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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) [Fee Required]
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) [No Fee Required]
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ___________________
Commission file number 0-25528
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ENVIROQ CORPORATION
(Name of small business issuer in its charter)
Delaware 59-3290346
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Union Hill Drive, Suite 100
Birmingham, Alabama 35209
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (205) 251-2400
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock
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(Title of class)
Check whether the issuer: (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
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
As of June 20, 1996, the aggregate market value of the voting stock of
the Registrant held by non-affiliates could not be determined.
State issuer's revenues for its most recent fiscal year: $ 1,116,930
As of June 20, 1996, the Registrant had issued 1,009,377 shares of
Common Stock, par value $0.01.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT: HISTORY.
Enviroq Corporation, a Delaware corporation (the "Company"), was
incorporated on February 9, 1995. At the time of its incorporation, the Company
was a wholly-owned subsidiary of a Delaware corporation formerly named Enviroq
Corporation ("Old Enviroq"). Prior to April 18, 1995, the Company was named New
Enviroq Corporation ("New Enviroq"). On April 18, 1995, Old Enviroq distributed
all of the issued and outstanding capital stock of New Enviroq to the holders of
the common stock of Old Enviroq (the "Distribution"). Following the
Distribution, the Company changed its name from New Enviroq Corporation to
Enviroq Corporation. Also following the Distribution, Old Enviroq merged with a
subsidiary of Insituform Mid-America, Inc. ("IMA") and changed its name to
Insituform Southeast, Inc. ("Insituform Southeast").
The Company's principal executive office is located at 100 Union Hill
Drive, Birmingham, Alabama 35202, and its telephone number is (205) 251-2400.
The Company's mailing address is P.O. Box 11169, Birmingham, Alabama 35202.
BUSINESS OF ISSUER.
The Company is principally engaged in the development,
commercialization, formulation and marketing of spray-applied resinous
products, and in the treatment of municipal wastewater biosolids. The Company's
operations are conducted primarily through Sprayroq(R), Inc., a Florida
corporation of which the Company owns 50% of the outstanding capital stock
("Sprayroq"). The Company also owns 100% of the outstanding capital stock of
Synox(R) Corporation, a Delaware corporation ("Synox"). Sprayroq is engaged in
the development, commercialization, manufacture and marketing of spray-applied
resinous materials. Synox has been engaged in the research, development and
marketing of a process for the treatment of municipal wastewater biosolids.
During the fiscal year ended March 30, 1996, management of the Company elected
to minimize the activities of Synox and to write off substantially all of the
assets of Synox. See "Description of Business -- Background on Operations of
Synox Corporation."
During the fiscal year ended March 30, 1996, all of the income and
gross profit of the Company was attributable to the operations of Sprayroq.
BACKGROUND ON OPERATIONS OF SPRAYROQ, INC.
Sprayroq, Inc. was organized as a Florida corporation in January, 1991
to be a member of a joint venture to develop, commercialize, manufacture and
market technology and know-how relating to the spray application of polyurethane
chemicals and additives in the rehabilitation, repair and reconstruction of
certain pipes, pipelines, manholes, wetwells, drains and wastewater treatment
facilities. The other member of this joint venture was Replico Development
Company, Inc., a
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Pennsylvania corporation ("Replico"). The Company and Replico each own fifty
percent of the outstanding capital stock of Sprayroq, and pursuant to the
Stockholder Agreement dated as of March 25, 1992 between the Company (as a
successor to Old Enviroq), Sprayroq and Replico (the "Stockholder Agreement"),
the parties agreed to vote their respective shares to elect three directors
designated by the Company and two directors designated by Replico. In March,
1992, Replico contributed all of its rights and interests in the joint venture
to Sprayroq in exchange for 50% of the outstanding common stock of Sprayroq. At
this same time, Sprayroq assumed all of the obligations of the joint venture,
including the payment obligations of the joint venture pursuant to a promissory
note dated March 25, 1992 from the joint venture to the Company in the principal
amount of $181,143.29. The Stockholder Agreement also provides that the
stockholders of Sprayroq may make loans to Sprayroq for legitimate business
purposes.
Since its organization, Sprayroq has engaged in the development,
commercialization, formation and marketing of spray-applied resinous materials.
At the present time, Sprayroq has developed two products; SprayWall(R) and
SprayShield(R). Sprayroq has entered into licensing agreements with six
installers to provide for the promotion, sale and installation of SprayWall, and
two installers for the promotion, sale and installation of SprayShield. Both
SprayWall and SprayShield have significant corrosion and abrasion resistance.
SprayWall is a spray-applied resinous material that can achieve structural
strength and is relatively rigid. SprayWall was initially developed to be
utilized for the reconstruction of manholes. Other SprayWall applications
include the reconstruction of vaults, underground tanks, as a corrosion
resistant lining for underground pipe, etc. SprayShield is a pliable,
spray-applied elastomeric material for waterproofing use in flumes and tanks,
and has also been installed in truck beds of truck trailers for containment of
potential spillage, during shipment, of hazardous materials. Other uses of
SprayShield include installation inside the bodies of dump trucks to reduce
damage from abrasion.
Sprayroq was organized with minimum capital, and has obtained operating
funds primarily from the Company. To date, the Company has made loans to
Sprayroq to fund the working capital needs of Sprayroq in the aggregate amount
of approximately $750,539. Of this amount, $547,219 was loaned by the Company
pursuant to written promissory notes made by Sprayroq to the Company
(collectively, the "Sprayroq Notes"). The Sprayroq Notes became due on April 1,
1995. At a meeting of the board of directors of Sprayroq held April 16, 1996,
William J. Long, President and Chief Executive Officer of both the Company and
Sprayroq, advised the board of directors of Sprayroq of the determination of the
board of directors of the Company that these advances from the Company to
Sprayroq were mature and must be repaid promptly. On June 14, 1996, the Company
again notified Sprayroq that these outstanding advances were due and payable and
the Company requested payment of these advances, together with accrued interest,
by July 15, 1996. In this notification to Sprayroq, the Company indicated that,
if Sprayroq is unable to repay these outstanding advances by July 15, 1996, it
would allow additional time for Sprayroq to repay such advances. The Company
further indicated, however, that in any event it expected repayment of these
advances, together with accrued interest thereon, not later than 90 days from
June 14, 1996. In his letter dated June 18, 1996, Donald W. Hedges, Chairman of
Sprayroq, questioned the corporate authorization of these advances on the part
of Sprayroq and suggested that Sprayroq may obtain independent legal advice
regarding the obligation of Sprayroq to repay the advances
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made by the Company to Sprayroq. In earlier letters with respect to Mr. Hedges'
suggestion that the Company purchase all of the shares of Sprayroq owned by
Replico, Mr. Hedges also alleged that the Company, by seeking repayment of these
advances, may have caused irreparable harm to Sprayroq and that the Company, and
certain of its officers and directors, may have a conflict of interest with
respect to these matters.
BACKGROUND ON OPERATIONS OF SYNOX CORPORATION.
The focus of the municipal wastewater treatment industry over the past
20 years has been to meet stricter effluent discharge standards by achieving
higher levels of wastewater treatment. One of the primary goals of wastewater
treatment is the removal from the wastewater of suspended solids and nutrients.
Typically, a municipal wastewater treatment plant concentrates the solids
generated by this removal into a slurry or sludge which is still essentially
liquid, but which contains approximately 2%-6% solids by weight (known in the
industry and referred to hereafter as "biosolids").
Synox was organized as a Delaware corporation in May, 1986, and was
acquired by the Company on September 30, 1991. Synox has licensed a process for
the treatment of municipal wastewater biosolids (the "Synox Process(R)"), and
other related processes for producing and managing usable end products from
wastewater biosolids. The intellectual property and know-how underlying the
Synox Process is licensed to Synox by Long Enterprises, Inc., an Alabama
corporation controlled by Charles A. Long, Jr., a Director of the Company and
the father of William J. Long, the President, Chief Executive Officer and a
Director of the Company ("Long Enterprises"). The Synox Process utilizes ozone
along with supplemental physical and chemical treatment steps to disinfect,
deodorize and thicken municipal wastewater biosolids. Dewatering and pelletizing
techniques developed by Synox combine treated biosolids with other recyclable
materials to yield an end-product that has the potential to be used as a soil
amendment or burned as a fuel.
The research and development activities of Synox have included the
creation of a mobile pilot testing unit, as well as efforts to achieve processes
that meet the highest treatment standards of the U.S. Environmental Protection
Agency (the "EPA"). Such processes are known as Processes that Further Reduce
Pathogens ("PFRP"). Synox also invested approximately $995,000 in the design and
construction of a full scale demonstration plant located in Jacksonville,
Florida.
As a result of the lack of activity in the markets addressed by the
Synox Process, the Company elected, during fiscal year 1996, to reduce
substantially the operations at Synox in order to minimize expense. The two
full-time employees of Synox were terminated and the full scale demonstration
plant of Synox and the Synox Process located in Jacksonville, Florida was
closed. Substantially all of the assets of Synox have been written off during
fiscal year 1996. Nevertheless, management of the Company believes that the
Synox Process may become valuable in the future, provided that, among other
factors, a full implementation and vigorous enforcement of the existing EPA
Regulations is realized; funding becomes available to municipalities to enable
municipalities
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to implement processes such as the Synox Process; the Synox Process, at such
time in the future, is competitive and viable; and, at such time in the future,
the beneficial use of Class A biosolids is generally accepted.
The Synox Process.
The Synox Process for treating municipal wastewater biosolids is a four
step process: (1) conditioning, (2) ozonation, (3) thickening, and (4) nitrite
disinfection. Processing begins with raw biosolids pumped into a conditioning
tank. In this tank, sulfuric acid is mixed with the biosolids to lower the Ph of
the biosolids. The conditioning step can also include adjusting the thickness of
the biosolids and heating the biosolids if necessary. The conditioned biosolids
are then pumped into the Synox vessel for ozonation.
The Synox vessel is designed to facilitate mixing the biosolids with an
ozone rich gas. This is achieved by constantly recirculating and dispersing the
biosolids through the vessel while injecting an ozone rich gas into the
biosolids and operating the system under pressure. The ozone rich gas is
produced by passing oxygen through an ozone generator. The ozonation step takes
about 60 minutes and deodorizes and partially disinfects the biosolids.
After ozonation, the biosolids are transferred to a separation tank. In
this tank, the biosolids are thickened by flotation as gas dissolved into the
biosolids under pressure is released from solution at atmospheric pressure.
Additional thickening may be required. In the final processing step, further
disinfection is achieved in about 10 hours by adding sodium nitrite to the
thickened biosolids. The Synox Process yields a deodorized, thickened and
disinfected end-product.
Management believes that the Synox Process has relatively moderate
capital and operating costs; generally higher than alkaline processes and lower
than composing and heat drying processes. The system can be accommodated in a
relatively small space. Proper operation of the Synox Process is relatively easy
to control and document, does not generate odors and yields an end-product free
from putrid odors, which, according to the existing regulations promulgated by
the EPA (the "EPA Regulations"), can be beneficially reused either
agriculturally or as a fuel. The Synox Process does not make biosolids
chemically stable for long-term storage, and the Synox Process must be preceded
or followed by a volatile solids reducing process or followed by a dewatering
process if long-term storage is required.
The Synox Process is relatively fast, achieving Class-A treatment in
less than a day. Other processes may require from several days to several weeks.
Unlike most other processes, Synox treats biosolids in liquid form and does not
require an odor-causing dewatering step prior to treatment. In addition, the
Synox in-vessel process is designed to provide for pathogen kill and to control
objectionable odors.
In March of 1993, the Company received notification from the EPA that a
committee of the EPA has recommended PFRP equivalency for the Synox Process,
which means that the Synox Process achieves the EPA's "Class-A" standard of
treatment of municipal wastewater biosolids
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(sludge). Under the EPA Regulations, the EPA has reserved the "Class-A"
designation for those processes that can achieve the highest standards of
treatment, allowing beneficial re-use of biosolids with minimal regulation. The
Company believes that the patented Synox Process is the only "Class-A"
designated process that treats biosolids in a liquid form, is non-biological and
does not require heat or the addition of alkaline materials for disinfection,
resulting in several important advantages.
EPA REGULATIONS.
The treatment and disposal of municipal biosolids are regulated by the
EPA, under authority of Section 405(d) of the Clean Water Act, as amended (the
"CWA"). On February 19, 1993, the EPA published new regulations relating to the
treatment, disposal and usage of biosolids. These new regulations were, the
Company believes, the result of a major effort by the EPA to develop regulations
containing guidelines for the use and disposal of biosolids, including standards
that are intended to adequately protect public health and the environment from
reasonably anticipated adverse effects from the use and disposal of biosolids.
These regulations contain provisions generally to set standards and/or
guidelines for the disinfection and subsequent use or disposal of municipal
wastewater biosolids, and which regulate the treatment, disposal and utilization
of sewage biosolids. These regulations govern three biosolids use and disposal
practices: land application, surface disposal, and incineration. The regulations
are implemented through permits issued by appropriate state authorities and/or
the EPA to each plant or facility treating or otherwise handling municipal
biosolids.
Current EPA Regulations impose standards for the reduction of pathogens
(disinfection) and attraction of disease vectors (rodents, flies, etc.). These
standards apply to publicly and privately owned treatment works that generate or
treat domestic sewage biosolids, as well as to any person who uses or disposes
of sewage biosolids from such treatment works.
The EPA has also set performance standards for owners and operators of
sewage treatment works. The pathogen reduction standards set forth in the EPA
Regulations classify three levels of sewage treatment. Class A treatment reduces
the level of pathogenic organisms to below detectable limits. Class B and C
treatment levels require restricted access and restricted use of lands upon
which Class B or C sewage biosolids are applied for specific periods.
Under the EPA Regulations, the EPA also requires owners and operators
to reduce vector attraction. These standards require the elimination of odors,
moisture, and other characteristics of sewage biosolids that attract disease
vectors, such as rodents, flies and mosquitoes.
Under existing EPA Regulations, unlike regulations in place prior to
February 19, 1993, a specific level of treatment performance is required.
Specific indicators must be monitored regularly by sewage treatment works and
corresponding reports must be filed, certifying that a particular level of
treatment has been achieved. The Company believes that these performance
standards, combined with restrictive permitting requirements governing the
utilization of Class B or C biosolids in the most populous states, may
eventually encourage owners and operators of
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sewage biosolids treatment works to favor Class A capable processes. Unlike the
regulations in place prior to February 19, 1993, existing EPA Regulations
measure the effectiveness of the treatment method itself, rather than simply
requiring owners and operators to have in place the necessary process equipment
and procedures to provide a desired level of treatment. In addition, owners and
operators are now subject to fines and other sanctions in the event that a
permitted performance standard is not achieved. Further, owners and operators
must still meet other federal, state, and local regulations for the treatment,
disposal, and utilization of sewage biosolids.
Management has observed that, to date, the adoption by the EPA of its
new regulations on February 19, 1993 has not resulted in a meaningful increase
in the sales of biosolids equipment. Management believes that this lack of
market activity is primarily the result of a lack of funding for improvements,
required by the new regulations, to municipal treatment works. Management also
believes that full implementation and vigorous enforcement of the new
regulations must be realized before a potential market for the Synox Process may
be developed. There can be no assurance, however, that vigorous regulatory
enforcement will occur or will lead to a developed market for the Synox Process
or otherwise benefit Synox or the Company. Management of the Company has seen a
trend towards a general reduction in emphasis (primarily politically) in these
regulations which could adversely impact any future value of the Synox Process.
SALES AND MARKETING.
The Company's organization includes operations for sales and marketing.
At the present time, Synox Corporation relies on the senior officers of the
Company to coordinate sales activities with independent sales representatives
throughout the United States. Sprayroq Corporation employs one salesperson to
coordinate activities among Sprayroq's licensees and to secure new licensees.
From time to time, the Company's senior officers and directors also participate
in sales and marketing of the Company's products and services.
Both Synox and Sprayroq conduct marketing activities, including: (i)
identifying new markets and market strategies, trade shows, advertising, direct
mail, news releases, and other promotional activities; (ii) brochures, video,
and slide presentations; and (iii) other sales aids and investor relations.
Sales and marketing activities are directed to potential licensees, engineers
(both in the municipal and industrial sectors), public works officials,
consulting engineers, mayors, and other public officials to introduce them to,
and educate them about, the products and services offered by the Company.
CUSTOMERS.
Sprayroq's sales are almost exclusively to its six licensees. The
majority of Sprayroq's revenues are derived from the sale of resinous materials,
principally SprayWall and SprayShield. Additional revenues are derived from fees
arising out of license agreements, along with related sales of equipment. These
licensees market, sell and install Sprayroq products primarily to
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municipal and industrial customers. Synox Corporation currently has no
customers.
MARKETS.
Sprayroq.
Sprayroq currently intends to continue to market its products though
its licensed installers and to continue to attempt to obtain additional
licensees for the current Sprayroq products. If additional products are
developed by Sprayroq, such products may be marketed through existing or new
licensed installers. Since Sprayroq products may be utilized in various ways by
various industries, existing licensed installers may or may not be appropriate
to market certain new Sprayroq products. Depending upon the background and
expertise of any particular licensed installer, Sprayroq may elect to allow that
licensee to market new products, elect to find another organization which is
more suitable, or pursue the marketing of the product directly.
The Company believes that the market for spray-applied resinous
materials is large. Any municipality and any larger industrial plant are among
potential customers for Sprayroq products. In addition, the Company has
identified significant potential markets in the lining of truck beds,
containment vessels and/or structures and subterraneous vaults.
Synox.
Management believes that there are over 16,000 publicly owned treatment
works ("POTW") in the United States. Over 90% of these plants treat less than 1
million gallons of wastewater per day ("MGD") and are likely to be too small to
require a biosolids treatment alternative like the Synox Process. Synox believes
its market is primarily the municipalities which operate approximately 1,000
POTW treating more than 5 MGD. These 1,000 POTW process about 70% of the 30,000
MGD of wastewater treated each day in the United States and generate about 70%
of the biosolids.
