRACTUAL OR OTHER REMEDY TO OBTAIN POSSESSION OF THE INVENTORY WE
WAIVE ANY RIGHT TO ANY NOTICE OF HEARING AND/OR HEARING TO WHICH WE MIGHT
OTHERWISE BE ENTITLED PRIOR TO RECOVERY OF THE INVENTORY.
12. In the event of any public or other sale of the Inventory, the
proceeds from any sale shall first be applied to any costs and expenses in
securing possession of the Inventory, storing, repairing and finishing for sale,
and to any expenses in connection with the sale. The net proceeds will be
applied toward the payment of any and all Obligations to you under The
Agreement, this supplement or any other supplements thereto, and otherwise,
including interest, attorney's fees, which we hereby expressly agree to pay in
the event of any default hereunder and your referral to an attorney, and all
other costs and expenses. Application of the net proceeds as to particular
Obligations or as to principal or interest shall be in your absolute discretion.
Any deficiency will be paid to you forthwith upon demand and any surplus will be
paid to us if we are not indebted to you under any other Obligation. The
<PAGE>
-4-
enumeration of the foregoing rights is not intended to be exhaustive and the
exercise of any right shall not preclude the exercise of any other rights, all
of which shall be cumulative.
13. To the extent that any of our obligations to you are now or
hereafter secured by property other than the Inventory or by the guaranty,
endorsement or property of any other person, firm or corporation, then you shall
have the right to proceed against such other property, guarantor, or endorser
upon our default in the payment of any obligation or in any of the terms,
covenants or conditions contained herein, and you shall have the right in your
sole discretion to determine which rights, security, liens, security interests
or remedies you shall at any time pursue, relinquish, subordinate, modify or
take any other action with respect thereto, without in any way modifying or
affecting any of them or any of your rights hereunder.
14. Any notice to us shall be in writing and shall be deemed
sufficiently made if delivered personally or if transmitted by postage pre-paid
first class mail (airmail if international) or by telegraph or by telex with
confirmed answerback, to the respective address appearing on the face of this
agreement for such person (or, if none appears, to any address for such person
then registered in your records). Any notice to you shall be directed to the
attention of a vice-president or higher ranking officer of yours and shall be
made in writing in the foregoing manner and shall be deemed sufficient when
received by you at the following address: 120 East Palmetto Park Rd., Boca
Raton, Florida 33432. Any party may change its address for notice by given
written notice of the change in accordance with this paragraph.
15. As we are a corporation, partnership or other business entity, we
hereby further represent and warrant to you that: (a) we are duly organized,
validly existing and in good standing under the laws of the jurisdiction of our
creation and are duly qualified or licensed to do business in those
jurisdictions where the nature of our business requires us to be so qualified or
licensed; (b) we have all requisite power and authority (corporate or otherwise)
to conduct our business, to own our properties, to execute and deliver this
agreement, and to perform our obligations under the same; (c) the execution,
delivery and performance of this agreement have been duly authorized by all
necessary actions (corporate or otherwise) and do not require the consent or
approval of our stockholders (if a corporation) or of any other person whose
consent has not been obtained; and (d) the execution, delivery and performance
of this agreement does not had shall not conflict with any provision of our
by-laws or articles of incorporation (if a corporation), partnership agreement
(if a partnership) or trust agreement or other document pursuant to which we
were created and exist, nor conflict with any other agreement by which we are
bound.
16. The lien, rights and security interest granted to you hereunder
are to continue in full force and effect, notwithstanding the termination of The
Agreement or the fact that the principal account maintained in our name on your
books may from time to time be temporarily in a credit position, until the final
payment to you in full of all obligations and indebtedness due you by us,
together with interest thereon, and your delay or omission to exercise any right
shall not be deemed a waiver thereof or of any other right, unless such waiver
be in writing. A waiver on one occasion shall not be construed as a bar to or
waiver of any other rights or remedies on any future occasion.
17. This agreement, which is subject to modification only in writing,
is supplementary to and is to be considered as part of the Agreement and shall
take effect when dated, accepted and signed in Fort Lauderdale, Florida by one
of your officers. This agreement shall be interpreted according to the laws of
the state of Florida and shall inure to the benefit of an be binding upon the
parties hereto, their successors and assigns.
Very truly yours,
Attest: MANSUR INDUSTRIES, INC.
_________________________
By:/s/ PAUL I. MANSUR (Seal)
----------------------
Paul I. Mansur
Its: Chief Executive Officer
(Seal) On: November 26, 1997
and
<PAGE>
Attest: SYSTEMONE TECHNOLOGIES, INC.
_________________________ By: /S/ PAUL I. MANSUR
--------------------------
Paul I. Mansur
Its: Chief Executive Officer
Accepted at Boca Raton, Florida, on the 26 day of November, 1997.
Attest: CAPITAL FACTORS, INC.
_________________________ By: /S/ CHRISTOPHER CONSTABLE
---------------------------
Christopher Constable
Assistant Vice President
On: November 26, 1997
EXHIBIT 10.37
LICENSE AGREEMENT
THIS AGREEMENT, effective November 26, 1997, is made by and between
Mansur Industries, Inc. a Florida corporation with a place of business at 8305
Northwest 27th Street, Suite 107, Miami, Florida 33122 ("Licensor") and Capital
Factors, Inc., a Florida corporation having a place of business at 120 East
Palmetto Park Road, 5th Floor, Boca Raton, Florida, 33432 ("Licensee").