With these 1,000 POTW, the same distribution pattern in relation to
plant size holds true; that is, there are relatively few very large plants (less
than 100 POTW process more than 50 MGD) and many small and medium-sized plants.
The average size of these 1,000 POTW is about 20 MGD, and the median size is
approximately 10 MGD.
The Company believes that, over the next few years, if existing
regulations governing the treatment and disposal of biosolids are vigorously
enforced and if the required capital is located to fund necessary improvements,
increased wastewater flow and more efficient wastewater treatment (which
generates more biosolids) may encourage require many of these plants to change
or upgrade their biosolids treatment processes. At the present time, however,
such regulations are not being vigorously enforced and, therefore, are having
little impact on the market. Consequently, no assurance can be given that
vigorous regulatory enforcement will occur or that
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it will positively effect Synox or the Company. See "Description of Business --
Background on Operations of Synox Corporation."
COMPETITION.
Sprayroq.
Competition for Sprayroq is either direct, from companies marketing
similar resin products, or more indirect, from other techniques and technologies
which accomplish similar results in a different manner. Other companies provide
resin materials which may be spray-applied, or are similar but which are applied
in a different manner, or are not similar but which provide similar results.
The SprayWall product was developed specifically for use in the
reconstruction of manholes and related structures. Management is unaware of any
product that offers a similar combination of spray application of polyurethanes,
long-term structural performance, and high resistance to corrosion. There are,
however, a number of products which are utilized in the refurbishment or
reconstruction of manholes. Many of these products are less expensive and offer
viable competition.
The Company is also aware of other products which exhibit certain of
the qualities of SprayShield. The Company believes that SprayShield has
significant adhesive qualities combined with corrosion and abrasion resistance.
Various paints and thin coatings are available that are easily spray-applied and
offer corrosion protection. The Company is aware of other products which offer
similar abrasion resistance, but is unaware, however, of any product which
offers all of the qualities of SprayShield.
The development of products utilizing urethane, polyesters, and epoxies
is growing rapidly, with the announcement of new products occurring frequently.
Sprayroq's products are not patented and are protected only to the extent
offered as know-how and trade secrets. There can be no assurance that other
competitors will not develop products similar or superior to those of Sprayroq.
Management is aware of other processes which may become significant
future competitors of the Company's products. Among such processes are those
that involve techniques based on in-pipe curing or spray-applied lining. In
addition, there are other types and methods of applied linings and coatings
which are competitive to the Company's products, particularly in the lining of
manholes.
Synox.
Synox faces competition from a number of suppliers employing more
traditional and well-known and accepted methods of wastewater biosolids
treatment. All biosolids treatment processes,
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including the Synox Process, have strengths and weaknesses and no one process is
the best choice in all situations. Competing biosolids treatment processes
include alkaline stabilization/fixation, heat drying/pelletizing, and
composting. For some potential customers, more conventional treatment methods
will be adequate. There are a number of companies marketing specific
technologies that offer many of the same advantages as the Synox Process over
conventional wastewater biosolids treatment techniques. Many of these companies
employ techniques that may produce soil amendment products or fuel from the
treated biosolids. These companies, which are well established and better
financed than Synox, constitute substantial, direct competition for Synox. See
"Description of Business -- Background on Operations of Synox Corporation."
PATENTS AND LICENSES.
Sprayroq.
Sprayroq currently has not pursued patents for its products. Management
believes that the formulations of the SprayWall and SprayShield products are
proprietary to Sprayroq and are protected as know-how and trade secrets.
Sprayroq has licensed the formulation of the SprayWall product to Mitsui
Chemical and Toa Grout, Inc. of Japan.
Synox.
Synox is the exclusive licensee under a license agreement dated May 27,
1986, as amended on May 16, 1991 and October 5, 1994, between Synox and Long
Enterprises (the "License Agreement"), pursuant to which Synox has obtained
rights to six U.S. patents relating to the Synox Process.
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The patents and patent applications covered by the License Agreement,
and their expiration dates are listed below:
<TABLE>
<CAPTION>
Number Name Description Expiration
- - ------------------------------------------------------------------------------------
<S> <C> <C> <C>
4,487,699 Long Sewage Biosolids Treatment Dec. 11, 2001
Apparatus and Process
4,582,612 Long Improved Sewage Biosolids Apr. 15, 2003
Treatment Apparatus
4,659,464 Long Apparatus for Dispersing Apr. 21, 2004
Biosolids With Gas Impingement
4,695,388 Long Apparatus and Process for Sept. 22, 2004
Rapid Sewage Biosolids Separation
4,936,983 Long Sewage Biosolids Treatment June 26, 2007
with Gas Injection
5,147,563 Long Improved Sewage Sludge Treatment Sept. 29, 2009
With Gas Injection
</TABLE>
The License Agreement extends to the states of Maryland, Delaware,
Virginia, West Virginia, North Carolina, South Carolina, Florida, Georgia,
Alabama, Kentucky, Tennessee, California, Texas, Arizona, New Mexico and the
District of Columbia. Long Enterprises has also granted Synox an option to
extend the territory under the License Agreement to include the entire United
States, its possessions and Puerto Rico. This option may be exercised in its
entirety by payment by the Company to Long Enterprises of an exercise fee of
$500,000. Alternatively, Synox may exercise the option only with respect to the
Northeast Territory (consisting of New Jersey, New York, Massachusetts,
Connecticut, Rhode Island, Vermont, New Hampshire and Maine) for an exercise
payment of $137,522.72; or with respect to the West Central Territory
(consisting of Washington, Oregon, Nevada, Idaho, Utah, Montana, Wyoming,
Colorado, North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, Minnesota,
Iowa, Missouri, Arkansas, Louisiana, Mississippi, Wisconsin, Illinois, Michigan,
Indiana, Ohio, Pennsylvania, Hawaii, Alaska and the possessions of the United
States) for an exercise payment of $362,477.28.
This option will expire on December 31, 1997. Long Enterprises has
agreed to allow Synox to market the Synox Process in the extended territory
without exercising its option with the understanding that, upon any sale
pursuant to the License Agreement, Synox would exercise its option on the
extended territory. The License Agreement expires on June 26, 2007, or the later
date of termination of the last to expire of any patent issued pursuant to the
patent applications
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and continuations in part relating to the subject matter of the License
Agreement in existence on May 16, 1991, and thereafter prosecuted by the
licensor or its assignor, Charles A. Long, Jr. (the "Long License Expiration").
Royalties under the License Agreement are 4% of the total contract
value of the Synox Process installation (which begins with a storage unit for
thickened biosolids and ends with biosolids thickening and chemical contact),
less allowable deductions, such as the building, site preparation, paving, land
and landscape.
Minimum annual royalties (based on retaining the previously listed 15
states) are due each January 1, beginning January 1, 1995, for the ensuing
calendar year through the Long License Expiration, according to the following
schedule:
<TABLE>
<CAPTION>
Date Due Amount
---------------------------------------------------------------
<S> <C>
January 1, 1995 $ 45,167.76
January 1, 1996 $ 0.00
January 1, 1997 $ 90,335.51
January 1, 1998 $180,671.02
January 2, 1999 $180,671.02
January 1, 2000, and on each January 1
through Long License Expiration $225,838.77
</TABLE>
Minimum annual royalties will be increased if Synox exercises the
option to extend its territory, based on a formula which takes into account the
population (based on a 1980 Census) of the additional territory. The minimum
annual royalty payment due on January 1, 1995 was paid.
SUPPLIERS.
The Company purchases raw materials and other supplies from a variety
of sources and is not dependent upon any one source. While Sprayroq does utilize
a third party to blend its products, other companies provide similar blending
services. In addition, Sprayroq has performed such blending in the past and
would be able to resume blending quickly, if required.
OPERATIONAL RISKS AND INSURANCE.
To cover various insurable risks, the Company has in force $2,000,000
in general liability insurance ($1,000,000 per occurrence), $1,000,000 in
automobile liability insurance, and $1,000,000 in "umbrella" coverage. In
addition, the Company carries various property coverages and worker's
compensation policies as required by each jurisdiction in which it does
business.
At the present time, Sprayroq's products are characterized as
polyurethanes and utilize
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several chemicals, including diisocyanates. Diisocyanates have been in general
use for many years, in many applications including automobile parts, insulation,
floor coverings, and roofing. Guidelines regarding the use diisocyanages were
published by the U.S. Department of Health, Education and Welfare, Public Health
Service, Center for Disease Control, and National Institute for Occupational
Safety and Health (NIOSH) in September, 1978. Additional documentation regarding
recommended precautions and procedures to be used with such chemicals has been
provided by the supplier of the chemicals, and Sprayroq instructs all licensees
to follow the procedures set forth in this documentation. Sprayroq's supplier
reports that diisocyanates and other such chemicals have been in general use for
more than fifty years, and that the issues relating to their safe use are well
known. There can be no assurance, however, that NIOSH or other regulatory
organizations, governmental agencies, etc. might, in the future, determine that
such chemicals are hazardous or otherwise harmful, or might otherwise regulate
or prevent their use.
Sprayroq's licensee in Denmark has reported that the spraying of
diisocyanates in a confined space is not allowed according to a regulatory
agency of the Danish government. The management of Sprayroq is not aware of any
other similar prohibition of the use of diisocyanates in other countries. While
the management of Sprayroq believes that the objections of the Danish regulatory
agency will eventually be overcome, there can be no assurance that such
objection will not persist, nor can assurance be given that similar objections
will not in the future in other countries, geographical and/or political
divisions.
EQUIPMENT.
The Company owns or leases a number of trailers, vans, and other
equipment which are necessary to the operations of the Company.
RESEARCH AND DEVELOPMENT.
The Company engages in research and development ("R&D") efforts to
develop new products, improve existing products, reduce its costs and expand
potential applications. The Company incurred R&D expenses with respect to Synox
and Sprayroq of approximately $28,000 in the year ended March 30, 1996, $264,000
in the year ended March 25, 1995, and $389,000 in the year ended March 26, 1994.
EMPLOYEES.
As of June 20, 1996, the Company had five full-time employees and two
part-time employees.
ITEM 2. PROPERTIES
(a) The Company owns approximately 10.6 acres of real estate
adjacent to Old
13
<PAGE> 14
Enviroq's facilities at 11511 Phillips Highway South in Jacksonville, Florida.
At the present time, this acreage is undeveloped and is zoned industrial light
and light industrial. The Company currently has no plans to improve or develop
the property and has advertised the property for sale.
The Company leases, on a month-to-month basis, approximately 400 square
feet of office space located at 100 Union Hill Drive, Birmingham, Alabama 35202.
This leased space serves as the principal executive offices of the Company. The
Company believes that these executive offices are marginally adequate for the
conduct of the business of the Company and expects to relocate to a location
offering additional space during the early part of fiscal year 1997. The Company
also leases, on a month-to-month basis, approximately 200 square feet of office
space and three mobile trailers which serve as production facilities for
Sprayroq located at Old Enviroq's facilities at 11511 Phillips Highway South,
Jacksonville, Florida. The Company's Birmingham offices are leased from Market
Potential, Inc. for a monthly rental of approximately $250, and the Jacksonville
facilities are leased by the Company from Insituform Southeast for an aggregate
monthly rental of $600. Due to the month-to-month nature of these leases, no
assurance can be given that the Company will be able to continue to occupy these
offices and facilities or that, if such leases are terminated, the Company could
lease similar office space and production facilities without significantly
increasing the Company's monthly lease payments.
The Company also owns certain equipment, fixtures and other personal
property located on real property owned by the city of Jacksonville, Florida.
This personal property was used in connection with a full-scale demonstration
plant for the Synox Process. The Company anticipates removing this facility
during the fiscal year ending March, 1997.
(b) The Company does not typically invest in real estate, real
estate mortgages or related securities. There is no policy of the Company which
places restrictions or limitations on the percentage of assets which may be
invested or the type of investment, and this policy may be changed without the
vote of the Company's shareholders. It is not the policy of the Company to
acquire assets primarily for possible capital gain or primarily for income.
The Company believes that the foregoing properties are adequately
insured.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved, from time to time, in various legal
proceedings incidental to the conduct of its business. The Company is not
currently engaged in any legal proceedings that are presently expected to have a
material adverse effect on the Company.
The Company filed suit (the "Lawsuit") against Insituform Mid-America,
Inc. on August 1, 1995 in the Circuit Court of Jefferson County, Alabama (the
"Court") to enforce the Company's rights under the Subordinated Promissory Note
issued by IMA to the Company on April 12, 1995 (the "Note"). In the Lawsuit, the
Company alleged that the entire principal balance of the Note was accelerated
and due and payable immediately as a result of the failure of IMA to make the
14
<PAGE> 15
first interest payment due under the Note to the Company on a timely basis.
Also, in the Lawsuit, IMA asserted that it may be entitled to set-off certain
amounts against the Note and a related consulting agreement between the parties
dated April 18, 1995 (the "Consulting Agreement"). On November 16, 1995, a
non-final summary judgment order was entered by the Court in favor of the
Company against IMA in the amount of $3,101,109.45. In this order, the Court
directed IMA to assert any claims of set-off which IMA might have against the
Company. As directed by the Court, IMA filed an Answer and Counterclaim on
December 18, 1995 which, among other things, asserted set-off claims, on its on
behalf and on behalf of its subsidiary, for certain expenses allegedly owed to
its subsidiary (alleged by IMA to total approximately $913,000). IMA also
asserted that the Company had breached the Note by enforcing the Note at the
time that the Company did, and, therefore, that the Company was required to
indemnify IMA pursuant to the Merger Agreement dated April 18, 1995, between the
Company, IMA and certain other parties (the "Merger Agreement") for any damages
which might have resulted from the alleged breach. On March 12, 1996, the
Company and IMA executed an agreement (the "Settlement Agreement") to settle all
claims and counterclaims made, or that could have been made, by the parties in
the Lawsuit. The Company received $3,335,000 as payment in full under the
Settlement Agreement, which includes the Note and the Consulting Agreement. In
the Settlement Agreement, the Company released IMA and Insituform Technologies,
Inc. ("ITI"), subject to limited exceptions, from all claims that the Company
had or may have had or may have against IMA or ITI arising out of the Note or
the Merger Agreement, and claims that were or could have been asserted by the
Company in the Lawsuit. In the Settlement Agreement, IMA and ITI released the
Company, subject to limited exceptions, from all claims that they had or may
have had or may have against the Company arising out of the Note or the Merger
Agreement, including any claim with respect to the Expense Deficit (as defined
in the Merger Agreement) and claims that were or could have been asserted by IMA
or ITI in the Lawsuit. The Settlement Agreement also provided for the dismissal,
with prejudice, of the Lawsuit and the associated non-final order of summary
judgment entered by the Court on November 16, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's shareholders during
the period covered by this Item 4.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company does not currently trade on any
established exchange or trading market. Consequently, there are no trading
prices per share of common stock. Management is pursuing the possibility that
the common stock of the Company might be traded the NASDAQ Small Cap market, or
on the "Bulletin Board" and in the "Pink Sheets."
15
<PAGE> 16
There were 373 shareholders of record as of June 20, 1996, which number
does not include shareholders whose shares were held of record by brokers, but
does include each brokerage firm holding stock as a nominee.
The Company has not paid any cash dividends on its common stock since
its organization, and currently intends to retain any earnings of the Company
for the Company's operations and the expansion of its business. Other than state
corporate law limitations, there are no restrictions on the Company's ability to
pay dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere herein.
RESULTS OF OPERATIONS.
Revenue.
Revenues for the fiscal year ended March 30, 1996 were approximately
$1,116,000 as compared to approximately $216,000 for fiscal year 1995, an
increase of 417%. The increase in revenue for fiscal year 1996 was primarily
attributable to increased sales of resin equal to approximately $819,000 by
Sprayroq, fees relating to two licenses by Sprayroq equal to $140,000, and
additional revenue arising from the sale of equipment, spare parts, training,
etc. by Sprayroq equal to approximately $157,000 during fiscal 1996.
Gross Profit.
For fiscal year 1996, the Company's gross profit margin was 37%, as
compared to 3% for fiscal year 1995. The increased gross profit margin over
fiscal year 1995 is due primarily to the increase in resin sales by Sprayroq and
fees relating of two licenses by Sprayroq during fiscal 1996.
Selling, General and Administrative Expenses.
Selling, General and Administrative expenses ("S,G&A") for fiscal year
1996 were approximately $931,000 as compared to approximately $1,035,000 for
fiscal year 1995, a decrease of 10%. The decrease in S,G&A for fiscal year 1996
as compared to fiscal year 1995 is primarily attributable to reductions in
expenses related to Synox.
Net Income/(Loss).
16
<PAGE> 17
For the fiscal year ended March 30, 1996, the Company had net income of
approximately $1,068,000, as compared to a net loss of approximately $762,000
for the fiscal year ended March 25, 1995. The increase in net income is
primarily attributable to the settlement of a lawsuit with IMA, the significant
improvement in the revenues and income at Sprayroq, and the reduction in S, G&
A. Net income was significantly reduced as a result of the writedown of
substantially all of the assets of Synox. The total amount of these writedowns
was approximately $1,331,000.
Financial Condition.
Total assets, stockholders' equity, and working capital increased
during fiscal year 1996, as compared to a decrease during fiscal year 1995. The
increase during fiscal year 1996 was primarily the result of the settlement of
the Company's lawsuit with IMA, as well as the increase in net income, while the
decrease during fiscal year 1995 was primarily the result of the net losses
sustained by Synox and Sprayroq.
At March 30, 1996, the Company had approximately $2,705,000 in working
capital and a current ratio of 3.22-to-1 as compared to working capital of
approximately $631,000 in working capital and a current ratio of 14.8-to-1 at
March 25, 1995.
The Company's cash and cash equivalents totaled approximately
$3,629,000 at March 30, 1996. The Company provided approximately $3,098,000 in
cash in operating activities in fiscal year 1996 as compared to cash used in
operating activities of approximately $516,000 in fiscal year 1995, a increase
of approximately $3,614,000. Cash in the amount of approximately $26,000 was
provided by investing activities in fiscal year 1996 as compared to cash
provided by investing activities of $500,000 in fiscal year 1995.