WITNESSETH:
WHEREAS Licensor and Licensee have entered into a Factoring Agreement
and Security Agreement Supplement - Inventory (as such documents may be
modified, extended or amended from time to time) in connection with Licensor's
manufacturing, marketing and selling of a line of self contained industrial
parts washers that incorporate recycling and waste minimization technologies,
tools, materials, parts and other instrumentalities, insofar as such machines,
tools, parts, materials and other instrumentalities are involved in or
incidental to the development, manufacturing, testing or repair of the self
contained industrial parts washer ("Licensed Products");
WHEREAS The Licensed Products are covered by and the subject of certain
inventions, developments and works of Licensor, whether or not covered by
patent, trademark, copyright, technology/knowhow and/or trade secret, and any
such patents, trademarks (whether or not
1
<PAGE>
registered), copyright (whether or not registered), and applications therefor,
including but not limited to those listed on Schedule "A" hereto (Intellectual
Property); and
WHEREAS pursuant to the Factoring Agreement and Security Agreement
Supplement - Inventory between Licensor and Licensee, the parties hereto desire
that Licensee shall have a security interest in the Licensed Products, and that
Licensee shall have a full and all encompassing right and license to dispose of
Licensed Products upon the exercise of its security interest in the Licensed
Products.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1.0 GRANT OF LICENSES
1.01 GRANT. Licensor hereby grants to Licensee, subject to the provisions hereof
and the Factoring Agreement, a non-exclusive, royalty free, irrevocable license
under the Intellectual Property to make, have made, use, sell, reproduce,
prepare of produce modifications or derivative works, distribute, display and/or
otherwise dispose of the Licensed Products, including the ability to lease,
license and transfer the Licensed Products which are or have been made by or for
the Licensor. Notwithstanding the foregoing, Licensee shall not make, have made,
use, sell, reproduce, prepare or produce modifications or derivative works,
distribute, display and/or otherwise dispose of Licensed Products, including the
ability to lease, license and transfer the Licensed Products until such a time
as Licensor shall have defaulted under the Factoring
2
<PAGE>
Agreement, which default shall continue for a period of thirty (30) days after
Licensor's receipt of notice of such default.
1.02 SUB LICENSE RIGHT. The licenses granted herein include the ability to
convey to any recipient of Licensed Products, directly or indirectly form
Licensee, a license of the scope of the licenses granted to Licensee by Licensor
herein. Further, the grant of each license hereunder includes the right to grant
sublicenses within the scope of such license to Licensee's related companies for
so long as they remain its related companies. Any such sublicense may be made
effective retroactively, but not prior to the effective date hereof, nor prior
to the sublicensee becoming a related company of Licensee.
1.03 ABILITY TO PROVIDE LICENSES
(a) Licensor warrants that, upon execution hereof by it and as of
the effective date hereof, there are not commitments or restrictions which limit
the licenses and rights which are purported to be granted hereunder by Licensor.
(b) Licensor intends to acquire the right to grant to the Licensee
licenses under any Intellectual Property covering the Licensed Products made by
the Licensor and its related companies' employees with use of its or its related
companies' funds or other assets. Accordingly, Licensor hereby agrees to take
steps which are reasonable under the circumstances so that Intellectual Property
covering Licensed Products which are made solely by one or more
3
<PAGE>
of its and/or its related companies' employees who are employed to do research,
development and/or inventive work and for which substantially all the funding is
provided by it and/or its related companies, are included among the Intellectual
Property licensed by it hereunder.
2.0 TERM AND TERMINATION
2.01 The term of this Agreement shall be for a period commencing on the
effective date hereof and shall terminate upon the earlier to occur of (i) the
date on which amounts are due by Licensor to Licensee under the Factoring
Agreement following the termination thereof, or (ii) the life of the
Intellectual Property.
2.02 EFFECT OF BREACH. In the event of a breach of this Agreement by
Licensor, Licensee may, in addition to any other remedies that it may have,
terminate this Agreement by not less than twenty (20) days' prior to written
notice to Licensor specifying such breaches, unless such breaches specified
therein shall have been remedied within twenty (20) days following Licensor's
notice of such breach, and except that in the event of termination, the rights
and licenses granted herein shall survive as necessary to exhaust inventory of
Licensed Products to which Licensee may have obtained rights to, including title
rights, both legal and/or equitable. A breach under this Agreement shall be
considered to be a breach under the Factoring Agreement and the Security
Agreement Supplement, and shall give rise to termination of those agreements
under the provisions set forth in those agreements between the parties. In the
event Licensee breaches this
4
<PAGE>
Agreement, Licensor may, in addition to other remedies, terminate this Agreement
by not less than twenty (20) days writtennotice to Licensee, unless such
breaches specified therein shall have been remedied within twenty (20) days
following Licensee's notice of such breach.
3.0 MISCELLANEOUS PROVISIONS
3.01 REPRESENTATIONS AND WARRANTIES. Licensor hereby represents and
warrants that it has all necessary rights and authority to grant the licenses
described herein, and, to the best of Licensor's knowledge, that the Licensed
Products do not infringe the Intellectual Property rights (including but not
limited to patents, trademarks, copyright, and other similar rights) of third
parties.
3.02 INDEMNIFICATION. Licensor will indemnify and defend the Licensee,
its related companies and its sublicensees, at its expense, and pay all finally
ordered costs, fines, attorney's fees, including paralegal's fees, through final
appeals, and damages resulting from all proceedings or claims against Licensee
its related companies, and its sublicensees who obtain the Licensed Products,
for infringement by any Licensed Product, or as a result of any use therof, of
patents (including utility models and registered designs), copyrights,
trademarks or other similar Intellectual Property rights (including rights in
trade secrets), now or hereafter existing in the United States or any other
country in the world. Licensor shall immediately notify Licensee if Licensor is
or becomes aware of any right of, or protection accorded to a third party as set
forth
5
<PAGE>
above, that might affect Licensor's ability to provide the licenses, including
the right to exercise the licenses, under this Agreement.
3.03 INCORPORATION. This Agreement is incorporated by reference into
and made a part of the Factoring Agreement and Security Agreement
Supplement-Inventory between Licensor and Licensee, and is an attachment
thereto.
3.04 DISCLAIMER. Neither party makes any representations, extends any
warranties of any kind, assumes any responsibility of obligations whatever, or
confers any right by implication, estoppel or otherwise, other than the rights
and warranties herein expressly granted.
3.05 ASSIGNABILITY. Licensee shall have the right to assign this
Agreement to such parties as Licensee may assign or have assigned its rights in
inventory of Licensed Products optained under the provisions of the Factoring
Agreement and Security Supplement-Inventory, without the Licensor's express
written consent. Licensee shall not have the right to otherwise assign this
Agreement without the Licensor's express written consent. Licensee shall not
have the right to otherwise assign this Agreement without the Licensor's express
written consent. Further, Licensor may not assign this Agreement or the certain
Factoring Agreement and Security Agreement Supplement-Inventory into which this
Agreement is expressly incorporated by reference and made a part thereof,
without Licensee's express written consent.