In fiscal years 1996 and 1995, approximately $44,000 and $1,000,
respectively, was expended for capital assets.
Depreciation and amortization expense was approximately $179,000 in
fiscal year 1996 and approximately $177,000 in fiscal year 1995. During fiscal
year 1996, the Company elected to write off certain assets of Synox, resulting
in an impairment of long-term assets of approximately $1,331,000. Net fixed
assets were approximately $334,000 at the end of fiscal year 1996, as compared
to approximately $1,153,000 at the end of fiscal year 1995, a decrease of 71%.
This decrease is primarily attributable the substantial writedown of assets at
Synox, along with the accumulated depreciation offsetting the purchase of
equipment.
The Company does not believe that there is any appreciable seasonal
impact on the business of the Company, although extreme cold weather may impair
installation of spray-applied materials, which may result in decreased resin
sales by Sprayroq.
The Company's undeveloped property in Jacksonville, Florida
(approximately 10.6 acres) is currently being offered for sale, which may result
in an increase in the Company's cash.
17
<PAGE> 18
The Company accrued $517,000 for organizational costs relating to
expenses which were incurred in connection with the Merger Agreement dated April
18, 1995, between the Company, IMA and certain other parties. This liability was
eliminated pursuant to the terms of the Settlement Agreement.
Other than normal trade accounts payable, taxes and normal accrued
expenses incurred in the ordinary course of business, the Company is not
currently aware of other material commitments.
Operating cash flow combined with available cash are currently expected
to provide resources for the Company's working capital needs for the foreseeable
future. To the extent that the Company is not able to meet its financial goals,
however, the Company's revenues may not be sufficient to satisfy the Company's
working capital needs. Consequently, no assurance can be given that the
Company's revenues will be sufficient to adequately fund the Company's future
working capital requirements.
The operating results and financial statements of the Company include
all of the operating results of Sprayroq, without discount or reduction based
upon the fact that the Company owns 50% of the outstanding capital stock of
Sprayroq.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and other
information required by Item 310(a) of Regulation S-B are set forth on pages F-1
through F-12 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 19
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF
THE COMPANY; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Executive officers and directors of the Company as of the date hereof
are as follows:
<TABLE>
<CAPTION>
DIRECTOR POSITIONS WITH
NAME AGE SINCE THE COMPANY
---- --- ----- -----------
<S> <C> <C> <C>
Antonio M. Marinelli 76 1995 Chairman of the Board
and Director
William J. Long 44 1995 President, Chief Executive
Officer and Director
Orlando M. Marinelli 71 1995 Vice President, Secretary-
Treasurer and Director
Charles A. Long, Jr. 68 1995 Director
Michael X. Marinelli 37 1995 Director
W. T. Goodloe Rutland 69 1995 Director
Alexander P. Zechella 75 1995 Director
</TABLE>
Antonio M. Marinelli has been Chairman of the Board and a Director of
the Company since April 1995. Prior to April 1995, Mr. Marinelli had been
Chairman of the Board of Old Enviroq since 1981. Mr. Marinelli is, and has been
for over five years, Vice Chairman of the Board and a Director of Intercounty
Construction Company of Florida, Inc. ("Intercounty"), a heavy construction
contractor and a wholly-owned subsidiary of Micam Industries, Inc. ("Micam").
William J. Long has been President, Chief Executive Officer and a
Director of the Company since April 1995. Prior to April 1995, Mr. Long had been
Vice President-Marketing and a Director of Old Enviroq since October 1984. Since
May 25, 1995, Mr. Long has been Chairman of the Board and a Director of
Sullivan, Long & Hagerty, an Alabama corporation ("SLH"), a heavy construction
contractor, which is the parent of SCE, Incorporated, an Alabama corporation
("SCE"), a heavy construction contractor. Prior to October, 1995, Mr. Long had
been Chief Executive Office of SCE and SLH. Prior to May 25, 1995, Mr. Long had
been a Director and Senior Vice President of SCE, and a Director and Senior Vice
President of SLH, for over five years.
19
<PAGE> 20
Orlando M. Marinelli has been Secretary-Treasure of the Company since
April, 1996, and has been Vice President and a Director of the Company since
April 1995. Prior to April 1995, Mr. Marinelli had served as Vice President and
a Director of Old Enviroq since October 1981. He has served as Chairman of the
Board of Intercounty for more than the last five years.
Charles A. Long, Jr., has been a Director of the Company since April
1995. Prior to April, 1996, Mr. Long had served as Secretary-Treasurer of the
Company. Prior to April 1995, Mr. Long had served as Secretary-Treasurer and a
Director of Old Enviroq since October 1981. Prior to May 25, 1995, Mr. Long also
served since 1970 as the Chairman of the Board and Chief Executive Officer of
SCE and SLH and is currently a director of both SCE and SLH.
Michael X. Marinelli is an associate with the Washington, D.C. law firm
of Baker & Botts. He graduated from Catholic University Law School in 1989. Mr.
Marinelli served as Assistant Secretary of the Company from January 1987 to July
1987. He served as Special Assistant to the General Manager of Insituform East,
Inc., from February 1986 to August 1986. From October 1985 to February 1986, Mr.
Marinelli served as assistant to the President of the Company, and from October
1984 to October 1985, he was a sales representative for the Company. He has
served as a Director of the Company since April 1995. Prior to April 1995, he
had served as a Director of Old Enviroq since October 1984.
W. T. Goodloe Rutland served as Chairman of the Board of Directors,
President, Treasurer, and Chief Executive Officer of SouthTrust Mortgage
Corporation, a mortgage banking firm, from May 1975 until his retirement in June
1982. Since June 1982, Mr. Rutland has been engaged in the management of
personal investments and real estate development. He has served as a Director of
the Company since April 1995. Prior to April 1995, he served as a Director of
Old Enviroq since April 1987.
Alexander P. Zechella served from September 1983 to April 1984, as
Chairman of Charter Oil Company and Executive Vice President of The Charter
Company ("Charter"). From April 1984 until his retirement in December, 1985 Mr.
Zechella served as President, Chief Executive Officer, and Chief Operating
Officer of Charter. In April 1984, Charter and certain of its subsidiaries,
including Charter Oil, filed for protection under Chapter 11 of the United
States Bankruptcy Code. In December 1986, a plan of reorganization was confirmed
by the bankruptcy court for Charter and certain of its subsidiaries, including
Charter Oil. In March 1987, the plans of reorganization for Charter and certain
of its subsidiaries, including Charter Oil, were implemented and such entities
were discharged from bankruptcy. Mr. Zechella has served as a Director of the
Company since April 1995. Prior to April 1995, he had served as a Director of
Old Enviroq since April 1987.
SCE is the record owner of 294,900 shares, SLH is the record owner of
9,318 shares, and Marinelli Securities Associates, a Florida general partnership
("MSA"), is the record owner of 294,900 shares.
Based solely on its review of the copies of such forms received by it,
or written
20
<PAGE> 21
representations from certain reporting persons that no Forms 5 were required by
those persons, the Company believes that, during the 1996 fiscal year ended
March 30, 1996, all filing requirements applicable to its officers, directors,
and greater-than-10% beneficial owners were complied with.
William J. Long, a Director and Executive Officer of the Company, is
the son of Charles A. Long, Jr., also a Director of the Company. Antonio M.
Marinelli, a Director of the Company, is the brother of Orlando M. Marinelli, a
Director and Executive Officer of the Company. Michael X. Marinelli, a Director
of the Company, is the son of Antonio M. Marinelli.
21
<PAGE> 22
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain information respecting the
compensation paid to the Chief Executive Officer of the Company during the
fiscal year ended March 30, 1996 and relevant preceding fiscal years:
SUMMARY COMPENSATION TABLE
Annual Compensation Awards
-----------------------------------------------
<TABLE>
<CAPTION>
Name and All Other
Principal Salary Compensation
Position Year ($) ($)
-------- ---- ------ ------------
<S> <C> <C> <C>
William J. Long 1996 $58,333 -------
President and 1995 $50,000 $757.20(1)
Chief Executive
Officer
</TABLE>
(1) Amount shown for 1995 consists of $102 for group term life
insurance and $655.20 for contributions by the Company to Mr. Long's 401(k).
Directors' Compensation. Non-employee directors of the Company are paid
$1,000 per quarter for a maximum of six meetings of the Board of Directors and
Committees of the Board. In the event that additional meetings of the Board of
Directors are required, the non-employee Directors are compensated at a rate of
$1,000 per meeting. All Directors and Officers are reimbursed for travel
expenses incurred in connection with their attendance at meetings of the Board
of Directors.
In addition, non-employee directors are entitled to receive options to
purchase shares of the Company's common stock pursuant to a Non-Employee
Directors Stock Option Plan (the "Directors' Plan"). Options for up to 100,000
shares of common stock are authorized to be issued under the Directors' Plan.
The Directors' Plan allows the Company's Stock Option Committee to grant options
to non-employee directors for a price of not less than eighty-five percent (85%)
of the fair market value of the Company's common stock on the dates that the
options are granted. Options are exercisable in whole or in part, from time to
time, until five (5) years from the date of grant, except that, absent a change
in control of the Company, each option terminates upon the discontinuance of the
option holder's service as a Director of the Company for any reason except death
or disability. Sale of common stock purchased upon exercise of an option is
prohibited for two (2) years from the date of exercise or three (3) years from
the date of grant, whichever is later, unless there is a change in control of
the Company or in the event of the Director's death. Each option agreement under
the Directors' Plan provides, among other things,
22
<PAGE> 23
that shares of Common Stock will be issued and delivered to the Director upon
payment to the Company of the exercise price of such shares and that the option
price and number of shares subject to option will be adjusted for stock splits,
stock dividends or other similar changes in the Company's capital structure. No
options were issued during fiscal 1996 under the Directors' Plan.
Incentive Stock Option Plan. Options may be granted under the Company's
Incentive Stock Option Plan (the "ISO Plan"), which provides for the issuance to
key employees of incentive stock options ("ISOs") within the meaning of Section
422A of the Internal Revenue Code of 1986, as amended. The ISO Plan is
administered by the Stock Option Committee of the Board of Directors (the
"Committee"). As of June 20, 1996, the Committee was authorized to issue up to
100,000 shares of common stock pursuant to the exercise of the ISOs. The option
price of each ISO granted is 100% of the fair market value of the common stock
on the date of grant. If an ISO is granted to an optionee who holds more than
10% of the combined voting power of all classes of the Company's stock at the
date of the grant, the option price is 110% of fair market value of the common
stock on the date of grant. The ISO Plan provides for the exercise of ISOs at
the maximum rate of 25% in the first 12 months after grant and 25% in each
12-month period thereafter. To the extent not exercised, an optionee may
accumulate his or her ISOs and exercise them, in whole or in part, in any
subsequent period but not later than 10 years from the date on which the option
was granted. No options were issued during fiscal 1996 to executive officers of
the Company under the ISO Plan.
Compensation Committee Interlocks and Insider Participation. W.T.
Goodloe Rutland, Antonio M. Marinelli and Alexander P. Zechella serve on the
Compensation Committee of the Board of Directors.
23
<PAGE> 24
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table set forth below presents certain information regarding the
beneficial ownership as of June 20, 1996 by (i) each shareholder known to the
Company to own more than five percent of any class of the Company's outstanding
securities entitled to vote; (ii) directors of the Company; and (iii) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND CLASS PERRCENT OF CLASS
NAME AND ADDRESS OF OF SECURITIES EXCLUDING
BENEFICIAL OWNER BENEFICIALLY OWNED(1) TREASURY SHARES)(2)
------------------- --------------------- -------------------
<S> <C> <C>
Insituform Technologies, Inc. 73,800 shares 7.3%
3315 Democrat Road of common stock
Memphis, Tennessee 38118
Marinelli Securities Associates (3) 294,900 shares 29.2%
2100 North Dixie Highway of common stock
Fort Lauderdale, Florida 33305
SCE, Incorporated (4) 294,900 shares 29.2%
801 Fifth Avenue North of common stock
Birmingham, Alabama 35203
Charles A. Long, Jr. (4)(5) 309,904 shares 30.7%
of common stock
William J. Long (4)(6) 309,874 shares 30.7%
of common stock
Antonio M. Marinelli (3)(7) 299,559 shares 29.7%
of common stock
Michael X. Marinelli (3)(8) 295,420 shares 29.3%
of common stock
Orlando M. Marinelli (3) 294,900 shares 29.2%
of common stock
W.T. Goodloe Rutland 14,061 shares 1.4%
of common stock
Alexander P. Zechella 4,221 shares 0.4%
of common stock
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C> <C>
All officers and directors 641,059 shares 63.5%
as a group (13 persons) of common stock
</TABLE>
- - ------------------------------
(1) Included in such beneficial ownership are shares of common stock
issuable upon the exercise of certain options exercisable immediately or within
60 days of June 20, 1996, as follows: None.
(2) The percentages represent the total of the shares listed in the
adjacent column divided by the issued and outstanding shares of common stock as
of June 20, 1996, plus any options exercisable immediately or within 60 days.
(3) Marinelli Securities Associates is the record holder of 294,900
shares. The partners of MSA are Micam Industries, Inc. (41.16%), Orlando M.
Marinelli (7.65%), Marion Marinelli (7.65%), Antonio M. Marinelli (7.65%),
Phyllis Marinelli (7.65%), Michelle Marinelli (7.06%), Kim Vreeland (7.06%),
Michael X. Marinelli (7.06%), and Michael J. Marinelli (7.06%). Both Antonio M.
Marinelli and Orlando M. Marinelli are directors and officers of the Company,
are partners in Micam, and are directors and executive officers of Micam.
Michael X. Marinelli, a director of the Company, is a partner in MSA.
Accordingly, the shares owned by MSA may be deemed to be beneficially owned by
each of them. The address of each of the above-named partners is the same as the
address of MSA.
(4) SCE, Incorporated is the record owner of 294,900 shares. Charles A.
Long, Jr., and William J. Long (the "SCE Group"), are directors of SCE.
Sullivan, Long & Hagerty is the record owner of 9,318 shares. Both Charles A.
Long, Jr. and William J. Long own stock of SLH, the sole stockholder of SCE.
Accordingly, the shares owned of record by SCE may be deemed to be beneficially
owned by each member of the SCE Group. Also includes 2,347 shares owned of
record by Long Enterprises, Inc. Both Charles A. Long, Jr., and William J. Long
are directors, executive officers, and controlling shareholders of SLH and Long
Enterprises. On March 12, 1996, SCE, SLH, Charles A. Long, Jr. and William J.
Long filed Amendment No. 1 to the Schedule 13D of such corporations and persons
(the "Amended 13D"). The Amended 13D indicates that, pursuant to a Financial
Assistance Agreement dated December 22, 1995 between Fidelity and Deposit
Company of Maryland ("Fidelity"), SCE and SLH (the "Assistance Agreement"), each
of SLH and SCE granted a security interest in all of the shares of the common
stock of the Company owned by them to secure the obligations of SLH and SCE to
Fidelity. The Assistance Agreement provided that "absent disposition, sale or
liquidation of assets by prior means acceptable to Fidelity, any and all assets
of [SCE] and [SLH] shall be sold and liquidated as soon as possible following
achievement of the completion goals established [and set forth in the Assistance
Agreement.]" The common stock of the Company owned by SCE and SLH was not listed
as an exempt asset in the Assistance Agreement. The Assistance Agreement was
filed as an exhibit to the Amended 13D.
(5) Charles A. Long, Jr. is the record owner of 3,312 shares.
(6) William J. Long is the record owner of 269 shares. Also, includes
an aggregate of 3,040 shares owned of record by William J. Long's wife and
children.
(7) Antonio M. Marinelli is the record owner of 4,659 shares.
(8) Michael X. Marinelli is the record owner of 120 shares. Also,
includes 400 shares owned of record by Michael X. Marinelli's sons.
25
<PAGE> 26
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors Charles A. Long, Jr., and William J. Long, and other members
of the Long family may be deemed to be in control of Sullivan, Long & Hagerty,
Inc. and, therefore, its wholly-owned subsidiary SCE, Incorporated (a principal
shareholder of the Company), Assurance Agency, Inc., an Alabama corporation, an
insurance broker ("Assurance"), Long Technologies, Inc., a research and
development company, and Long Enterprises, Inc.
The Company has had a number of transactions, which are described
below, with the businesses named above. The Company believes that the
transactions were or are on terms that are no less favorable to the Company than
those which could reasonably have been obtained from an unaffiliated party.
All of the Company's insurance (other than its employee insurance) is
provided through Assurance. For fiscal year 1996, the Company paid Assurance
approximately $58,000 for certain insurance needs. For fiscal years 1994 and
1995, Old Enviroq paid Assurance approximately $860,000 and $1,027,000,
respectively. These payments were made by Old Enviroq with respect to its
business operations prior to the Distribution, including primarily those
business operations now conducted by Insituform Southeast, rather than the
Company. Management believes that the Company will make payments to Assurance
during fiscal 1997 for certain insurance needs equal to approximately $58,000.
Synox is party to the License Agreement with Long Enterprises. Pursuant
to the License Agreement, Synox has obtained from Long Enterprises rights to
five U.S. patents relating to the Synox Process. During fiscal years 1994 and
1995, the Company paid $0 and $45,167.76, respectively, to Long Enterprises
pursuant to the License Agreement. See "Description of Business -- Patents and
Licenses."
During fiscal years 1996 and 1995, the Company paid approximately
$2,800 and $66,000, respectively, to Market Potential, Inc., a company
controlled by Patricia L. Ford, for marketing and public relations services
performed for the Company. Ms. Ford is the sister of William J. Long and the
daughter of Charles A. Long, Jr. Market Potential, Inc. also sub-leases offices
to the Company on a month-to-month basis. Pursuant to this arrangement, the
Company paid approximately $1,200 to Market Potential, Inc. during fiscal year
1996.
For two months during fiscal year 1996, the Company leased certain
office space from SCE. Pursuant to this arrangement, the Company paid
approximately $600 to SCE.
Old Enviroq leased its Birmingham, Alabama offices from SLH and SCE.
Pursuant to this arrangement and during fiscal years 1994 and 1995, Old Enviroq
paid approximately $ 47,000 and $41,000, respectively, to SLH and SCE. For the
first five months of fiscal year 1996, the Company's Birmingham offices were
included within the space leased by Old Enviroq from SLH and SCE.
26
<PAGE> 27
Old Enviroq acquired all of the outstanding common stock of Synox from
its existing stockholders on September 30, 1991. The stockholders of Synox at
the time of that merger received shares of Old Enviroq valued at $672,000 in the
aggregate plus the right to receive additional shares of Old Enviroq, dependent
on the earnings of Synox, up to a maximum value of $2,017,000. The right to
receive these additional shares was represented by certificates of contingent
shares of Old Enviroq ("Contingent Share Certificates"). In addition to other
past stockholders of Synox, certain directors of the Company or their
affiliates, including Long Enterprises, Inc., and Sullivan, Long & Hagerty,
Inc., Orlando M. Marinelli, Antonio M. Marinelli, W. T. Goodloe Rutland, and
Alexander P. Zechella, held Contingent Share Certificates.
The Company has issued replacement contingent share certificates
representing the contingent right to receive shares of the common stock of the
Company ("New Contingent Share Certificates"), partly in consideration of the
agreement of the holders of the Contingent Share Certificates to surrender the
Contingent Share Certificates. The New Contingent Share Certificates have rights
and privileges substantially similar to those afforded by the Contingent Share
Certificates except that (i) any shares to be issued pursuant to the New
Contingent Share Certificates will be shares of the common stock of the Company
rather than Old Enviroq, and (ii) the arbitration provisions contained in the
Contingent Share Certificates giving the holders thereof the right to arbitrate
the reasonableness of the decision to abandon the Synox Process are not
contained in the New Contingent Share Certificates.
Synox has issued certain promissory notes to certain directors and
officers of the Company and certain of their affiliates. The aggregate amount of
such indebtedness as of June 24, 1996 was approximately $1,091,179. These notes
provide that interest will be deferred and paid only if and after Synox has
after-tax net income and then only to the extent that the amount of interest
paid does not exceed the amount of such after-tax net income; and principal will
be paid after Synox has accumulated retained earnings, and then only to the
extent that the payment of such indebtedness does not exceed the amount of such
retained earnings.
Any future transactions with officers, directors, principal
stockholders, or affiliates of any officers, directors, or principal
stockholders will be on terms which management believes are no less favorable to
the Company than those which could reasonably be obtained from an unaffiliated
party and will be subject to the approval of a majority of the disinterested
directors.
27
<PAGE> 28
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements are filed with this report on
Form 10-KSB:
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders'
Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial
Statements F-7
</TABLE>
(b) No financial statement schedules are filed with this report on Form
10-KSB.
(c) The Company filed no reports on Form 8-K during the last quarter of
the period covered by this report.
[remainder of this page intentionally left blank]
28
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
Enviroq Corporation:
We have audited the accompanying consolidated balance sheets of Enviroq
Corporation and subsidiaries as of March 30, 1996 and March 25, 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended March 30, 1996. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Enviroq Corporation and
subsidiaries as of March 30, 1996 and March 25, 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
March 30, 1996 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Birmingham, Alabama
June 13, 1996
<PAGE> 30
ENVIROQ CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 30, 1996 AND MARCH 25, 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $3,628,990 $ 505,169
Accounts receivable (Note 6) 126,397 18,371
Interest receivable 7,890
License fees receivable 4,960 24,060
Inventories 118,390 94,376
Prepaid expenses and other assets 34,078 34,902
---------- ----------
Total current assets 3,920,705 676,878
---------- ----------
OTHER ASSETS:
Intangible, net of accumulated
amortization of $169,210 (Note 8) 648,524
Employee notes receivable 17,000 17,000
Other 17,989 118,921
---------- ----------
Total other assets 34,989 784,445
---------- ----------
PROPERTY, PLANT AND EQUIPMENT (Note 8):
Land 310,135 310,135
Building 232,794
Operating equipment 25,563 895,820
Other equipment and vehicles 55,048 39,543
---------- ----------
390,746 1,478,292
Less accumulated depreciation (56,402) (324,419)
---------- ----------
Property, plant and equipment, net 334,344 1,153,873
---------- ----------
TOTAL $4,290,038 $2,615,196
========== ==========
</TABLE>
F-2
<PAGE> 31
ENVIROQ CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 30, 1996 AND MARCH 25, 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 165,753 $ 40,296
Salaries, wages and related taxes 9,814 5,606
Income taxes payable (Note 2) 1,040,504
---------- ----------
Total current liabilities 1,216,071 45,902
ACCRUED ORGANIZATION COSTS (Note 7) 517,000
OTHER 46,833
---------- ----------
Total liabilities 1,216,071 609,735
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (Notes 1 and 3):
Common stock (par value $.01 per share, authorized
10,000,000 shares, issued and outstanding effective
April 18, 1995 1,009,377 shares) 10,094 10,094
Additional paid-in capital 6,190,647 6,190,647
Accumulated deficit (3,126,774) (4,195,280)
---------- ----------
Total stockholders' equity 3,073,967 2,005,461
---------- ----------
TOTAL $4,290,038 $2,615,196
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 32
ENVIROQ CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 30, 1996, MARCH 25, 1995 AND MARCH 26, 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
REVENUES (Notes 5 and 6):
Revenues from outside sources $ 1,116,930 $ 43,110 $ 78,322
Revenues from related parties 173,523 142,796
----------- ----------- -----------
Total revenues 1,116,930 216,633 221,118
COST OF REVENUES 698,498 209,591 195,178
----------- ----------- -----------
GROSS PROFIT 418,432 7,042 25,940
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 5) 931,151 1,035,445 1,227,836
IMPAIRMENT OF LONG-TERM ASSETS (Note 8) 1,331,048
----------- ----------- -----------
LOSS FROM OPERATIONS (1,843,767) (1,028,403) (1,201,896)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
License fee income 286,774
Interest 67,780 2,916
Gain on settlement of litigation (Note 7) 3,852,000
Other, net 32,997 (6,005)
----------- ----------- -----------
3,952,777 (6,005) 289,690
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 2,109,010 (1,034,408) (912,206)
INCOME TAX (EXPENSE) BENEFIT (Note 2) (1,040,504) 272,000 265,000
----------- ----------- -----------
NET INCOME (LOSS) $ 1,068,506 $ (762,408) $ (647,206)
=========== =========== ===========
NET INCOME (LOSS) PER SHARE $ 1.06 $ (0.76) $ (0.64)
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 33
ENVIROQ CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 30, 1996, MARCH 25, 1995 AND MARCH 26, 1994
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C>
BALANCE, MARCH 27, 1993 $ 67,903 $ 5,494,997 $(2,785,666) $ 2,777,234
Net loss (647,206) (647,206)
Retirement of common stock
of subsidiaries (Note 1) (67,903)
Issuance of common stock 10,094 10,094
Cash contributions (Note 1) 708,782 708,782
-------- ----------- ----------- -----------
BALANCE, MARCH 26, 1994 10,094 6,203,779 (3,432,872) 2,781,001
Net loss (762,408) (762,408)
Cash contributions (Note 1) 503,868 503,868
Organization costs (517,000) (517,000)
-------- ----------- ----------- -----------
BALANCE, MARCH 25, 1995 10,094 6,190,647 (4,195,280) 2,005,461
Net income 1,068,506 1,068,506
-------- ----------- ----------- -----------
BALANCE, MARCH 30, 1996 $ 10,094 $ 6,190,647 $(3,126,774) $ 3,073,967
======== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 34
ENVIROQ CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 30, 1996, MARCH 25, 1995 AND MARCH 26, 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $1,068,506 $ (762,408) $ (647,206)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 92,549 94,580 80,028
Amortization 86,002 84,067 84,855
Impairment of long-term assets 1,331,048
Changes in assets and liabilities provided (used) cash:
Accounts receivable (108,026) (184) (14,440)
Interest receivable (7,890)
License fees receivable 19,100 100,550 (124,610)
Inventories (24,014) (33,290) 1,152
Prepaid expenses and other assets 12,621 9,592 5,246
Employee notes receivable (10,000)
Accounts payable and accrued expenses 125,457 (20,543) (48,736)
Salaries, wages and related taxes 4,208 (1,086) (132)
Income taxes payable 1,040,504 (10,000) 10,000
Accrued organizational costs (517,000)
Other (25,052) 22,801 27,807
---------- ---------- ----------
Net cash provided by (used in) operating activities 3,098,013 (515,921) (636,036)
---------- ---------- ----------
INVESTING ACTIVITIES:
Proceeds from sale of marketable securities 500,000
Decrease (increase) in other assets 43,865 1,277 (59,404)
Additions to property, plant and equipment (18,057) (915) (3,413)
---------- ---------- ----------
Net cash provided by (used in) investing activities 25,808 500,362 (62,817)
---------- ---------- ----------
FINANCING ACTIVITIES -
Cash contributions from Enviroq 503,868 708,782
---------- ---------- ----------
Net cash provided by financing activities 503,868 708,782
---------- ---------- ----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 3,123,821 488,309 9,929
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 505,169 16,860 6,931
---------- ---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $3,628,990 $ 505,169 $ 16,860
========== ========== ==========
</TABLE>
Non-cash financing activities for 1995 include the accrual of organization
costs of $517,000 with a corresponding reduction in additional paid-in-capital.
See notes to consolidated financial statements.
F-6
<PAGE> 35
ENVIROQ CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Enviroq Corporation was incorporated on February 9,
1995 (the "Company"). Prior to April 18, 1995, the Company was named
"New Enviroq." The Company was initially a wholly-owned subsidiary of
a predecessor company which was named Enviroq Corporation (hereafter
referred to as "Old Enviroq"). On April 18, 1995, a transaction was
completed in which all of the outstanding shares of New Enviroq were
distributed to the shareholders of Old Enviroq (the "Distribution"),
and the name of Old Enviroq was changed to Insituform Southeast, Inc.
Insituform Southeast, Inc. was then merged (the "Merger") into a
subsidiary of Insituform MidAmerica ("IMA"), after which the name of
New Enviroq was then changed to Enviroq Corporation. Also on April
18, 1995, the stock of Synox Corporation ("Synox"), a wholly-owned
subsidiary of Old Enviroq, and Sprayroq, Inc. ("Sprayroq"), a 50%
owned subsidiary of Old Enviroq, approximately 11 acres of unimproved
land and $500,000 in cash were transferred to the Company, a newly
formed public entity effective April 18, 1995, at their respective
book values. Each share of common stock of Old Enviroq issued and
outstanding was converted into a right to receive a cash payment equal
to the pro-rata portion of the merger consideration of $15,250,000.
NATURE OF OPERATIONS - The Company's operations are conducted
primarily through Sprayroq. Sprayroq is engaged in development,
commercialization, manufacture and marketing of spray-applied resinous
materials. The Synox process relates to the treatment of municipal
wastewater biosolids. During fiscal 1996, management elected to
minimize the development stage activities of Synox (see Note 8).
FISCAL YEAR - The Company's 1996, 1995 and 1994 fiscal years ended on
March 30, 1996, March 25, 1995 and March 26, 1994, respectively.
Fiscal years 1996, 1995 and 1994 included 52, 53 and 52 weeks,
respectively.
DEVELOPMENT STAGE ENTERPRISE - The Company operated as a development
stage enterprise through March 25, 1995. During the year ended March
30, 1996, the Company completed its development activities and
commenced its planned principal operations.
PRINCIPLES OF CONSOLIDATION - These consolidated financial statements
are presented as if the Company had existed as of March 1994. These
financial statements include the historical financial statements of
Synox and Sprayroq, wholly-owned and 50% owned subsidiaries of the
Company effective April 18, 1995, respectively, as if the operations
included herein had been operating as one entity for the periods
presented. They include, at their historical amounts, the assets,
liabilities, revenues and expenses directly related and those
allocated to the businesses which comprise the Company's operations.
Any transactions between Synox and Sprayroq are eliminated in these
consolidated financial statements.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
F-7
<PAGE> 36
CASH EQUIVALENTS - Cash equivalents consist of highly liquid
investments purchased with an original maturity of three months or
less.
INVENTORIES - Inventories, consisting of raw materials and supplies,
are valued at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is
carried at cost, less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the following
estimated useful lives of the assets:
Operating equipment 2 to 15 years
Other equipment and vehicles 2 to 7 years
Repairs and maintenance costs are charged to expense as incurred.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are
expensed as incurred. Such costs were $28,172 (1996) $263,905 (1995)
and $389,473 (1994).
INCOME TAXES - Old Enviroq and its former subsidiaries (except for
Sprayroq) filed consolidated federal income tax returns. Income tax
(expense) benefit was allocated to each member of the consolidated
group on the basis of their respective taxable income or loss included
in the consolidated income tax returns. The Company utilizes an asset
and liability approach to financial accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized
based on differences between financial statement and tax basis of
assets and liabilities using presently enacted tax rates.
ALLOCATED REVENUES AND EXPENSES - Revenues from related parties shown
for fiscal 1995 and 1994 represent sales of chemical products to
wholly-owned subsidiaries of Old Enviroq which in turn used the
products to earn revenues from outside sources. In management's
estimate, these revenues represent a proper allocation of revenues
earned from outside sources by Old Enviroq to Synox and Sprayroq. A
pro-rata share of general and administrative corporate costs incurred
by Old Enviroq have been allocated to Synox and Sprayroq based upon
estimated time expended by corporate employees, services performed by
outside vendors and usage of various corporate materials related to
the operations of Synox and Sprayroq. The allocated costs were
$219,000 for fiscal years 1995 and 1994.
The results of operations of all Old Enviroq subsidiaries, with the
exception of Sprayroq, are included in the consolidated federal and
combined state income tax returns of Old Enviroq. The income tax
benefits were allocated to Synox on the basis of its respective losses
included in the consolidated income tax returns. Income tax benefits
of Sprayroq are fully reserved.
If income taxes had been allocated to the Company under the basis of a
separate, consolidated stand-alone company, no income tax benefit
would have been provided in any of the periods in the consolidated
statement of operations and an income tax provision of $30,000 would
have been provided for the year ended March 1994.
Management believes the above stated allocations of revenues and
expenses were made on a reasonable basis; however, they do not
necessarily reflect the results of operations which would have
occurred had the Company been an independent entity nor are they
necessarily indicative of future revenues or expenses.
F-8
<PAGE> 37
LICENSE FEES - Sprayroq licenses its technology for use within certain
geographic regions. These licenses allow the licensee use of the
proprietary technology within their territory and are subject to
restrictions as specified in the individual agreements.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of all the
Company's financial assets and liabilities approximate their carrying
value due to the short-term maturities of these instruments.
NET INCOME (LOSS) PER SHARE - The Company's net income (loss) per
share is computed by dividing net income (loss) by 1,009,377 shares of
common stock outstanding as of April 18, 1995, considering these
shares to be outstanding for all periods presented.
ACCOUNTING STANDARDS YET TO BE ADOPTED - In October 1995, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company beginning March
31, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages, but does not
require, compensation cost to be measured based on the fair value of
the equity instrument awarded. Companies are permitted, however, to
continue to apply APB Opinion No. 25, which recognizes compensation
cost based on the intrinsic value of the equity instrument awarded.
The Company will continue to apply APB Opinion No. 25 to its stock
based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share.
RECLASSIFICATIONS - Certain reclassifications have been made to the
1995 and 1994 consolidated financial statements to conform with the
1996 presentation.
2. INCOME TAXES
Income tax (expense) benefit for each of the three years in the period
ended March 30, 1996 is current.
The differences between the income tax (expense) benefit and income
taxes computed using the federal statutory rate are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Income tax (expense) benefit at federal
statutory rate $ (717,000) $ 352,000 $ 310,000
State income taxes, net of federal
tax benefit (85,000) 34,000 24,000
Losses producing no current tax benefit (106,000)
Write-down of Synox intangible producing
no tax benefit (318,000)
Benefit of operating loss carryforwards 66,000
Nondeductible expenses (3,000) (8,000) (39,000)
Foreign taxes (30,000)
Other 16,496
------------ --------- ---------
Income tax (expense) benefit $ (1,040,504) $ 272,000 $ 265,000
============ ========= =========
</TABLE>
F-9
<PAGE> 38
The types of temporary differences and their related tax effects are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Long-term asset:
Net operating loss carryforwards $ 75,000 $ 413,000
Valuation allowance (75,000) (332,000)
--------- ----------
Net asset - 81,000
Long-term liabilities -
Accelerated depreciation - (81,000)
--------- ----------
Net deferred tax asset $ - $ -
========= ==========
</TABLE>
During 1996, Enviroq elected to waive its right to future use of
Synox's net operating loss carryforwards. In accordance with
provisions of the Internal Revenue Code, this treatment allowed Old
Enviroq to avoid taxable gains on the merger transaction (see Note 1).
At March 1996, Sprayroq had net operating loss carryforwards of
approximately $201,000 available to reduce future taxable income. The
carryforwards expire in 2010.
3. RETIREMENT AND INCENTIVE PLANS
Subsequent to April 18, 1995, the Company formed a retirement plan for
its employees pursuant to Section 401(k) of the Internal Revenue Code.
Certain previous participants of the Old Enviroq 401(k) retirement
plan rolled over into this plan. Participants may make contributions
by salary reduction pursuant to Section 401(k) of the Internal Revenue
Code.
Non-employee Directors are entitled to receive options to purchase
shares of the Company's common stock pursuant to a Non-Employee
Directors Stock Option Plan (the "Directors' Plan"). Options for up
to 100,000 shares of common stock are authorized to be issued under
the Directors' Plan. The Directors' Plan allows the Company's Stock
Option Committee (the "Committee") to grant options to non-employee
Directors for a price of not less than eighty-five percent of the fair
market value of the Company's common stock on the dates that the
options are granted. Options are exercisable in whole or in part,
from time to time, until five years from the date of grant, except
that, absent a change in control of the Company, each option
terminates upon the discontinuance of the option holder's service as a
Director of the Company for any reason except death or disability.