6
<PAGE>
3.06 ADDRESSES. Any notice or other communication hereunder shall be
sufficiently given if sent by certified mail addressed to:
in the case of Licensor;
Paul Mansur
Chief Executive Officer
Mansur Industries, Inc.
8305 Northwest 27th Street, Suite 107
Miami, Florida 33122
and in the case of Licensee;
Scott A. MacMillan
Senior Vice President
Capital Factors, Inc.
120 East Palmetto Park Road, 5th Floor
Boca Raton, FL 33432
3.07 CHOICE OF LAW. The parties are familiar with the principles of
Florida commerical law, and desire and agree that the law of Florida shall apply
in any dispute arising with respect to this Agreement.
3.08 INTEGRATION. This Agreement sets forth the entire agreement and
understanding between the parties as to the subject mattter hereof and merges
all prior discussions between them.
7
<PAGE>
Neither of the parties shall be bound by any warranties, understandings or
representations with respect to such subject matter other than as expressly
provided herein or any writing signed with or subject to execution hereof by an
authorized representative of the parties to be bound thereby.
3.09 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one agreement.
3.10 WAIVER OF JURY TRIAL. Trial by jury is hereby waived by the
parties hereto in any action, proceeding or counterclaim brought by either party
against the other party on any matters arising out of or in any way connected
with this Agreement, or the relations created hereby, whether for contract, tort
or otherwise, and both parties hereby consent to the jurisdiction of the Courts
of the State of Florida and of any Federal Court in such state for determination
of any dispute as to any such matters.
3.11 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to by contrary to law and invalid, the remaining
provisions of this Agreement shall be considered to be severable and shall
remain in full force and effect.
3.12 BINDING EFFECT. This Agreement shall be binding upon the parties
hereto, their heirs, legal representatives, successors and assigns.
8
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in duplicate originals by its duly authorized representatives on the
respective dates entered below.
LICENSOR
/S/ RICHARD SMITH
- -------------------------------
Richard Smith
Title: Chief Financial Officer
Date: November 26, 1997
LICENSEE
/S/ SCOTT MACMILLAN
- -------------------------------
Scott MacMillan
Title: Senior Vice President
Date: December 1, 1997
THIS AGREEMENT DOES NOT BIND OR OBLIGATE EITHER PARTY IN ANY MANNER UNLESS DULY
EXECUTED BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
9
<PAGE>
SCHEDULE "A"
LIST OF INTELLECTUAL PROPERTIES BY CATEGORY
SystemOne/registered trademark/ Washer
Power Spray Washer
Immersion Washer
10
EXHIBIT 10.38
PURCHASE AND DISTRIBUTION AGREEMENT
THIS PURCHASE AND DISTRIBUTION AGREEMENT ("Agreement") is effective as
of December 1, 1997 (the "Effective Date"), notwithstanding the actual date of
execution, by and between FIRST RECOVERY, a division of ECOGARD, INC., a
Delaware corporation, with offices located at 3499 Blazer Parkway, Lexington,
Kentucky, 40509 (hereinafter Ecogard, Inc., including its First Recovery
division, is referred to as "First Recovery"), and SYSTEMONE TECHNOLOGIES INC.
(hereinafter referred to as "SystemOne"), a wholly owned subsidiary of MANSUR
INDUSTRIES INC., a Florida corporation ("Mansur"), with offices located at 8305
N.W. 27th Street, Suite 107, Miami, Florida 33122.
WHEREAS, SystemOne has available for supply various models of washer
units and brake washers marketed under the trademark SystemOne/registered
trademark/, more particularly defined as the "Equipment" below;
WHEREAS, First Recovery desires to purchase and distribute the
Equipment in certain defined territories, and SystemOne desires to sell the
Equipment to First Recovery for such sales and distribution;
WHEREAS, First Recovery, Mansur and The Valvoline Company, a division
of Ashland Inc. ("Valvoline"), a Kentucky corporation, previously entered into a
Master Lease and Distribution Agreement effective as of August 1, 1996 ("Initial
Agreement") and a Commission Sales Representation Agreement effective as of
January 14, 1997 (the "Second Agreement") for the purpose of evaluating the
market for and performance of the Equipment and First Recovery's ability to
market and distribute the Equipment; and
WHEREAS, the Initial Agreement expired in accordance with its terms,
the Second Agreement will expire in accordance with its terms on January 14,
1998, and the parties wish to terminate and supersede the Second Agreement as of
the Effective Date hereof, in accordance with the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants, agreements and conditions hereinafter set forth and the mutual
benefits to be derived therefrom, the sufficiency and adequacy of which are
hereby acknowledged, First Recovery and SystemOne hereby agree as follows:
1. MINIMUM PURCHASE COMMITMENT; TERMS OF PURCHASES
1.1 During the term of this Agreement which commences on the Effective
Date and terminates on June 30, 1998 (the "Term"), First Recovery shall
purchase from SystemOne the washer units and brake washers identified
in EXHIBIT A to this Agreement, attached hereto and incorporated herein
by reference (the "Equipment"), in the following quantities and upon
the following terms:
PERIOD MINIMUM EQUIPMENT PURCHASES
------ ---------------------------
12/01/97 through 400 parts washer units plus 200 brake washers
12/31/97 payment net ninety (90) days
01/01/98 through 600 parts washer units plus brake washers as
03/31/98 ordered - payment net ninety (90) days
Mansur Purchase and Distribution -Page 1
<PAGE>
1.2 First Recovery shall purchase the Equipment from SystemOne by
submitting written purchase orders to SystemOne, consistent with the
quantities set forth in Section 1.1 hereof. SystemOne will accept such
purchase orders and sell the Equipment to First Recovery. Each unit of
Equipment purchased by First Recovery pursuant to Section 1.1 hereof
shall be made available by SystemOne for pickup by First Recovery
within five (5) business days of the date of SystemOne's receipt of
First Recovery's purchase order F.O.B. SystemOne's manufacturing
facility. With respect to purchase orders for Equipment in excess of
the quantities set forth in Section 1.1 hereof, SystemOne may, at its
option, determine to sell the equipment to the extent the Equipment is
available, upon the following terms:
(A) SystemOne shall notify First Recovery by both fax and
telephone when any order is available for pickup at
SystemOne's facility (this notice shall hereafter be referred
to as the "Availability Notice").