Sale of common stock purchased upon exercise of an option is
prohibited for two years from the date of exercise or three years from
the date of grant, whichever is later, unless there is a change in
control of the Company or in the event of the Director's death. Each
option agreement under the Directors' Plan provides, among other
things, that shares of Common Stock will be issued and delivered to
the Director upon payment to the Company of the exercise price of such
shares and that the option price and number of shares subject to
option will be adjusted for stock splits, stock dividends or other
similar changes in the Company's capital structure.
The Company also has an Incentive Stock Option Plan (the "ISO Plan")
administered by the Committee which provides for the issuance to key
employees of incentive stock options ("ISOs") within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended. The
Committee is authorized to issue up to 100,000 shares of common stock
pursuant to the exercise of the ISOs. The option price of each ISO
granted is 100% of the fair market value of the common stock on the
date of grant. If an ISO is granted to an optionee who holds more
than 10% of the combined voting power of all classes of the Company's
stock at the date of the grant, the option price
F-10
<PAGE> 39
is 110% of fair market value of the common stock on the date of grant.
The ISO Plan provides for the exercise of ISOs at the maximum rate of
25% in the first 12 months after grant and 25% in each 12-month period
thereafter. To the extent not exercised, an optionee may accumulate
his or her ISOs and exercise them, in whole or in part, in any
subsequent period but not later than 10 years from the date on which
the option was granted.
No options have been issued by the Company under the Directors' Plan
or the ISO Plan.
4. COMMITMENTS AND CONTINGENCIES
Synox is the exclusive licensee of certain technology and know-how
under a license agreement with an organization controlled by a
stockholder of the Company. The agreement currently covers 15 states
in the license territory and grants an option to acquire additional
territory on a payment of a prepaid royalty. The option rights expire
December 31, 1997.
Under the terms of its license agreement, Synox is subject to minimum
royalty provisions and to the maintenance of a $50,000 net worth and
the performance of other material provisions of the license agreement.
Minimum annual royalties (based upon retaining the 15 states currently
under the agreement) are due each January 1, for the ensuing calendar
year through the license expiration, according to the following
schedule.
<TABLE>
<CAPTION>
DUE DATE AMOUNT
<S> <C>
January 1, 1997 $ 90,336
January 1, 1998 180,671
January 1, 1999 180,671
January 1, 2000 through 2007 225,839
</TABLE>
Pursuant to the merger agreement between Old Enviroq and Synox, the
stockholders of Synox at the time of the merger received Old Enviroq
shares valued at $672,000 in the aggregate plus the right to receive
additional shares of Old Enviroq, dependent on the earnings of Synox,
up to a maximum value of $2,017,000. In addition, the then existing
obligations of Synox under promissory notes to certain shareholders
($767,376 at September 30, 1991 plus additional interest at 7.66%)
shall become payable by Synox in cash only after such time as (i) all
the contingent shares have been issued and (ii) accumulated retained
earnings are available for such payment. Interest shall become
payable only to the extent of available net earnings. To the extent
additional, contingent shares become issuable in the future or
additional obligations become payable in the future, such
consideration will be recorded at that time at its fair value and
accounted for as additional intangible assets.
5. RELATED PARTY TRANSACTIONS
During fiscal years 1995 and 1994, the Company had revenues from
Enviroq Services, Inc., a wholly-owned subsidiary of Old Enviroq.
These revenues are included in the consolidated statements of
operations. After the merger agreement described in Note 1, Old
Enviroq became a subsidiary of IMA and is no longer a related party
for fiscal year 1996.
The Company's insurance (other than its employee insurance) is
provided through an insurance agency controlled by stockholders of the
Company. For fiscal years 1996, 1995 and 1994, the Company paid this
agency approximately $58,000, $20,000 and $20,000, respectively.
As discussed in Note 4, Synox is party to a license agreement with a
company controlled by a stockholder of the Company. During fiscal
years 1995 and 1994, the Company made payments of
F-11
<PAGE> 40
approximately $45,000 related to this license agreement. No such
payment was made during fiscal year 1996.
During fiscal years 1996, 1995 and 1994, the Company paid
approximately $4,000, $66,000 and $107,000, respectively, to a
marketing and public relations company controlled by a family member
of stockholders of the Company.
6. SIGNIFICANT CUSTOMERS
The Company had sales transactions with four unrelated customers which
accounted for approximately 95% of total sales in fiscal 1996. Trade
accounts receivable includes approximately $114,000 due from these
customers at March 30, 1996.
7. LITIGATION SETTLEMENT
In March, 1996 the Company reached an agreement (the "Settlement
Agreement") with Insituform MidAmerica, Inc. ("IMA") and Insituform
Technologies, Inc. ("ITI") to settle all claims and counterclaims
made, or that could have been made, by the parties in the lawsuit
filed by the Company against IMA (the "Lawsuit"). Enviroq received
$3,335,000 as payment in full for the Settlement Agreement, which
includes the Subordinated Promissory Note ("Note") and the Consulting
Agreement dated April 18, 1995 between Enviroq and IMA. The Note and
the Consulting Agreement, which arose out of the merger agreement
between the Company and IMA (the "Merger Agreement"), had not been
recorded by the Company because of their contingent and uncertain
nature. In the Settlement Agreement, Enviroq released IMA and ITI,
subject to limited exceptions, from all claims that Enviroq had or may
have had or may have against IMA or ITI arising out of the Note or the
Merger Agreement, and claims that were or could have been asserted by
Enviroq in the Lawsuit. In the Settlement Agreement, IMA and ITI
released Enviroq, subject to limited exceptions, from all claims that
they had or may have against Enviroq arising out of the Note or the
Merger Agreement, including any claim with respect to the Expense
Deficit (as defined in the Merger Agreement) and claims that were or
could have been asserted by IMA or ITI in the Lawsuit. Accordingly,
the Company's 1996 statement of income includes a $3.85 million gain
as a result of this settlement.
8. IMPAIRMENT OF ASSETS
During the fourth quarter of fiscal 1996, management elected to
minimize the development stage activities of the Synox subsidiary.
This decision was based in part on the fact that future cash flows
cannot be anticipated in the current environment. Accordingly, the
Company recorded a write-down of $1,331,048 related to impairment of
the long-term assets of Synox. The excess of Old Enviroq's basis in
Synox over the underlying net asset value had been pushed down to
Synox and recorded as an intangible, which was being amortized over 15
years using the straight-line method. This impairment includes a
write-off of the entire unamortized intangible balance of $586,012 and
a $745,036 write-down of property, plant and equipment.
* * * * *
F-12
<PAGE> 41
The following exhibits are filed as part of this Form 10-K or are
incorporated herein by reference, and this list comprises the Exhibit Index.
Description of Exhibit
<TABLE>
<CAPTION>
Item
----
<S> <C>
3.01 Certificate of Incorporation of New Enviroq Corporation.
Exhibit 3.01 to the Company's Registration Statement on Form
10-SB/A2 dated April 12, 1995, is incorporated herein by
reference (Commission File No. 0-25528).
3.02 Certificate of Amendment to Certificate of Incorporation of
New Enviroq Corporation. Exhibit 3.02 to the Company's
Registration Statement on Form 10-SB/A2 dated April 12,
1995, is incorporated herein by reference (Commission File
No. 0-25528).
3.03 Bylaws of New Enviroq Corporation. Exhibit 3.03 to the
Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
4.01 Certificate of Designation of Rights and Preferences of
Series A Preferred Stock. Exhibit 4.01 to the Company's
Registration Statement on Form 10-SB/A2 dated April 12,
1995, is incorporated herein by reference (Commission File
No. 0-25528).
4.02 Form of Certificate of Common Stock. Exhibit 4.02 to the
Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
4.03 Form of Certificate of Series A Preferred Stock. Exhibit
4.03 to the Company's Registration Statement on Form
10-SB/A2 dated April 12, 1995, is incorporated herein by
reference (Commission File No. 0-25528).
10.01 Merger Agreement between Enviroq Corporation, New Enviroq
Corporation, Insituform Mid-America, Inc. and IMA Merger
Sub, Inc. dated as of November 2, 1994. Exhibit 10.01 to the
Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
10.02 Form of Consulting Agreement between New Enviroq Corporation
and Insituform Mid-America, Inc. Exhibit 10.02 to the
Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
</TABLE>
29
<PAGE> 42
<TABLE>
<S> <C>
10.03 Form of Covenant Not to Compete Agreement between New
Enviroq Corporation, Insituform Mid-America, Inc., Marinelli
Securities Associates, and SCE, Inc. Exhibit 10.03 to the
Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
10.04 License Agreement between Synox Corporation and Long
Enterprises, Inc. dated May 26, 1986, together with
amendments dated May 16, 1991 and October 5, 1994. Exhibit
10.05 to the Company's Registration Statement on Form
10-SB/A2 dated April 12, 1995, is incorporated herein by
reference (Commission File No. 0-25528).
10.05 Shareholder Agreement between Sprayroq, Inc. Enviroq
Corporation, and Replico Development Company, Inc. dated
March 25, 1992. Exhibit 10.06 to the Company's Registration
Statement on Form 10-SB/A2 dated April 12, 1995, is
incorporated herein by reference (Commission File No.
0-25528).
10.06 License Agreement dated May 22, 1992, between Sprayroq, Inc.
and Enviroq Services, Inc. Exhibit 10.07 to the Company's
Registration Statement on Form 10-SB/A2 dated April 12,
1995, is incorporated herein by reference (Commission File
No. 0-25528).
10.07 License Agreements dated June 12, 1994, between Sprayroq,
Inc., Toa Grout Kogyo Company, LTD., and Sprayroq, Inc., and
Mitsui Toatsu Chemicals, Inc. Exhibit 10.08 to the Company's
Registration Statement on Form 10-SB/A2 dated April 12,
1995, is incorporated herein by reference (Commission File
No. 0-25528).
10.08 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Charles A.
Long, Jr. in the principal amounts of $6,000, $6,000,
$6,000, $3,000, $6,000, and $6,000, respectively. Exhibit
10.09 to the Company's Registration Statement on Form
10-SB/A2 dated April 12, 1995, is incorporated herein by
reference (Commission File No. 0-25528).
10.09 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Long
Enterprises, Inc. in the principal amount of $3,000. Exhibit
10.10 to the Company's Registration Statement on Form
10-SB/A2 dated April 12, 1995, is incorporated herein by
reference (Commission File No. 0-25528).
10.10 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Sullivan,
Long and Hagerty, Inc. in the principal amounts of $132,000,
$17,020, $22,000, $11,000, $11,000 $11,000 $22,000, $11,000,
$22,000, and $22,000, respectively. Exhibit 10.11 to the
</TABLE>
30
<PAGE> 43
<TABLE>
<S> <C>
Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
10.11 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Orlando M.
Marinelli in the principal amounts of $66,000, $8,510,
$11,000, $5,500, and $1,000, respectively. Exhibit 10.12 to
the Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
10.12 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Antonio M.
Marinelli in the principal amounts of $66,000, $8,510,
$11,000, $5,500, and $1,000, respectively. Exhibit 10.13 to
the Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
10.13 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Road
Machinery, Inc., in the principal amounts of $22,000,
$11,000, $11,000, $11,000 and $10,000, respectively. Exhibit
10.14 to the Company's Registration Statement on Form
10-SB/A2 dated April 12, 1995, is incorporated herein by
reference (Commission File No. 0-25528).
10.14 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Micam
Industries, Inc., in the principal amounts of $11,000, and
$11,000 respectively. Exhibit 10.15 to the Company's
Registration Statement on Form 10-SB/A2 dated April 12,
1995, is incorporated herein by reference (Commission File
No. 0-25528).
10.15 Amended and Restated Promissory Notes dated September 27,
1991 and issued by Synox Corporation in favor of Marinelli
Securities Associates in the principal amount of $10,000.
Exhibit 10.16 to the Company's Registration Statement on
Form 10-SB/A2 dated April 12, 1995, is incorporated herein
by reference (Commission File No. 0-25528).
10.16 Non-Employee Director Stock Option Plan of the Company, as
amended. Exhibit 10.17 to the Company's Registration
Statement on Form 10-SB/A2 dated April 12, 1995, is
incorporated herein by reference (Commission File No.
0-25528).
10.17 Incentive Stock Option Plan of the Company. Exhibit 10.18 to
the Company's Registration Statement on Form 10-SB/A2 dated
April 12, 1995, is incorporated herein by reference
(Commission File No. 0-25528).
10.18 Mutual Release and Settlement Agreement dated March 12, 1996
by and between the Company, Insituform Mid-America, Inc. and
Insituform Technologies, Inc.
</TABLE>
31
<PAGE> 44
<TABLE>
<S> <C>
10.19 Promissory Note dated March 27, 1993 in the aggregate
principal sum of $206,203.46 made by Sprayroq, Inc. in favor
of the Company.
10.20 Promissory Note dated March 26, 1994 in the aggregate
principal sum of $159,872.95 made by Sprayroq, Inc. in favor
of the Company.
10.21 SprayWall System License Agreement dated December 1, 1993,
between Sprayroq, Inc., a Florida corporation, and
Southwestern Underground Supply and Environmental Services,
Inc., a Texas corporation.
10.22 Form of SprayWall System License Agreement dated January 1,
1996, between Sprayroq, Inc., a Florida corporation, and
Per Aarsleff A/S, a corporation organized and existing
under the laws of Denmark.
21.0 Subsidiaries:
1. Synox Corporation, a Delaware corporation (100%).
2. Sprayroq, Inc., a Florida corporation (50%).
27 Financial Data Schedule
</TABLE>
32
<PAGE> 45
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.
ENVIROQ CORPORATION
Date: June 26, 1996 By: /s/ William J. Long
----------------------------------
William J. Long, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C>
/s/ William J. Long President, Chief June 26, 1996
- - ------------------------------ Executive Officer and
William J. Long Director (Principal
Executive Officer)
/s/ Charles A. Long, Jr. Director June 26, 1996
- - ------------------------------
Charles A. Long, Jr.
/s/ Antonio M. Marinelli Chairman of the Board June 26, 1996
- - ------------------------------ of Directors, Director,
Antonio M. Marinelli Secretary/Treasurer
(Principal Financial and
Accounting Officer)
/s/ Orlando M. Marinelli Vice President, June 26, 1996
- - ------------------------------- Director
Orlando M. Marinelli
/s/ Michael X. Marinelli Director June 26, 1996
- - -------------------------------
Michael X. Marinelli
/s/ W.T. Goodloe Rutland Director June 26, 1996
- - -------------------------------
W.T. Goodloe Rutland
/s/ Alexander P. Zechella Director June 26, 1996
- - -------------------------------
Alexander P. Zechella
</TABLE>
33
<PAGE> 1
EXHIBIT 10.18
MUTUAL RELEASE AND SETTLEMENT AGREEMENT
This Settlement Agreement (the "Settlement Agreement" is made
and entered into by and between Enviroq Corporation ("Enviroq" formerly "New
Enviroq Corporation"), Insituform Mid-America, Inc. ("IMA"), and Insituform
Technologies, Inc. ("ITI"), on this the 12th day of March, 1996.
WITNESSETH:
WHEREAS, on or about November 2, 1994, Enviroq, IMA, and other
entities entered into a certain Merger Agreement (the "Merger Agreement"); and
WHEREAS, on or about April 18, 1995, IMA executed and delivered
to Enviroq as holder a certain Subordinated Promissory Note (the "Note") in the
principal amount of $3,000,000 which was the consideration for a certain
Covenant Not to Compete also dated April 18, 1995; and
WHEREAS, on or about April 18, 1995, Enviroq and IMA entered
into a certain Consulting Agreement (the "Consulting Agreement") which called
for payments over a period of five years in the amount of $1,000,000.00, the
principal obligation which is being satisfied by payment of the present value of
$853,000.00 as part of the settlement hereunder; and
WHEREAS, subsequent to the Merger Agreement, IMA became
wholly-owned subsidiary of ITI; and
WHEREAS, Enviroq and IMA are parties to an action pending in
the Circuit Court of Jefferson County, Alabama captioned Enviroq Corporation v.
Insituform Mid-America, Inc., CV-95-05459 (the "Lawsuit"), in which Enviroq
brought suit to enforce an alleged default under the Note which default is
denied; and
WHEREAS, on November 16, 1995, the Circuit Court of Jefferson
County, Alabama entered judgment in favor of Enviroq and against IMA in the
amount of $3,101,109.45, which judgment was not made final, but this judgment
amount plus accrued interest to the date of the settlement equals $3,162,753.20;
and
WHEREAS, on December 18, 1995, IMA asserted in the Lawsuit
certain counterclaims (the "Counterclaims"), alleging that it is entitled to a
setoff for the Expense Deficit (as defined in the Merger Agreement, which
definition is incorporated herein) under Article II of the Merger Agreement, and
that it is entitled to certain indemnification from Enviroq under Article IX of
the Merger Agreement; and
34
<PAGE> 2
WHEREAS, Enviroq, IMA and ITI desire to settle fully, finally,
and completely all issues which are embodied in or related to or which could
have been raised in the Lawsuit or the Counterclaims; or that in any way relate
to or arise out of the Merger Agreement or the Note or the breach of either of
them;
NOW THEREFORE, in consideration of the mutual promises herein
contained, and for other good and valuable consideration, Enviroq, IMA and ITI
agree as follows:
1. Payment. At the time of execution of this Agreement,
IMA shall pay to Enviroq via wire transfer the amount of Three Million Three
Hundred Thirty Five Thousand Dollars and No Cents ($3,335,000.00) as payment in
full for the Settlement Agreement, which includes the Note (which is the
consideration for the Covenant Not To Compete), and the Consulting Agreement
after fully satisfying and releasing any claims under the Expense Deficit.
2. Representations and Warranties by IMA and ITI. As a
part of the consideration hereunder, IMA and ITI represent and warrant to
Enviroq: (a) that they do not know of any default which will be created under
any of the Senior Indebtedness (as defined in the Merger Agreement, which
definition is incorporated herein), or any claim which will arise in favor of
any holder of Senior Indebtedness, by reason of the payment to Enviroq by IMA
pursuant to paragraph 1 above; (b) that they do not know of any claim which has
been, or might be, asserted against Enviroq in the pending arbitration relating
to Midsouth Partners; and (c) that as a part of the consideration hereunder, IMA
and ITI hereby agree to indemnify and hold harmless Enviroq from any all
liabilities, cause or action or suit: (a) asserted by any holder of Senior
Indebtedness against Enviroq as a result of the payment made by IMA to Enviroq
pursuant to paragraph 1 above; or (b) asserted against Enviroq as a result of
the pending arbitration relating to Midsouth Partners.
3. Mutual General Release.
a. Release by Enviroq.
Except for the obligations in the Settlement Agreement, or as
provided in Section 3 (c) below, Enviroq hereby releases, remises and forever
discharges ITI and IMA, each of which is a corporation, and each of their
officers, directors, stockholders, employees, agents, representatives,
subsidiaries, affiliated companies, parent companies, successors and assigns,
and each and all of them of and from any and all claims, demands, warranty
claims, causes of action, actions, suits and claims of every kind or nature
which Enviroq or its affiliated entities may have or may have had at any time
heretofore or may have at any time hereafter pertaining or relating to or in any
manner resulting from or arising out of the Merger Agreement, or the Note and,
more particularly, but without in any way limiting the generality of the
foregoing, Enviroq hereby further releases, remises, and forever discharges ITI
and IMA from any and all claims asserted by, or which could have been asserted
by, Enviroq and any and all claims related to any claims asserted by, or which
could have been asserted by, Enviroq in the Lawsuit.
b. Release by ITI and IMA.
35
<PAGE> 3
Except for the obligations in the Settlement Agreement, or as
provided in Section 3 (c) below, IMA and ITI hereby release, remise and forever
discharge Enviroq, a corporation, and its officers, directors, stockholders,
employees, agents, representatives, subsidiaries, affiliated companies, parent
companies, successors and assigns, and each and all of them of and from any and
all claims, demands, warranty claims, causes of action, actions, suits, and
claims of every kind or nature which ITI and IMA may have or may have had at any
time heretofore or may have at any time hereafter pertaining or relating to or
in any manner resulting from or arising out of the Merger Agreement, or the Note
and, more particularly, but without in any way limiting the generality of the
foregoing, ITI and IMA hereby further release, remise, and forever discharge
Enviroq from any and all claims asserted by, or which could have been asserted
by, IMA or ITI or either of them, and any and all claims related to any claims
asserted by, or which could have been asserted by, IMA or ITI or either of them,
in the Lawsuit.
c. Limited Exceptions to Mutual Release.
Notwithstanding anything to the contrary in the Settlement Agreement, nothing
herein shall be construed to release, impair, or in any way affect: (1) the
obligations under the Covenant Not To Compete, executed by and between New
Enviroq, Inc., IMA, Inc., Marinelli Securities Associates and SCE Incorporated,
shall remain in effect in accordance with the terms of that agreement, IMA
having paid the consideration as a part of this settlement; (2) the obligations
under the Consulting Agreement, the consideration having been paid as a part of
this settlement, shall remain in effect in accordance with the terms of that
agreement (the parties contemplate that the performance required by Enviroq
under that agreement shall be substantially the same as it has been to date);
and (3) the obligations pursuant to Section 3.3 or 3.5 of the Merger Agreement
shall remain in effect in accordance with the terms of those provisions.
These provisions to the Settlement Agreement shall be strictly
construed, and nothing in this subsection shall be deemed to affect the
Settlement Agreement except as expressly provided herein.
4. As part of the consideration hereunder, IMA and ITI
represent and warrant that they are not presently aware of any facts or
circumstances which they believe may constitute lack of compliance or breach of
any agreement or obligation owed by Enviroq, or any of its subsidiaries,
parents, affiliates, officers, directors, stockholders, agents or employees, to
IMA or ITI or any of their respective subsidiaries, parents, affiliates,
officers, directors, stockholders, agents or employees, and further that neither
IMA nor ITI, nor any of their respective subsidiaries, parents, affiliates,
officers, directors, stockholders, agents or employees, have any present
intention to assert any claim against Enviroq, or any of its subsidiaries,
parents, affiliates, officers, directors, stockholders, agents or employees,
subsequent to the execution of this Settlement Agreement. Likewise, as part of
the consideration hereunder, Enviroq represents and warrants that it is not
presently aware of any facts or circumstances which it believes may constitute
lack of compliance or breach of any agreement or obligation owed by IMA to ITI,
or any of their respective subsidiaries, parents, affiliates, officers,
directors,
36
<PAGE> 4
stockholders, agents or employees, to Enviroq or any of its subsidiaries,
parents, affiliates, officers, directors, stockholders, agents, or employees,
and that neither Enviroq nor any of its subsidiaries, parents, affiliates,
officers, directors, stockholders, agents, or employees, has any present
intention to assert any claim against IMA or ITI or any of their respective
subsidiaries, parents, affiliates, officers, directors, stockholders, agents or
employees, subsequent to the execution of this Settlement Agreement.
5. Dismissal with Prejudice of Lawsuit and Counterclaim.
Enviroq and IMA hereby agree and consent to the dismissal with prejudice of the
Lawsuit, including all claims and counterclaims which have been, or could have
been, asserted therein.
6. Successors and Assigns. The parents, subsidiaries,
affiliates, officers, directors, stockholders, employees, agents,
representatives, successors and assigns of IMA and ITI, or either of them, shall
be fully bound by this Settlement Agreement and all provisions hereof, just as
IMA and ITI are bound, and IMA and ITI agree that each and every provision of
this Settlement Agreement inures to the benefit of Enviroq and its successors,
assigns, directors, officers, stockholders, employees, agents, representatives,
subsidiaries, parent corporations, and related entities. Likewise, the parents,
subsidiaries, affiliates, officers, directors, stockholders, employees, agents,
representatives, successors and assigns of Enviroq shall be fully bound by this
Settlement Agreement and all provisions hereof, just as Enviroq is bound, and
Enviroq agrees that each and every provision of this Settlement Agreement inures
to the benefit of ITI and IMA and its or their successors, assigns, directors,
officers, stockholders, employees, agents, representatives, subsidiaries, parent
corporations, and related entities.
7. Independent Advice and Counsel. Enviroq, IMA, and ITI
each hereby acknowledge and declare that each is deliberately entering this
Settlement Agreement and that in so doing each is acting upon its own judgment,
belief and knowledge and at the advice and counsel of an attorney of its own
choosing. IMA and ITI further acknowledge and declare that neither has relied
upon any representation of Enviroq, its agents, or its attorneys in entering
this Settlement Agreement except as provided herein. Enviroq further
acknowledges and declares that it has not relied upon any representation of ITI
and IMA, their agents, or their attorneys in entering this Settlement Agreement
except as provided herein.
8. No Assignment of Claim. ITI and IMA represent and
warrant that neither has heretofore assigned to any other person or party all or
any portion of any claim covered herein whatsoever that ITI and IMA may have or
may have had or may have in the future against Enviroq. Enviroq represents and
warrants that it has not heretofore assigned to any other person or party all or
any portion of any claim covered herein whatsoever that Enviroq may have or may
have had or may have in the future against ITI or IMA.
9. Sole and Entire Agreement. This Agreement sets forth
the entire agreement between the parties hereto and fully supersedes any
previous agreements or understandings between the parties hereto concerning or
relating to the subject matter hereof. No amendment or modification to this
Agreement shall be valid or have effect unless it is in writing, expressly
states that it is in writing, expressly states that it is an amendment to this
Agreement, and is signed by each of the parties hereto.
37
<PAGE> 5
10. Controlling Law. This Settlement Agreement shall be
governed and construed in accordance with the domestic laws of the State of
Alabama without giving effect to any choice of law provision or rule (whether of
the State of Alabama or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Alabama.
11. Counterparts. This Settlement Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which together will constitute one and the same instrument.
12. Sealed Instrument. Upon execution of this Settlement
Agreement, this Settlement Agreement shall be deemed to have the force and
effect of a sealed instrument.
WITNESS our hands and seals on this the 12th day of March,
1996.
SIGNATURES ON FOLLOWING PAGE
38
<PAGE> 6
INSITUFORM MID-AMERICA, INC.
By: /s/ William Martin
--------------------------------
Its: Vice-President
--------------------------------
Sworn to and subscribed before me this the 19th day of March, 1996.
----
NOTARY PUBLIC /s/ Laura Jones
[SEAL]
My Commission Expires: May 19, 1998
------------
INSITUFORM TECHNOLOGIES, INC.
By: /s/ William Martin
------------------------------
Its: Senior Vice-President
-----------------------------
Sworn to and subscribed before me this the 19th day of March, 1996.
----
NOTARY PUBLIC /s/ Laura Jones
[SEAL]
My Commission Expires: May 19, 1998
------------
ENVIROQ CORPORATION
By: /s/ William J. Long
--------------------------------
Its: President
--------------------------------
Sworn to and subscribed before me this the 12th day of March, 1996.
----
NOTARY PUBLIC /s/ Thomasene C. Collins
[SEAL]
My Commission Expires: April 9, 1998
-------------
39
<PAGE> 1
EXHIBIT 10.19
PROMISSORY NOTE
$206,203.46 March 27, 1993
FOR VALUED RECEIVED, the undersigned promises to pay to the
order of ENVIROQ CORPORATION, a Delaware corporation (the "Lender"), the
principal sum of Two hundred six thousand, two hundred three and 46/100 dollars
($206,203.46), with interest thereon from date until maturity at nine percent
(9%) per annum. Both principal and interest shall be payable in lawful money of
the United States of America to the Lender at 11511 Phillips Highway South,
Jacksonville, Florida 32256, or at such other address as the Lender from time to
time may specify by written notify to the maker, said principal and interest to
be paid on the date and in the manner following:
The entire outstanding principal balance and all accrued
interest thereon shall be due and payable on April 1, 1995.
All payments received shall be applied first to accrued
interest and the balance to principal.
Privilege is reserved to the maker to prepay this Promissory
Note in whole or in part at any time or times without penalty.
This Note shall be construed and enforced according to the laws
of the State of Florida.
If default be made in the payment of the principal sum or of
the interest thereon, or in the performance of any agreements contained herein,
then at the option of the Lender, the principal sum then remaining unpaid with
accrued interest shall immediately become due and collectible without notice,
time being of the essence of this contract, and said principal and said accrued
interest shall both bear interest at the highest rate permissible under law from
such time until paid.
Each maker and endorser waives presentment, protest, notice of
protest and notice of dishonor and agrees that no obligation hereunder shall be
discharged under any extension, indulgence or release given to the maker or any
other person. Each maker and endorser agrees to pay all costs, including a
reasonable attorney's fee, whether suit be brought or not, if counsel shall be
employed after maturity of this note or default hereunder to collect this
Promissory Note or protect the security thereof. No delay by the Lender in
exercising any power or right hereunder shall operate as a waiver of any power
or right; nor shall any single or partial exercise of any other power or right
preclude any further exercise thereof, or the exercise of any other power or
right hereunder or otherwise; and no waiver whatsoever or modification of the
terms hereof shall be valid unless in a writing signed by the Lender and then
only to the extent therein set forth.
40
<PAGE> 2
By: SPRAYROQ, INC.
Attest:
/s/ W.E. Murphy, IV /s/ James J. Baird, Jr.
- - ------------------------------------ ----------------------------------
W.E. Murphy, IV James J. Baird, Jr.
Secretary Its President
(Corporate Seal)
41
<PAGE> 1
EXHIBIT 10.20
PROMISSORY NOTE
$159,872.95 March 26, 1994
FOR VALUE RECEIVED, the undersigned promises to pay to the
order of ENVIROQ CORPORATION, a Delaware corporation (the "Lender"), the
principal sum of One hundred fifty-nine thousand, eight hundred seventy-two
95/100 dollars ($159,872.95), with interest thereon from date until maturity at
nine percent (9%) per annum. Both principal and interest shall be payable in
lawful money of the United States of America to the Lender at 11511 Phillips
Highway South, Jacksonville, Florida 32256, or at such other address at the
Lender from time to time may specify by written notice to the maker, said
principal and interest to be paid on the date and in the manner following:
The entire outstanding principal balance and all accrued
interest thereon shall be due and payable on April 1, 1995.
All payments received shall be applied first to accrued
interest and the balance to principal.
Privilege is reserved to the maker to prepay this Promissory
Note in whole or in part at any time or times without penalty.
This Note shall be construed and enforced according to the laws
of the State of Florida.
If default be made in the payment of the principal sum or of
the interest thereon, or in the performance of any agreements contained herein,
then at the option of the Lender, the principal sum then remaining unpaid with
accrued interest shall immediately become due and collectible without notice,
time being of the essence of this contract, and said principal and said accrued
interest shall both bear interest at the highest rate permissible under law from
such time until paid.
Each maker and endorser waives presentment, protest, notice of
protest and notice of dishonor and agrees that no obligation hereunder shall be
discharged under any extension, indulgence or release given to the maker or any
other person. Each maker and endorser agrees to pay all costs, including a
reasonable attorney's fee, whether suit be brought or not, if counsel shall be
employed after maturity of this note or default hereunder to collect this
Promissory Note or protect the security thereof. No delay by the Lender in
exercising any power or right hereunder shall operate as a waiver of any power
or right; nor shall any single or partial exercise of any other power or right
preclude any further exercise thereof, or the exercise of any other power or
right hereunder or otherwise; and no waiver whatsoever or modification of the
terms hereof shall be valid unless in a writing signed by the Lender and then
only to the extent therein set forth.
42
<PAGE> 2
By: SPRAYROQ, INC.
Attest:
/s/ W.E. Murphy, IV /s/ James J. Baird, Jr.
- - -------------------------------- -----------------------------------
W.E. Murphy, IV James J. Baird, Jr.
Secretary Its President
(Corporate Seal)
43
<PAGE> 1
EXHIBIT 10.21
SPRAYWALL(TM) SYSTEM
LICENSE AGREEMENT
This SPRAYWALL(TM) SYSTEM LICENSE AGREEMENT is made and entered into
as of the 1st day of December, 1993, by and between SPRAYROQ, INC., a
corporation organized and existing under the laws of the State of Florida
(hereinafter referred to as the "Licensor"), and Southwestern Underground
Supply and Environmental Services, Inc., a corporation organized and existing
under the laws of the State of Texas(hereinafter referred to as the
"Operator").
WITNESSETH:
WHEREAS, the Licensor has developed and commercialized a technique,
materials and application apparatus for the spray application of specially
formulated resinous materials, including, but not limited to, polyurethanes,
polyesters and epoxies (the "SprayWall System") for use in the construction and
rehabilitation of certain appurtenances to sewer utility systems; and
WHEREAS, the foregoing development has resulted in valuable know-how
and technology which are proprietary to the Licensor; and
WHEREAS, the Operator possesses certain knowledge and skills with
respect to the market for the SprayWall(TM) System in certain geographic
regions; and
WHEREAS, the Operator is desirous of gaining a right and license to
use such technique, materials and apparatus;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings set forth herein, the parties hereto agree as follows:
ARTICLE I
GRANT OF LICENSE
1.1 Grant of License.
(a) Licensor hereby grants to Operator the right and license(the
"License") to utilize the SprayWall(TM) System and related trademarks and
tradenames for the Subject Uses and the Additional Uses (as defined below), as
may be developed by Licensor, and to advertise such system, all subject to the
terms and limitations set forth in this Agreement.
(i) The License and the SprayWall(TM) System shall be used by
Operator exclusively for constructing or rehabilitating certain
appurtenances to public and private sewer utility systems, including
manholes, catchbasins, wet wells, corrosion resistant barriers, and
tanks, but specifically excluding flumes, tunnels, conduits, and
pipes, hereinafter referred to as the "Subject Uses".
(ii) The License shall be non-exclusive for the geographic
territory described in Exhibit A attached hereto and made a part
hereof (the "Territory").
<PAGE> 2
(iii) Operator shall have the non-exclusive right to utilize
the SprayWall(TM) System outside of the Territory subject to the
payment of a special fee and upon other terms as hereinafter provided.
(iv) The License and this Agreement shall continue for a term
(sometimes referred to herein as the "Term") of ten (10) years
beginning on the date hereof. Thereafter, the License and this
Agreement shall be automatically renewed for successive one (1) year
periods unless and until either party provides the other party with
written notice of termination not less than 60 days prior to the end
of the Term or the end of any such one year renewal term.
1.2 Other Operators/Other Commercial Uses. Licensor reserves the right to
grant one or more SprayWall (TM) System licenses for the Subject Uses to (i)
other parties in the Territory, and (ii) to other parties who may have non-
exclusive or semi-exclusive licenses in geographic areas other than the
Territory. Operators holding non-exclusive or semi-exclusive licenses in
territories other than the Territory shall have the right to utilize the
SprayWall(TM) System in the Territory subject to the payment of a special fee
and other terms as hereinafter provided. Operators holding a non-exclusive
license in the Territory shall have the right to utilize the SprayWall(TM)
System in the Territory without payment of any special fee to Licensee. For
uses other than the Subject Uses, Licensor reserves the exclusive right to
utilize the SprayWall(TM) System and to grant licenses to other parties,
exclusively or nonexclusively and in any geographic area, for use of the
SprayWall(TM) System, or variations thereof; provided, however that any
trademark, service mark, or copyright utilized by Licensor in conjunction with
the SprayWall(TM) System for applications other than the Subject Uses shall be
adequately distinct in form from the trademarks, service marks, and copyrights
licensed hereunder.
1.3 Identification of SprayWall(TM) System. In all matters involving the
supplying of or the bidding to supply the SprayWall(TM) System, Operator shall
identify such matters as involving the SprayWall(TM) System, and Operator shall
appropriately mark all types of printed matter as well as required material and
equipment with Licensor's supplied logo, insignia, trademark, trade name and
the like, acknowledging, where appropriate, their use under license from the
Licensor. Licensor shall be given reasonable rights of inspection to verify
compliance by Operator with these requirements.