(B) Upon receipt of an Availability Notice, First Recovery
shall arrange for shipping and/or transportation of the
Equipment from SystemOne's facility and pay all shipping,
insurance and related costs. Risk of loss and title to the
Equipment shall pass to First Recovery upon pickup of the
Equipment by, or on behalf of, or for the account of First
Recovery at SystemOne's manufacturing facility.
(C) First Recovery shall use reasonable and good faith efforts
to pick up or cause the pick up of the Equipment that is the
subject of an Availability Notice within ten (10) business
days of receipt of the Availability Notice; provided, however,
that Equipment required to be purchased by First Recovery
during the period December 1, 1997 through December 31, 1997
as set forth in Section 1.1 hereof, shall be picked up by
First Recovery on or before December 31, 1997. First Recovery
will cause the Equipment to be shipped to a Service Center (as
hereinafter defined).
(D) All Equipment purchased from SystemOne by First Recovery
shall be factory filled with ProMax/registered trademark/ 2000
Solvent provided to SystemOne at no additional cost by First
Recovery.
(E) At the request of First Recovery, SystemOne shall handle,
deliver and install units of Equipment purchased by First
Recovery from SystemOne which have been sold or leased by
First Recovery or required under First Recovery's "free trial
program" within the First Recovery Territory. First Recovery
agrees that it shall, from time to time, advise SystemOne of
its free trial program Equipment requirements. As described in
Section 1.3 below, a portion of the per unit handling fee to
be paid by First Recovery set forth on EXHIBIT A hereto
represents the cost of handling, delivering and installing
such Equipment (the "Handling Fee"). As set forth on EXHIBIT
A, the Handling Fee shall be adjusted based on the monthly
volume of Equipment handled, delivered and installed by
SystemOne.
1.3 During the Term, for each unit of Equipment purchased by First
Recovery, First Recovery shall pay to SystemOne the Purchase Price as
set forth on EXHIBIT A, which includes payment for (i) the purchase of
the unit of Equipment; (ii) the labor involved in the initial factory
fill of the Equipment with ProMax 2000 Solvent provided by First
Recovery as set forth in Section 1.2(d); (iii) the handling, delivery
and installation of Equipment, as set forth in Section 1.2(e); and (iv)
warranty services for a period of five (5) years with respect to
Equipment purchased during the term of this Agreement in accordance
with SystemOne's standard warranty policy as set forth in EXHIBIT B,
attached hereto and incorporated herein by reference. First Recovery
shall pay SystemOne the Purchase Price for Equipment purchased within
ninety (90) days of the date of SystemOne's invoice.
Mansur Purchase and Distribution -Page 2
<PAGE>
2. TERM/TERMINATION
This Agreement shall terminate on June 30, 1998. Additionally, either
party shall have the right to terminate this Agreement (i) five (5)
days after any default in payment by the other party; (ii) at any time
by giving thirty (30) days prior written notice to the other party if
the other party has breached any of its material duties or obligations
under this Agreement, other than a default in payment, provided that
the non-defaulting party has requested the other in writing to
immediately commence curing the default or breach and to either
complete curing the same within twenty (20) business days or to pursue
with due diligence the prompt curing of same if it cannot be cured
within twenty (20) business days, and, if the same is not then cured,
then the non-defaulting party may, without prejudice to any other right
or remedy it may have, terminate this Agreement; or (iii) immediately
by either party if the other party is finally adjudicated to be
insolvent or bankrupt or a trustee or receiver in bankruptcy has been
appointed for such party and not discharged within sixty (60) days.
3. TITLE, RISK OF LOSS
Title and risk of loss to each unit of the Equipment purchased by First
Recovery shall pass to First Recovery upon loading of the Equipment on First
Recovery's designated transportation vehicle at SystemOne's manufacturing
facility, as set forth in Section 1.2(b) and as provided in Section 1.2(c). As
more fully set forth in Section 7.1 hereof, SystemOne shall maintain insurance
coverage on, among other things, the Equipment owned by First Recovery which is
to be handled, delivered and installed by SystemOne naming First Recovery as an
additional insured and loss payee.
4. TERRITORY
4.1 Except as otherwise specifically provided herein, during the Term
of this Agreement, (i) First Recovery shall have exclusive rights to
purchase from SystemOne and market and distribute through sale or lease
the Equipment only in the counties in which the cities identified in
EXHIBIT C, attached hereto and incorporated herein by reference, are
located (the "First Recovery Territory") and to National Account
Customers (as hereinafter defined). First Recovery shall not market
and/or distribute, through sale, lease or otherwise, the Equipment to
non-National Account Customers outside the First Recovery Territory.
4.2 In marketing and distributing the Equipment in the First Recovery
Territory and to any National Account Customer First Recovery shall
have the right to use third parties or agents that it, or its
affiliate, The Valvoline Company, a division of Ashland Inc.
("Valvoline"), currently has a distribution or agency business
relationship with to assist in the sales, marketing and distribution of
the Equipment in accordance with the requirements of this Agreement,
including but not limited to subdistributors. First Recovery shall not
use any third parties or agents in connection with the sale, marketing
and distribution of the Equipment that it or Valvoline does not have a
distribution or agency relationship as of the date hereof without the
prior written consent of SystemOne, which consent shall not be
unreasonably withheld, conditioned or delayed.