<PAGE> 3
1.4 Use of Service Mark and Trademark. The Operator further acknowledges
that valuable goodwill is attached to all trademarks, service marks, trade
names, and copyrights associated with the SprayWall(TM) System, and covenants
that it will use same in the manner and to the extent specifically licensed by
this Agreement. The Licensor, in its sole discretion, has the right itself to
operate businesses under said trademarks, service marks, trade names and
copyrights, and to grant other licenses in, to and under such trademarks,
service marks, trade names and copyrights, on any terms the Licensor deems fit,
except for the limitations set for herein as to the Subject Uses in the
Territory. The Operator expressly recognizes that any and all goodwill
associated with said trademarks, service marks, trade names, and copyrights,
including any goodwill which might be deemed to have arisen through the
Operator's activities, inures directly and exclusively to the benefit of the
Licensor.
1.5 Rights Reserved to Licensor. It is specifically understood and
agreed that the grant of this license for the Territory during the Term is
based upon the size and ability of the Operator to provide and/or exploit the
demand for the SprayWall(TM) System for the Subject Uses within the Territory,
and the nature and scope of the Territory has been determined accordingly. The
Operator further understands and agrees that the Licensor retains the right to
grant non-exclusive licenses for the Subject Uses to other parties in the
Territory, to grant semi-exclusive licenses to other operators in other
territories and to grant licenses to other parties to utilize the SprayWall(TM)
System within the Territory for purposes other than the Subject Uses. The
Licensor reserves the right to vary or otherwise modify the nature and scope of
subsequent licenses granted to subsequent licensees to accommodate specific
applications, territories, population considerations and other factors. The
Operator acknowledges and agrees that the Licensor shall not be obligated to
prevent other of its licensees from exploiting the SprayWall(TM) System in the
Territory for the Subject Uses.
1.6 Additional Uses. In the event the Licensor, from time to time, in
its sole but reasonable discretion, determines that the SprayWall(TM) System
may be commercialized in the Territory for uses other than the Subject Uses
(the "Additional Uses"), the Licensor shall advise the Operator of such
Additional Uses by written notice delivered to the Operator. Within 30 days of
the date of such notice, the Operator shall notify the Licensor in writing
whether it desires to extend the Subject Uses to include all, and not less than
all, such Additional Uses with respect to which such notice is being given,
subsequent to which the parties shall negotiate, in good faith, to agree upon
equipment and material purchase requirements for such Additional Uses, which
shall in all other respects be subject to the terms and conditions of this
Agreement. If Operator does not timely respond to Licensor's notice, or if
Operator elects not to extend this Agreement to include the
<PAGE> 4
Additional Uses, or if within six months of the Operator's notice as aforesaid
the parties are unable to agree upon such requirements, the Licensor shall be
entitled to solicit a license to a third party (which may be an affiliate of
the Licensor) to commercialize the SprayWall(TM) System in the Territory for
the Additional Uses with respect to which such notice is being given; provided,
however, that such license shall not be upon terms more favorable to such third
party than last offered by the Licensor to the Operator. Notwithstanding any
other provisions set forth in this paragraph 1.6, the Licensor shall not be
obligated to commercialize the SprayWall(TM) System in any application other
than the Subject Uses.
ARTICLE II
INITIAL FEE; CROSS-OVER PAYMENT:
2.1 Initial Fee. At the time of execution and delivery of this
Agreement, the Operator shall pay to the Licensor a non-refundable fee in the
amount of $60,000.00 in cash or other immediately available funds, which fee
shall include the cost of the license and the initial package as described in
Article III and paragraph 5.1.
2.2 Cross-Over Payment.
(a) The Operator shall, during the Term, exploit the SprayWall(TM)
System in the Territory in the Subject Uses for the mutual benefit of the
Operator, the Licensor, and the customers and potential customers of the
Operator, in order to fulfill the Operator's obligations hereunder, and the
Operator shall ensure that the customers of the Operator are provided such
information, warranties, and services by the Operator as shall assure that such
obligations are met. In so exploiting the SprayWall(TM) System in the Subject
Uses, the Operator shall be required to make significant financial investments,
necessary for market development, in capital and equipment, in marketing and
promotion, and in providing information and services.
(b) In order to compensate the Licensor's licensees in other
territories for the making of such investments, and to induce them to do so,
should the Operator seek to exploit the SprayWall(TM) System outside of the
Territory in any of the Subject Uses and in an area where a semi-exclusive
license for the Subject Uses has been granted by the Licensor, the Operator
shall make a quarterly Cross-Over Payment of ten percent (10%) of the Gross
Contract Value of all installations so utilizing the SprayWall(TM) System for
such Subject Uses in such areas, at the time of and in addition to the Royalty
payable to the Licensor. All Cross-Over Payments shall be paid by the Operator
to the Licensor. Should the Operator fail to make a Cross-Over Payment to the
Licensor within the time applicable for payment of Royalties, such
<PAGE> 5
failure shall be a material breach of this Agreement. In addition, materials
used in such projects which would otherwise be counted towards the materials
purchase objectives under paragraph 4.1 hereof shall not be counted towards
Operator's materials purchase objectives under paragraph 4.1.
(c) All licenses governing the commercialization of the
SprayWall(TM) System for the Subject Uses within the United States of America
shall provide for a similar cross-over payment in the minimum amount of ten
percent (10%) of the Gross Contract Value of installations utilizing the
SprayWall(TM) System for any of the Subject Uses within the Territory, by the
licensee thereunder to the Licensor, as agent for such licensee, who shall in
turn promptly after receipt thereof, pay such cross-over payment to the
Operator or other operators licensed in the Territory for the Subject Uses in
such proportions as Licensor determines in its sole discretion to be
appropriate, without deduction or holdback; provided, however, that no such
cross-over payment shall be due for use of the SxprayWall(TM) System for any of
the SUbject Uses within the Territory by other parties having a non-exclusive
licnese for the Subject Uses in the Territory. Nothing contained in this
Agreement shall obligate the Licensor to take any collection action with
respect to any Cross-Over Payment. Licensor shall give Operator credit under
paragraph 4.1 hereof for the amount of materials used by such other licensee in
such licensee's project within the Territory.
(d) In addition to all other obligations of the Operator hereinafter
set forth, in order to assure product quality and to meet all products
liability and health and safety requirements, it shall be the responsibility of
the Operator to assure that satisfactory arrangements are made to provide full
and complete after-sales service and warranty protection for the job involved,
including specifically, but not limited to, the ability to rapidly deploy a
repair crew to the site of any such job.
(e) Licensor reserves the right from time to time to modify the
percentage by which the Cross-Over Payment is determined to a percentage which
in Licensor's sole and exclusive judgment will adequately compensate the
operators entitled to receive such payment.
2.3 Reports and Payments. The Operator shall submit and deliver to the
Licensor separate written reports at the times hereinafter set forth and in
such form as may be reasonably required and as may be amended, from time to
time, by the Licensor.
Within 30 days after the end of each calendar quarter of the Term,
the Operator shall deliver to the Licensor a report of work performed by the
Operator utilizing the SprayWall(TM) System for the Subject Uses during such
calendar quarter, whether or not invoiced or paid, the total amount invoiced,
the Gross Contract Value (as hereinafter defined) and the terms for the work
performed, a computation of the Royalty (as hereinafter defined),if any, due
the Licensor and any Cross-Over Payment due to the Licensor, and such other
information as the Licensor may reasonably require to enable the Licensor to
evaluate computation of the Royalty, any Cross-Over Payments and the Operator's
achievement of the Performance Objectives. Such report shall be accompanied by
payment in full of all Royalties and all Cross-Over Payments.
2.4 Default in Payment. Should the Operator fail to pay the License
Fee, any Royalty or any Cross-Over Payment as aforesaid, or fail to pay for
<PAGE> 6
Materials and/or Apparatus, arising from or in connection with this Agreement,
when validly due, or fail to deliver any report due under Section 2.4 hereof,
this Agreement shall, at the option of Licensor (subject, without limitation,
to any applicable notice and cure periods therein), terminate.
ARTICLE III
THE INITIAL PACKAGE
Licensor shall provide to Operator the following services:
3.1 Training. Licensor shall provide, and Operator shall attend and
shall fully participate in, a training course for the SprayWall(TM) System
which shall be at a time selected by Licensor. Operator shall furnish not less
than three (3) nor more than six(6) members of its staff who in Licensor's
judgment, reasonably exercised, possess qualifications for such training. Such
training shall be given at Licensor's facilities at Jacksonville, Florida for
such time as may, in Licensor's judgment be required, but not more than three
weeks in the aggregate. All costs of conducting such training shall be borne
by Licensor with the exception of salaries, salary related costs,
transportation and room and board for the trainees, which cost shall be borne
by Operator. An on-sight observation of a commercial manhole rehabilitation
job will be made available to the trainees, if such job is conveniently
available and is such as will permit such observation. The training course
shall include the assembly, maintenance and use of the SprayWall(TM)
application equipment to be acquired by Operator pursuant to Article V. Also
included shall be training for the preparation, handling and use of materials,
and for the use of related mobile equipment for transportation and on-job-site
support. Licensor shall provide training to additional members of Operator's
staff and/or additional training sessions at Licensor's then prevailing fee at
a time and place to be determined by Licensor. The training course shall not
include any training with respect to business organization, operation or
management, or marketing or promotional activities.
3.2 Equipment and Material. The equipment used during the initial
training, together with one set of spare parts, shall be and become the
property of Operator at the termination of such initial training session.
Licensor shall supply all of the materials used in the initial training session
at no additional cost to Operator.
3.3 Manuals. Three Operator's Manuals for the use of the SprayWall(TM)
System for the Subject Uses shall be provided at no cost to Operator.
3.4 Optional Field Equipment. Plans and instructions for the assembly of
mobile handling and transportation vehicles shall be provided. At the request
of Operator, Licensor shall furnish, at a price equal to Licensor's cost plus
15%, all, or specified parts of, the required handling and transportation
equipment. Such shall be delivered F.O.B. Licensor's site according to a
delivery schedule to be mutually agreed upon by Licensor and Operator.
3.5 On Site and Field Support. Upon Operator's request, and subject to
the availability of Licensor's technical staff, Licensor shall provide at its
expense an initial visit and one visit annually by a member of Licensor's
technical staff. Such visit shall, at Operator's option, be at Operator's
place of business or a job site, and each visit will be for a
<PAGE> 7
period of not more than three consecutive business days, if required and shall
be for the sole purpose of rendering technical assistance related to the
SprayWall(TM) System. In addition, Licensor shall furnish to Operator, at no
additional charge and during all normal business hours for the term of the
Agreement, telephonic, technical information support by a qualified member of
Licensor's technical staff.
ARTICLE IV
OPERATOR'S PURCHASES OF MATERIALS
4.1 Quantity. Use of materials which are known to perform satisfactorily
for the Subject Uses is essential to the SprayWall(TM) System. Licensor has
developed proprietary formulations of materials which are uniquely suited to
the SprayWall(TM) System for the Subject Uses and which, to Licensor's
knowledge, are not available through other sources. In order to assure the
quality of the SprayWall(TM) application and in order to maintain the goodwill
associated therewith, Operator shall, for a period of five years commencing on
the date hereof, purchase all materials necessary for the use of the
SprayWall(TM) System for the Subject Uses exclusively from Licensor. Exhibit
B, attached hereto and made a part hereof, sets forth the purchase terms and
quantities of the materials required to be purchased by Licensee, if any,
during the aforesaid five year period. Operator acknowledges that a
performance objective as determined by a volume of required purchases of the
SprayWall(TM) proprietary materials is reasonable in relation to the effort and
expense invested in the development of the SprayWall(TM) System and for the
development of the Territory. Operator's failure to meet such requirements in
any of the respective years of the five year period shall be a reasonable and
proper cause for Licensor's termination of the License granted hereby.
4.2 Quality. Licensor shall furnish SprayWall(TM) materials of the
nature and quality required for the proper performance of the SprayWall(TM)
System, which quality shall be subject to and limited by Licensor's warranty
obligations as hereinafter set forth. Any materials acquired by Operator
following the five year exclusive purchasing period shall be of like quality as
determined by Licensor in Licensor's sole judgment, reasonably exercised.
4.3 Second Phase Purchases. Not less than 180 days prior to the end of
the fifth year of the Term, Operator shall notify Licensor of Operator's
election with respect to Operator's purchases of materials during years 6
through 10 of the Term. Operator shall elect (i) to continue purchasing
materials from Licensor, in which event the terms of Exhibit B shall continue
to apply to such purchases; (ii) to obtain from a supplier of Operator's
choosing materials which, although not the SprayWall materials, will function
properly with the SprayWall(TM) System, in which event the provisions of
paragraphs 4.4 and 4.5 shall be applicable; or (iii) to terminate this license,
in which event the non-compete provisions of paragraph 7.3(c) shall be
applicable.
4.4 Outside Suppliers and Royalties. In the event Operator elects
pursuant to paragraph 4.3 to obtain materials from an outside supplier for use
in the SprayWall(TM) System during the second five years of the Term, Operator
shall, prior to the use of any materials supplied by a supplier other than
Licensor, obtain the written approval of Licensor to the use of such material
in the SprayWall(TM) System, which approval shall not be unreasonably withheld.
In connection therewith, Operator shall supply
<PAGE> 8
Licensor with such information regarding such material and sufficient
quantities thereof as may be necessary for Licensor's evaluation. Licensor's
approval of any such material shall not constitute nor be deemed to be a
warranty or guaranty by Licensor of any such material and Licensor shall have
no liability for the use of any material supplied by any other party regardless
of whether Licensor has approved the use thereof.
4.5 Royalty. In the event Operator elects pursuant to paragraph 4.3
to obtain materials from an outside supplier for use in the SprayWall(TM)
System during the second five years of the Term, Operator shall pay to Licensor
a royalty (the "Royalty") computed as set forth herein.
(a) The Operator shall pay to the Licensor, within 30 days after
the end of each calendar quarter during the second five years of the Term of
this Agreement, a Royalty equal to eight percent (8%) of that portion of the
Gross Contract Value (as hereinafter defined) of all contracts for the use or
sale of the SprayWall(TM) System, and all preparatory and finishing work
therefor, carried out by the Operator, or any agent, employee, subcontractor or
independent contractor retained for such purpose, in the Territory and in any
other geographic area during the period to which such Royalty is applicable,
such Gross Contract Value(adjusted for all proper change orders and
contractually required adjustments) being calculated after adding back trade
discounts and other preferences.
(b) The "Gross Contract Value" of any contract shall mean the
total cost of all labor, raw materials, services and other costs necessary to
complete the installation of the SprayWall(TM) System. If some or all of the
foregoing are acquired separately by or for the benefit of the Operator, the
cost thereof shall be added to the Gross Contract Value for the purpose of
computing the Royalty. The Gross Contract Value shall also include the value
of any actual, preparatory and/or finishing work performed by Operator or any
subcontractor or independent contractor, whether retained or hired by the
Operator, its agents or employees, the ultimate customer, or any other party,
when such actual, preparatory and/or finishing work is performed as a part of
and/or as an adjunct to the installation and use of the SprayWall(TM) System,
and the value of any such work shall be added to the Gross Contract Value for
the purpose of computing the Royalty.
(c) Notwithstanding anything contained herein to the contrary,
Operator's Royalty payment obligation shall not be less than $75,000.00 for any
given year during the second five (5) period of the Term, or any renewal year
thereafter.
ARTICLE V
OPERATOR'S PURCHASE OF EQUIPMENT
5.1 Initial Equipment Packages. As part of the Initial Package, Licensor
shall supply Operator with one set of SprayWall(TM) System equipment, certain
spare parts and one personal air supply system. In the event that Operator
requires one or more additional sets of such equipment, or components thereof,
the first such set of equipment or components shall be purchased from Licensor
at the then prevailing market price. Additional sets of equipment may, subject
to the provisions of paragraph 5.2, be acquired from other suppliers.
<PAGE> 9
5.2 Additional Equipment. The proper application of the SprayWall(TM)
System requires the use of equipment which is designed and manufactured for use
with the SprayWall(TM) materials. The equipment supplied by Licensor has been
specifically configured for the proper application of the SprayWall(TM)
materials. Prior to the purchase, leasing, or other acquisition of any
equipment for use with the SprayWall(TM) System which has not previously been
approved by Licensor for use in the SprayWall(TM) System, Operator shall obtain
the written approval of Licensor for the use of such equipment in the
SprayWall(TM) System. Licensor's approval of any equipment shall not be
withheld unreasonably.
ARTICLE VI
IMPROVEMENTS; SECRECY
6.1 Commercialization of Improvements. The Operator recognizes and
agrees that, from time to time hereafter, the Licensor may, in its discretion,
change or modify the SprayWall(TM) System and/or adopt and use new or modified
trade names, trademarks, service marks or copyrighted materials with respect
thereto, and that the Operator, at the election of the Licensor, will accept,
use and display for the purpose of this Agreement any such changes and such
new or modified trade names, trademarks, service marks or copyrighted materials
as if they were part of this Agreement at the time of execution hereof. The
Operator shall furnish such cooperation as such changes or modifications may
reasonably require, and do so within a reasonable time.
6.2 Secrecy. Operator shall, and shall instruct all of its officers,
directors, employees, agents or representatives to, hold in absolute secrecy
and treat confidentially all materials and information related to the SprayWall
System (the "Confidential Material"), and not disclose, reproduce, publish,
distribute or by any other means disseminate, in whole or in part, any such
Confidential Material, except as shall be specifically necessary in order to
exercise its rights under this Agreement. Neither the Operator nor any of its
employees, agents or representatives may in any manner use for its benefit, for
the benefit of others or to the detriment of Licensor any such Confidential
Material except as shall be specifically necessary for the Operator to exercise
its rights authorized under this Agreement.
6.3 Remedies.
(a) Without in any manner limiting the obligation of Operator to
cause its officers, directors, agents, employees and representatives to comply
with the provisions of Sections 6.2 and 6.3 hereof, as applicable, Operator
shall cause each of its officers, directors and key employees to execute an
agreement in the form attached hereto as Exhibit C; provided, however, that the
Operator shall not thereby be relieved of any of its other obligations under
this Agreement.