4.3 With regard to the State of Florida ("Florida Territory"), during
the Term SystemOne agrees that First Recovery may solicit trial
placements of Equipment on behalf of SystemOne as a commissioned sales
agent only, pursuant to which SystemOne will pay First Recovery a
commission equal to ten percent (10%) of all completed sales or leases
of Equipment with SystemOne customers with whom First Recovery
solicited trial placements. Such solicitations by First Recovery shall
be in accordance with procedures developed by and acceptable to
SystemOne. Commission amounts due to First Recovery pursuant to this
paragraph shall be paid
Mansur Purchase and Distribution -Page 3
<PAGE>
to First Recovery within sixty (60) days of the close of such sale or
lease. First Recovery shall also have the right to transfer any
Equipment purchased from SystemOne to Valvoline for use in its
equipment loan program, provided that the total number of units of
Equipment used by Valvoline in this manner in the Florida Territory
during the Term shall not exceed three hundred (300) units. First
Recovery shall have no power to bind SystemOne in any contractual
relationship, assume any obligations, or make any warranties or
representations on behalf of SystemOne; all proposals, pricing
arrangements and all other aspects of any Equipment trial usage, sales
or leases shall be made solely by SystemOne. Notwithstanding the
foregoing, SystemOne shall have total freedom to sell, market, promote,
and distribute the Equipment in the Florida Territory and First
Recovery shall have no rights whatsoever with regard to the Florida
Territory.
4.4 With respect to national customers, which means any customer that
operates in more than one state and in more than fifteen (15) locations
("National Account Customers"), First Recovery may, during the Term
hereof, on an exclusive basis, sell, market and distribute the
Equipment, in accordance with the terms of this Agreement, provided
that, prior to any sale of Equipment to any National Account Customer
location located outside a one hundred twenty (120) mile radius from
the nearest Service Center, the parties will mutually agree on the
method of providing service center support for any Equipment acquired
by such National Account Customer location. The foregoing shall not be
deemed to require SystemOne to open or maintain any Service Center
except as expressly provided herein.
4.5 First Recovery shall use reasonable efforts (utilizing its and
Valvoline's marketing, distribution and management systems) to develop,
promote and expand the market for, and sell the Equipment throughout
the First Recovery Territory. Subject to the terms of this Agreement,
including Section 9, First Recovery shall assume sole responsibility
for all dealings between it and its customers or prospective customers,
including all credit risks and risks regarding collection of
receivables with respect to Equipment sold or leased by it to third
parties, and for matters relating to the supply and composition of the
ProMax 2000 solvent.
5. INSTALLATION, SERVICE AND MAINTENANCE OF EQUIPMENT
5.1 SystemOne plans to establish service centers and employ service
technicians to install and service such Equipment (each, a "Service
Center") in accordance with the schedule set forth in EXHIBIT D
attached hereto and incorporated herein by reference. It is intended
that at least one Service Center shall be located in a centralized
location in each of the cities identified in EXHIBIT C so as to provide
convenient and prompt service to Equipment owners or users. The Service
Centers are intended to provide the following services: (i) install
trial units of Equipment purchased by First Recovery for installation
at First Recovery customer locations for evaluation of future purchase
or lease of the Equipment; (ii) install Equipment purchased by First
Recovery at First Recovery customer locations as reasonably requested
by First Recovery; (iii) provide basic training to First Recovery
purchasers/lessees of the Equipment on the proper care and use of the
Equipment upon installation; (iv) perform standard warranty and
maintenance service and repairs; and (v) provide temporary storage of
the Equipment as set forth in Section 1.2(e).
6. PATENT/TRADEMARKS
6.1 SystemOne represents, warrants and covenants to First Recovery
that, to its knowledge, the patents with respect to the Equipment are
valid and current, and that it has received no notice, and is not
aware, that the patents and related intellectual property infringe upon
any rights of any third party. SystemOne shall defend, indemnify and
hold harmless First Recovery, its parent, subsidiaries and affiliate
corporations, and its and their officers, directors, employees and
agents,
Mansur Purchase and Distribution -Page 4
<PAGE>
from and against any and all claims, liabilities, suits, proceedings,
judgments, order, fines, penalties, damages, losses, costs and
expenses, including reasonable attorneys' fees which it or they may
hereafter incur, become responsible for or pay out as a result of
circumstances which relate to the design of, patentability of, patent
on, or intellectual property related to the Equipment.
6.2 Subject to the terms hereof and solely in connection with the
performance of First Recovery's obligations under this Agreement,
SystemOne grants to First Recovery, a revocable nonexclusive license
("Revocable License") to use the trademarks, trade names, trade dress
and other designations of source or quality of SystemOne as identified
on EXHIBIT E, attached hereto and incorporated herein by reference.
Such Revocable License shall be strictly limited to First Recovery's
activities in marketing and distributing the Equipment, either by sale
or lease to its customers, and shall survive termination or expiration
of this Agreement only to the extent that First Recovery is continuing
to market and distribute Equipment purchased during the Term. First
Recovery acknowledges that nothing in this Agreement gives it any
right, title or interest in the technology, copyrights, trade secrets,
patents, trademarks, tradenames, trade dress and other property rights
related to the Equipment and designations of source of quality, other
than the Revocable License set forth in this Section 6.2. SystemOne
shall have the right to approve, prior to use by First Recovery, of all
marketing, advertising and other related materials prepared by or for
use by First Recovery. Additionally, any marketing or other material
prepared by or for use by First Recovery utilizing the name "SystemOne"
shall bear an appropriate mark indicating that SystemOne is a
registered trademark of Mansur.
6.3 First Recovery shall not alter in any way the appearance of any of
the units of Equipment and shall not remove, deface, alter or cover the
SystemOne identification thereon, except that First Recovery can affix
decals or other First Recovery information to the unit previously
approved in writing by SystemOne.
6.4 During the Term, First Recovery, including its affiliates,
employees, officers, contractors, or agents, agrees (i) not to
decompile and/or reverse engineer the Equipment or any component
thereof, (ii) not to directly or indirectly apply for or attempt to
acquire any rights, patents or copyrights relating to the Equipment or
any component thereof; and (iii) that none of them has any rights or
interest with respect to the technology, copyrights, trade secrets and
patents and other property rights relating to the Equipment, including
all materials, combinations, processes, equipment, design concepts,
documents, data and information incorporating, based upon, or derived
from the foregoing.
7. INSURANCE
7.1 Without limiting, negating or reducing SystemOne's undertaking to
indemnify, defend and hold harmless First Recovery as set forth in
Section 9 of this Agreement, during the Term, SystemOne shall obtain
and continue in full force and effect throughout the term of this
Agreement the following insurance coverage:
/bullet/ Worker's Compensation Statutory
/bullet/ Employer's Liability $5,000,000 per occurrence
/bullet/ Public Liability $5,000,000 per occurrence
/bullet/ Contractual Liability $5,000,000 per occurrence
/bullet/ General Liability, including $5,000,000 per occurrence
products liability and completed
operations
Mansur Purchase and Distribution -Page 5
<PAGE>
The required insurance coverage shall be maintained with
insurance companies qualified to provide coverage where business in
conducted pursuant to this Agreement. SystemOne shall provide First
Recovery with thirty (30) days prior written notice of any change,
modification or termination in or of the above insurance coverage. Upon
request, SystemOne shall provide First Recovery with an insurance
certificate evidencing the required coverage and naming First Recovery
as an additional insured. In addition to the above, SystemOne shall
maintain all risk property insurance coverage on the Equipment owned by
First Recovery which is to be handled, delivered and installed by
SystemOne pursuant to Section 1.2(e) hereof and shall provide First
Recovery, upon request, with an insurance certificate evidencing such
coverage and naming First Recovery as an additional insured and loss
payee as their interests may appear.
Notwithstanding the foregoing, after SystemOne has obtained
the required insurance coverages, should the insurance premiums for
such or similar coverage be increased by more than one hundred percent
(100%), SystemOne shall not be obligated to maintain such insurance,
provided that SystemOne has complied with the notice provisions of this
Section.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 SystemOne represents, warrants and covenants to First Recovery,
effective as of the date of this Agreement and again as of the date of
each shipment of Equipment purchased by First Recovery as follows:
(A) SystemOne's parent, Mansur, owns valid and current patents
for and other intellectual property related to the Equipment
and, to its knowledge, such property rights do not infringe on
the intellectual property rights of any third party;
(B) SystemOne is licensed to use and has the authority to
license others to use the intellectual property associated
with the Equipment;
(C) SystemOne believes that Mansur will be entitled to seek
enforcement of its patent against infringers on that patent,
including, but not limited to, enforcement against any third
party manufacturing identical or similar equipment;
(D) that SystemOne has the requisite skills and facilities to
fill requested orders for the Equipment in accordance with the
terms of this Agreement;
(E) that the Equipment purchased by First Recovery is
materially free from defects and will conform to SystemOne's
written performance criteria as set forth in EXHIBIT F,
attached hereto and incorporated herein by reference, and will
be covered by the manufacturer's standard warranties set forth
in EXHIBIT B, attached hereto and incorporated herein by
reference;
(F) that the Equipment has received safety certification from
Intertek Testing laboratories - ETL and C-ETL (Canada); and
(G) that SystemOne shall comply with all federal, state and
local laws, rules and regulations that may now or hereafter be
applicable to SystemOne's obligations under this Agreement in
manufacturing the Equipment.
8.2 First Recovery represents, warrants and covenants to
SystemOne, effective as of the date of this Agreement and
again as of the date of each purchase of Equipment from
SystemOne as follows:
Mansur Purchase and Distribution -Page 6
<PAGE>
(A) that First Recovery has the requisite skills, facilities
and personnel to market, promote and sell the Equipment in
accordance with the terms and requirements of this Agreement;
(B) that First Recovery is duly organized and validly existing
under the laws of the State of Delaware, has all requisite
power and authority to conduct its business as now and
proposed to be conducted and to execute, deliver and perform
it obligations under this Agreement; and that this Agreement
has been duly authorized and when executed and delivered will
represent a valid and binding obligation enforceable against
First Recovery in accordance with its terms;
(C) that First Recovery shall comply with all applicable
federal, state and local laws, rules and regulations of the
United States of America and of any state or political
subdivision thereof and of any other governmental unit or
agency that may now or hereafter be applicable to First
Recovery's obligations under this Agreement;
(D) that First Recovery shall notify SystemOne promptly upon
becoming aware of any adverse information relating to the
safety or effectiveness of the Equipment;
9. INDEMNIFICATION
9.1 SystemOne shall indemnify, defend and hold harmless First Recovery,
its parent, subsidiaries and affiliates, and its and their officers,
directors, shareholders, employees and agents, from and against any and
all claims, liabilities, suits, proceedings, judgments, orders, fines,
penalties, damages, losses, costs, and expenses, including but not
limited to reasonable attorney fees and other expenses of litigation,
which it may hereafter incur, become responsible for or pay out as a
result of death or bodily injuries to any person, destruction or damage
to any property or contamination of or adverse effects on the
environment, arising out of or resulting from SystemOne's patents on or
other intellectual property related to the Equipment, any defect in the
design of the Equipment, or the performance of or the maintenance of
the Equipment, any negligent act or omission of SystemOne, or any
breach of any provision of this Agreement by SystemOne, except to the
extent that such claims, liabilities, suits, proceedings, judgments,
orders, fines, penalties, damages, losses, costs and expenses are
caused by or result from the fault or negligence of First Recovery.
Additionally, SystemOne shall indemnify First Recovery for any
uninsured losses incurred by First Recovery as a result of damage,
theft or loss of Equipment resulting from the negligence, acts or
omissions of the employees, agents and/or contractors of SystemOne in
connection with its handling, delivery and installation of Equipment.
For purposes of this Section, the term "First Recovery" shall include
First Recovery's affiliates, officers, directors, shareholders,
employees, invitees, agents and contractors.
9.2 First Recovery shall indemnify, defend and hold harmless SystemOne,
its parent, subsidiaries and affiliates, and its and their officers,
directors, shareholders, employees and agents, from and against any and
all claims, liabilities, suits, proceedings, judgments, orders, fines,
penalties, damages, losses, costs, and expenses, including but not
limited to reasonable attorney fees and other expenses of litigation,
which it may hereafter incur, become responsible for or pay out as a
result of any loss or damages it or they incur, death or bodily
injuries to any person, destruction or any damage to any property or
contamination of or adverse effect on the environment, arising out of
or resulting from any negligent act or omission of First Recovery, or
any breach of any provision of this Agreement by First Recovery, except
to the extent that such claims, liabilities, suits, proceedings,
judgments, orders, fines, penalties, damages, losses, costs and
expenses are caused by or result from the fault or negligence of
SystemOne. For purposes
Mansur Purchase and Distribution -Page 7
<PAGE>
of this Section, the term "SystemOne" shall include SystemOne's
affiliates, officers, directors, shareholders, employees, invitees,
agents and contractors.
10. INDEPENDENT CONTRACTOR
Except for First Recovery's activities as a commissioned sales agent in
the Florida Territory, the parties acknowledge and agree that the relationship
hereby established between SystemOne and First Recovery is solely that of buyer
and seller and that each party is and shall remain an independent contractor
engaged in the operation of its own respective business and in the performance
of its obligations under this Agreement. The provisions of this Agreement shall
not be construed as authorizing or reserving to either party any right to
exercise any control or direction over the operations, activities, employees and
agents of the other in connection with this Agreement, it being understood and
agreed that the entire control and direction of such operations, activities,
employees and agents shall remain with such party. Neither party to this
Agreement shall have the authority to employ any person as agent or employee for
or on behalf of the other party to this Agreement for any purpose, and neither
party to this Agreement, nor any person performing any duties under or engaging
in any work at the request of such party, shall be deemed to be an employee or
agent of the other party to this Agreement. Neither party has any authority to
enter into any contract, assume any obligations, or make any warranties or
representations on behalf of the other party. Nothing in this Agreement shall be
construed to establish a partnership or joint venture relationship between the
parties.
11. FORCE MAJEURE
The performance or observance by either party of any obligations of
such party under this Agreement, other than payment obligations, may be
suspended by it, in whole or in part, in the event of any of the following that
prevents such performance or observance: Act of God, war, riot, fire, explosion,
accident, flood, sabotage, strike, lockout, injunction, inability to obtain
fuel, power, raw materials, labor, containers or transportation facilities,
breakage or failure of machinery or apparatus, national defense requirements, or
any other cause (whether similar or dissimilar) beyond the reasonable control of
such party; provided, however, that the party so prevented from complying with
its obligations hereunder shall immediately notify in writing the other party
thereof (stating the nature of the event, its anticipated duration and any
action being taken to avoid or minimize its effect) and such party so prevented
shall exercise diligence in an endeavor to remove or overcome the cause of such
inability to comply. The suspension of performance shall be of no greater scope
nor longer duration than is required, and in no event longer than sixty (60)
days.
12. ASSIGNMENT
This Agreement shall not be assigned nor can the performance of any
duties be delegated by any party without the prior written consent of the other
party, except that First Recovery may effect an assignment of this Agreement to
a parent, subsidiary or affiliate corporation upon prior written notice to
SystemOne, provided that the assignor's financial strength is equal to or
greater than that of First Recovery's.
13. CHOICE OF LAW
This Agreement, including matters of construction, validity and
performance, shall be governed and construed in accordance with the laws of the
State of New York without giving effect to its choice of law rules.
Mansur Purchase and Distribution -Page 8
<PAGE>
14. MISCELLANEOUS
14.1 This Agreement constitutes the full understanding of the parties,
a complete allocation of risks between them and a complete and
exclusive statement of the terms and conditions of their agreement; and
all prior agreements, negotiations, dealings and understandings,
whether written or oral, including the Initial Agreement and the Second
Agreement, regarding the subject matter hereof, are superseded by this
Agreement. Additionally, any terms and/or conditions contained in any
purchase order, oral or written, or in SystemOne's standard warranty
policy, a copy of which is set forth as Exhibit B attached hereto,
inconsistent with any terms and/or conditions set forth herein shall be
of no force and effect unless consented to in writing by the party to
be charged.
14.2 No conditions, usage of trade, course of dealing or performance,
understanding or agreement purporting to modify, vary, explain or
supplement the terms or conditions of this Agreement shall be binding
unless hereafter made in writing and signed by the party to be bound,
and no modification shall be effected by the acknowledgment or
acceptance of any forms containing terms or conditions at variances
with or in addition to those set forth in this Agreement.
14.3 No waiver by either party with respect to any breach or default or
of any right to remedy and no course of dealing or performance shall be
deemed to constitute a continuing waiver of any other breach or default
or of any other right or remedy, unless such waiver be expressed in
writing signed by the party to be bound.
14.4 Section headings as to the contents of particular sections are for
convenience only and are in no way to be construed as part of this
Agreement or as a limitation of the scope of the particular sections to
which they refer.
14.5 In the event any term or provision of this Agreement, or any
portion thereof, or any application of any term or provision shall be
invalid or unenforceable, the remainder of this Agreement or any other
application of such term or provision shall not be affected thereby.
14.6 All rights conferred by this Agreement shall be binding upon,
inure to the benefit of, and be enforceable against the respective
successors and permitted assigns of the parties hereto.
14.7 All notices, requests, and approvals required or permitted under
this Agreement shall be deemed validly given if in writing and
addressed to the party for whom intended at the address of such party
set forth below, and shall be effective upon the earlier to occur of
personal delivery or three (3) business days following such notice,
request or approval having been deposited in the U.S. mail, postage
prepaid, certified or registered, return receipt required.
14.8 The parties agree that the terms and conditions of that certain
Non-Circumvention and Non-Disclosure Agreement, dated as of July 20,
1995, and between Mansur and First Recovery, a copy of which is
attached hereto as EXHIBIT G, shall be incorporated by reference
herein.
14.9 This Agreement may be executed in identical duplicate copies. The
parties agree to execute at least two identical original copies of this
Agreement. Each identical counterpart shall be deemed an original, but
all of which together shall constitute one and the same instrument.
Mansur Purchase and Distribution -Page 9
<PAGE>
IN WITNESS WHEREOF, First Recovery and SystemOne have caused their
respective authorized representatives to execute this Purchase and Distribution
Agreement effective as of the date first above written.
WITNESS: ECOGARD, INC., INCLUDING THE FIRST
RECOVERY DIVISION
____/s/__________________________ By:
_________________________________ Its:
WITNESS: SYSTEMONE TECHNOLOGIES INC.
_______/s/_______________________ By:
_________________________________ Its:
Mansur Purchase and Distribution -Page10
<PAGE>
THE CONFIDENTIAL PORTIONS OMITTED
- ---------------------------------
BELOW HAVE BEEN FILED SEPARATELY
- --------------------------------
WITH THE SECURITIES AND EXCHANGE
- --------------------------------
COMMISSION
- ----------
* INDICATES PORTIONS OMITTED.
EXHIBIT A
to
AGREEMENT BETWEEN
FIRST RECOVERY, A DIVISION OF ECOGARD, INC.
and
SYSTEMONE TECHNOLOGIES INC.
Dated as of December 1, 1997
I. EQUIPMENT PRICING
--------------------
**********
**********
**********
<PAGE>
Exhibit B
[SystemOne Logo]
MANUFACTURER'S WARRANTIES
DEFECTS & PERFORMANCE
All SystemOne/registered trademark/ products ("Equipment") are warranted by
SystemOne/registered trademark/ Technologies, a division of Mansur Industries
Inc. ("Manufacturer"), to be free of defects in materials and workmanship and to
perform in accordance with the Manufacturer's specifications and operating
manual ("Warranty") for five (5) years commencing on the date of delivery
("Warranty Period"). During the Warranty Period, the Manufacturer will repair or
replace the Equipment with like Equipment, at its option, free of charge.
SOLVENT SUPPLY PROGRAM
A solvent supply program ("Supply Program") is available from the Manufacturer.
Under the Supply Program, the Manufacturer shall provide Lessee with a total of
thirty (30) gallons of 140/degree/ solvent per Equipment unit per year. The
price specified under the Lease shall be guaranteed for the first year of the
Lease term and thereafter adjusted for any changes in the Manufacturer's cost of
solvent. Lessee agrees to pay Manufacturer for excess usage of solvent over
thirty (30) gallons per Equipment unit per year at the current solvent price.
Lessee may cancel the Supply Program anytime during the Lease term upon ninety
(90) days notice to the Manufacturer provided Lessee uses only 140/degree/
solvent pursuant to the Manufacturer's operating manual and specifications.
ENVIRONMENTAL ASSURANCE
The Manufacturer warrants, under current interpretation of existing Federal and
state regulations, that the Equipment does not generate hazardous waste provided
(i) no hazardous materials or chemicals are added to or used with the Equipment
and (ii) the Equipment is operated in accordance with the Manufacturer's
operating manual. The Manufacturer has implemented a formal Environmental
Assurance Program to test and document the classification of Equipment residue
as NON haszardous. The Manufacturer, upon request from the customer, shall
provide customers with thirty (30) days of delivery (excluding customers who
currently are or become classified as Conditionally Exempt Small Quantity
Generators upon conversion to SystemOne/registered trademark/) with a labratory
analysis and test results, free of charge, documenting the non-hazardous status
of Equipment residue.
------------------------
<PAGE>
THE CONFIDENTIAL PORTIONS OMITTED
- ---------------------------------
BELOW HAVE BEEN FILED SEPARATELY
- --------------------------------
WITH THE SECURITIES AND EXCHANGE
- --------------------------------
COMMISSION
- ----------
* INDICATES PORTIONS OMITTED.
EXHIBIT C
to
AGREEMENT BETWEEN
FIRST RECOVERY, A DIVISION OF ECOGARD, INC.
and
SYSTEMONE TECHNOLOGIES INC.
Dated as of December 1, 1997
FIRST RECOVERY TERRITORY
(which means each county in which each below-named city is located)
************
************
************
<PAGE>
THE CONFIDENTIAL PORTIONS OMITTED
- ---------------------------------
BELOW HAVE BEEN FILED SEPARATELY
- --------------------------------
WITH THE SECURITIES AND EXCHANGE
- --------------------------------
COMMISSION
- ----------
* INDICATES PORTIONS OMITTED.
EXHIBIT D
to
AGREEMENT BETWEEN
FIRST RECOVERY, A DIVISION OF ECOGARD, INC.
and
SYSTEMONE TECNOLOGIES INC.
Dated as of December 1, 1997
************
************
************
10
<PAGE>
Exhibit E
Int. Cl.: 7
Prior U.S. Cls.: 13, 19, 21, 23, 31, 34 and 35
Reg. No. 2,024,010
UNITED STATES PATENT TRADEMARK OFFICE REGISTERED DEC. 17, 1996
TRADEMARK
PRINCIPAL REGISTER
[SYSTEMONE LOGO]
MANSUR INDUSTRIES INC. (FLORIDA COR- OTHER CONTAMINANTS, IN CLASS 7 (U.S.
PORATION) CLS. 13, 19, 21, 31, 34 AND 35).
8425 S.W. 129TH TERRACE FIRST USE 1-15-1996; IN COMMERCE
MIAMI, FL 33156 1-15-1996.
FOR: MACHINES FOR WASHING INDUS- SER. NO. 75-052,475, FILED 2-2-1996.
TRIAL PARTS WITH A CLEANING SOLUTION TOM WELLINGTON, EXAMINING ATTOR-
IN ORDER TO REMOVE GREASE, OIL AND NEY
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,243
<SECURITIES> 0
<RECEIVABLES> 1,006
<ALLOWANCES> 0
<INVENTORY> 1,824
<CURRENT-ASSETS> 5,287
<PP&E> 1,560
<DEPRECIATION> 205
<TOTAL-ASSETS> 6,788
<CURRENT-LIABILITIES> 1,084
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 5,197
<TOTAL-LIABILITY-AND-EQUITY> 6,788
<SALES> 7,244
<TOTAL-REVENUES> 7,244
<CGS> 4,661
<TOTAL-COSTS> 8,122
<OTHER-EXPENSES> 415
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> (1,189)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,189)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,189)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