(b) In view of the irreparable harm and damage which would be
incurred by Licensor in the event of any violation by Operator or any of its
officers, directors, employees, agents or representatives of any of the
provisions of Sections 6.2 or 6.3 hereof, as applicable, Operator hereby
consents and agrees that, if it or any of its officers, directors, employees,
agents or representatives violate any such provision, the other party shall be
entitled to an injunction or similar equitable relief to be issued by any court
of competent jurisdiction restraining the said party
<PAGE> 10
and its employees, agents and representatives from committing or continuing any
such violation, which remedy shall be in addition to any and all other rights
Licensor might have due to or arising out of such violation.
(c) The provisions of Sections shall, in accordance with their
respective terms, survive the term of this Agreement, notwithstanding any
termination or expiration thereof. Without limiting the generality of any other
provision hereof, each party shall enforce the provisions hereof insofar as
they relate to such party's employees, agents, and representatives; provided,
however, that neither party shall be liable for the acts of its employees,
agents, and representatives which are not within the scope of their employment
except to the extent such acts result from or are permitted by the failure of
such party to enforce the terms hereof or result from the negligence of such
party.
ARTICLE VII
TERMINATION; NONCOMPETE
7.1 Termination by Operator. The Operator may terminate this Agreement
at any time more than five (5) years after the date hereof by service of
written notice to such effect on the Licensor 180 days in advance of the
effective date thereof and by complying with the applicable terms and
conditions of this Article VII. During such period after notice but prior to
actual termination, the Operator shall not bid or accept any additional jobs
which will require the utilization of the SprayWall System without the written
consent of the Licensor. Licensor may, after receipt of such notice, grant one
or more licenses for use of the SprayWall(TM) System in the Territory which may
begin during the remainder of the term hereof and may refuse to grant such
consent for any additional job to the Operator if such job shall, in the sole
discretion of Licensor, be detrimental to a new licensee in the Territory. The
holder of any such license shall not be required to make a Cross-Over Payment
to Operator and shall be entitled to receive its share of all Cross-Over
Payments for the Territory from and after the date of granting such license, as
determined by Licensor in its sole discretion.
7.2 Termination by Licensor.
(a) In the event the Operator:
(i) becomes insolvent or a petition in bankruptcy is
filed by or against the Operator and, if involuntary, is not
removed within 90 days thereafter, or a receiver is appointed
for the Operator; or
(ii) utilizes the SprayWall System in any application
outside of the Subject Uses; or
(iii) fails to purchase the minimum quantity of
material as described in Section 4.1, if any, hereof in any
calendar year and does not both 1) purchase an amount of
materials during the following year equal to the total of the
deficiency plus the minimum quantity for such following year,
and (2) purchase an amount of material during the first six
months of the following year which, if annualized, would cause
Operator to be in compliance with (1) above; or
<PAGE> 11
(iv) fails to pay when validly due for materials
and/or equipment due to the Licensor or any of its affiliates
arising from or in connection with this Agreement and such
failure shall continue for a period of 15 days after written
notice from the Licensor to the Operator; or
(v) fails to perform any other term or condition of
this Agreement or the Supply Agreement and fails to correct
the same within 30 days after written notice from the Licensor
to the Operator, or if not reasonably capable of correction
within such period, fails to commence such correction within
such period and thereafter to diligently proceed to make such
correction; or
(vi) fails to submit and deliver to the Licensor any
written report required under Section 2.3 hereof when due and
such failure shall continue for a period of 30 days after
written notice from the Licensor to the Operator;
then, in any such event, the Licensor may declare this Agreement terminated
immediately by delivering written notice of termination to the Operator.
(b) In the event the Operator fails to pay the License Fee,
any Royalty or any Cross-Over Payment in accordance with Article II hereof, or
fails to provide any written report required under paragraph (b) of Section 2.3
hereof in accordance with such provision and, in the case of the first such
breach in any calendar year, such failure shall continue for a period of 15
days after written notice from the Licensor to the Operator, then in any such
event, this Agreement shall terminate immediately at the option of Licensor on
delivering written notice of termination to the Operator.
(c) No termination under this Section 7.2 shall limit or affect any
other right or remedy of the Licensor, including the right to damages resulting
from the Operator's breach.
7.3 Consequences of Expiration or Termination.
(a) Upon expiration or termination of this Agreement, the Operator
shall promptly pay the Licensor all amounts then due under this Agreement,
terminate all use by it of the word "SprayWall(TM)" as a service mark, trade
name, trademark, certification mark or corporate name; avoid all subsequent use
of all service marks, tradenames, trademarks, certification marks or corporate
names likely to be confused with "SprayWall(TM)" as well as all stationery,
invoices, signs or other visual devices displaying or otherwise associated with
"SprayWall(TM)"; terminate all use of the SprayWall(TM) System and the
Licensor's Confidential Material, as well as the use and sale of any and all
products under any patent rights or copyrights; and assign to the Licensor,
free of charge, all claims to and any and all rights arising from the use of
"SprayWall(TM)", or any combination involving "SprayWall(TM)," in the
Territory; and return to the Licensor all Confidential Material in its
possession, and any copies which it has made of the same. Following
termination, the Operator shall continue to be obligated to provide all
after-sale services for which it has theretofore contracted, including the
honoring of all warranties. Should the Operator fail to fulfill such
obligations, and should the Licensor, in its reasonable discretion after notice
to the Operator, whether for reason of preserving product goodwill or
otherwise, choose to perform any such obligations (this paragraph in no way to
be construed as an assumption by
<PAGE> 12
the Licensor of any obligations for which it is not specifically contractually
responsible), then the Operator shall promptly reimburse the Licensor the
reasonable charges incurred by the Licensor in performing such obligations of
the Operator. If the Operator is a corporation having the word "SprayWall(TM)"
as a part of its corporate name, the Operator shall, within 60 days of
termination, amend its corporate name to remove the word "SprayWall(TM)"
therefrom.
(b) At the end of the Term, and/or in the event of early termination
of this Agreement or the license granted hereby by either party for any reason,
including, but not limited to, termination pursuant to paragraph 4.3, Operator
shall not, for the longer of (i) the balance of the Term, or (ii) three years
from the date of such termination, utilize within the Territory or any other
geographic area any process by which polyurethane, polyester, epoxy or other
chemicals are spray-applied for the Subject Uses. In the event of violation of
this provision, Licensor shall have the right to injunctive relief against
Operator and the period of such non-use shall be extended by the length of time
equal to the period from the date of the first such violation to the later of
the date such violations are enjoined or halted. This paragraph shall not,
however, prohibit the use by Operator during such period of any such process
which has been developed independently by a party which has not had access to
the SprayWall(TM) System.
ARTICLE VIII
REPRESENTATIONS AND COVENANTS OF OPERATOR
8.1 Business Acumen. Operator represents that Operator possesses
sufficient business acumen and expertise to operate its business in an
efficient and profitable manner. Operator further represents and covenants
that it has not entered into the Agreement with an expectation that Operator
will receive the benefit of any business expertise of Licensor. Licensor shall
not be obligated to provide Operator with any business expertise or assistance
in the areas of business operation, organization, marketing or promotion.
8.2 Use and Promotion of SprayWall System. Operator covenants (i) that i*
will utilize the SprayWall(TM) System in a professional manner to maintain and
enhance the reputation of and the goodwill associated with the SprayWall(TM)
System; (ii) that it shall use its reasonable efforts to promote and develop
the use of the SprayWall System within the Territory; and (iii) that the
SprayWall(TM) System, the SprayWall(TM) materials and the SprayWall(TM)
equipment shall be used by Operator solely and exclusively for the Subject
Uses.
ARTICLE IX
WARRANTIES; INDEMNIFICATION
9.1 Limited Warranty.
(a) The Licensor warrants that the SprayWall(TM) System can, in many
situations, successfully rehabilitate certain appurtenances to sewer utility
systems, provided said System is properly utilized in accordance with
Licensor's instructions. Every reasonable precaution will be taken by the
Licensor in compiling all data and offering instructions in the methods of use
of the SprayWall(TM) materials and apparatus purchased from the
<PAGE> 13
Licensor for operation hereunder to assure that they comply with the Licensor's
exacting standards and that the use of the SprayWall(TM) System for the Subject
Uses in accordance with the terms and conditions of this Agreement results in a
high standard of quality. To the best of Licensor's knowledge, all information
given will be correct in all material respects. However, it is impossible to
anticipate every possible variation in the manner of use or the conditions
under which the Operator will utilize the SprayWall(TM) System and, except as
stated above, Licensor shall under no circumstances be held responsible for any
results that occur as a consequence of a departure from the instructions,
materials or equipment provided by the Licensor or from negligence or
malfeasance on the part of the Operator.
(b) The Licensor makes no representation nor warranty that
performance in accordance with this Agreement will not infringe upon any
existing or subsequently issued or pending patent(other than that as of the
date hereof the Licensor has no knowledge of the existence of any such patent
or patent application upon which a claim of infringement may reasonably be
based). Licensor makes no representation or warranty that "SprayWall(TM)" is
available for use as a service mark, trade name, trademark, and/or certificate
mark in the United States (other than that, as of the date hereof, Licensor has
no actual knowledge of the existence of any such service mark, trade name,
trademark, or certificate mark upon which a claim of infringement may
reasonably be based); provided, however, that Licensor will undertake
reasonable efforts to register "SprayWall" as a service mark on the
Supplemental Register with the United States Patent and Trademark Office.
Further, the Licensor shall not be held responsible for use by the Operator of
any SprayWall(TM) equipment or material or Confidential Material in such manner
as to infringe any patent, trademark or copyright owned by another.
(c) Except as set forth herein, Licensor makes no warranty, express
or implied, including, without limitation, a warranty of merchantability or of
fitness for a particular purpose, with respect to the SprayWall(TM) System or
the materials or equipment sold or to be sold by Licensor for utilization in
conjunction therewith. In no event shall Licensor be liable to Operator for
incidental or consequential damages nor for punitive, treble or similar damages
and Licensor's sole liability and obligation shall be to replace the defective
material or equipment sold by Licensor.
9.2 Indemnification by Operator. The Operator agrees to indemnify, defend
and hold the Licensor harmless from any and all claims, including, without
limitation, for bodily injury (including death), personal injury and damage to
property of the Operator, the Licensor and/or others, which arise from the
alleged negligence or malfeasance of the Operator or from the existence or use
of materials or equipment acquired from sources other than the Licensor or
which are produced by the Operator.
ARTICLE X
INDEPENDENT CONTRACTORS
This Agreement does not constitute either party as an agent, legal
representative, joint venturer, partner, employee, or servant of the other
party for any purpose whatsoever; and it is understood between the parties
hereto that each party is an independent contractor and is in no way authorized
to make any contract, agreement, warranty or representation on
<PAGE> 14
behalf of the other party, or to create any obligation, express or implied, on
behalf of the other party. The Operator shall prominently display in its place
of business a certificate from the Licensor stating that said business is
operated by the Operator as a licensee of the Licensor, and not as an agent
thereof.
ARTICLE XI
MISCELLANEOUS
11.1 Attorneys' Fees. The prevailing party in any litigation
concerning this Agreement shall be entitled to recover from the non-prevailing
party the costs and expenses, including reasonable attorneys' fees and
paralegals' fees whether incurred at trial, on appeal or in collection,
incurred by the prevailing party in such litigation.
11.2 Notices. Any notice required or permitted to be given or served
upon either party hereto pursuant to this Agreement shall be sufficiently given
or served if sent to such party by United States certified mail, return receipt
requested, postage prepaid addressed to such party as set forth below and/or to
such other address as it shall designate by written notice to the other party,
as follows:
In case of notice to the Licensor:
SPRAYROQ, Inc.
11511 Phillips Highway
P.O. Box 41629
Jacksonville, Florida 32256
Attention: Vice President/General Manager
In case of notice to the Operator:
Southwestern Undergound Supply and
Enviroqnmental Services, Inc.
1696 West Northwest Highway
Dallas, Texas 75220
[or]
Post Office Box 140425
Irving, Texas 75014-0425
Attention: President
11.3 Transfer of License; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, with the specific understanding and
requirement that the Operator, without the Licensor's prior written consent
(which consent shall not be unreasonably withheld) shall not, by operation of
law or otherwise, sell, assign, transfer, convey, subcontract, give away, or
encumber to any person, firm or corporation, its interest in this Agreement, or
its interest in the license granted hereby, nor offer, permit, or suffer the
same. Any such assignment permitted by the Licensor to any affiliate of the
Operator shall be made on the express condition that the assignor guarantees
the performance of its assignee strictly in accordance with the terms and
provisions hereof. In the event that the Operator is a corporation or
partnership, should beneficial ownership of an amount of the outstanding
capital stock or other interest, as the case may be, or other indicia of
ownership in the Operator be conveyed so as to
<PAGE> 15
effect a change in control of the Operator, whether by sale, conveyance,
operation of law or otherwise, without having first obtained the written
consent of the Licensor (which consent shall not be unreasonably withheld) to
transfer the license the Licensor shall, at its option, have the right to
immediately terminate this Agreement. Any purported assignment, transfer,
conveyance or subcontract of this Agreement not having the aforesaid consent
shall be null and void and shall constitute a material default hereunder.
11.4 Exclusions. It is the intention of the Licensor and the
Operator that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies of each jurisdiction in
which enforcement is sought, but that the unenforceability of any provisions of
this Agreement shall not render unenforceable, or impair, the remainder of this
Agreement. In the event that any one or more of the provisions of this
Agreement is, or are, held to be invalid, it is agreed between the parties
that, if legally practical, said provision or provisions shall be considered
never to have been contained herein and this Agreement shall otherwise continue
in force and effect. To the extent that the provisions of this Agreement
provide for periods of notice less than those required by applicable law, or
provide for termination, cancellation, non*renewal or the like other than in
accordance with applicable law, such provisions shall, to the extent such are
not in accordance with applicable law, not be effective, and the Licensor shall
comply with applicable law in connection with each of these matters.
References in this Agreement to the materiality of any terms hereof are not
intended to be exhaustive of all such material terms, and shall not preclude
any other provisions from construction as or constituting a material provision
hereof.
11.5 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral and written understandings and agreements between the
parties hereto concerning the subject matter hereof. The article headings of
this Agreement are for convenience only and have no other significance. The
provisions of this Agreement shall not be waived, modified or amended, except
by a subsequent writing signed by both parties.
11.6 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
11.7 Standard of Dealing. The parties shall perform such further acts and
deeds as shall be necessary to effectuate the purposes of this Agreement and
shall, in their respective performance hereunder, at all times deal with the
utmost good faith with each other.
11.8 Remedies not Cumulative. No right or remedy herein conferred upon or
reserved to either party is exclusive of any other right or remedy herein or by
law or equity provided or permitted; but each shall be cumulative of every
right or remedy given hereunder. In addition to whatever remedy or remedies a
party may have by way of damages for violation of the provisions of this
Agreement and/or expiration or termination of the same, such party shall also
have the right to injunctive relief to enforce the provisions of this
Agreement.
11.9 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and both of which shall constitute one and
the same agreement.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SPRAYROQ, INC. SOUTHWESTERN UNDERGROUND SUPPLY
AND ENVIRONMENTAL SERVICES, INC.
By: /s/ W. Brad Belle By: /s/ Greg V. Seely
Vice President/General Manager President
<PAGE> 1
EXHIBIT 10.22
SPRAYWALL(R) SYSTEM
LICENSE AGREEMENT
This SPRAYWALL(R) SYSTEM LICENSE AGREEMENT is made and entered
into as of the 1st day of January, 1996, by and between SPRAYROQ, INC., a
corporation organized and existing under the laws of the State of Florida
(hereinafter referred to as the "Licensor"), and PER AARSLEFF A/S, a
corporation organized and existing under the laws of Denmark (hereinafter
referred to as the "Operator").
WITNESSETH:
WHEREAS, the Licensor has developed and commercialized
techniques, materials and application apparatus for the spray application of
specially formulated resinous materials, including, but not limited to,
polyurethanes, polyesters and epoxies; and
WHEREAS, one such spray application (the "SprayWall(R)
System") is utilized in the construction and rehabilitation of certain
appurtenances to sewer utility systems; and
WHEREAS, the foregoing development has resulted in valuable
know-how and technology which are proprietary to the Licensor; and
WHEREAS, the Operator possesses certain knowledge and skills
with respect to the market for the SprayWall(R) System in certain geographic
regions; and
WHEREAS, the Operator is desirous of gaining a right and
license to use such technique, materials and apparatus;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings set forth herein, the parties hereto agree as follows:
ARTICLE I
GRANT OF LICENSE
1.1 Grant of License.
(a) Licensor hereby grants to Operator for an initial term of
ten years, as hereinafter provided, the non-exclusive right and license (the
"License") to utilize the SprayWall(R) System and related trademarks, service
marks and tradenames (hereinafter collectively and separately and severally
referred to as "trademarks"), not including any of Licensor's other
technologies and trade secrets, for the Subject Uses and the Additional Uses
(as defined below), as may be developed by Licensor, and to advertise such
system, all subject to the terms and limitations set forth in this Agreement.
<PAGE> 2
(i) The License shall be limited to and the SprayWall(R)
System shall be used by Operator solely for constructing or
rehabilitating certain appurtenances to public and private sewer
utility systems, including manholes, catchbasins, wet wells, corrosion
resistant barriers, and tanks, hereinafter referred to as the "Subject
Uses" but specifically excluding flumes, tunnels, conduits, and pipes.
(ii) The License shall be non-exclusive for the geographic
territory described in Exhibit A attached hereto and made a part
hereof (the "Territory"), which Operator hereby specifically
acknowledges. Except as otherwise expressly provided in Paragraph
11.4 below, the license herein granted to Operator shall not be
directly or indirectly licensed, sublicensed, assigned, alienated or
encumbered by Operator to or by any other persons, entities or bodies.
(iii) Operator shall have the non-exclusive right to utilize
the SprayWall(R) System as licensed hereunder outside of the Territory
subject to the payment of a Cross-Over Payment as provided in
Paragraph 2.2(b) below, and upon other terms as hereinafter provided.
(iv) The License and this Agreement shall continue for a term
(sometimes referred to herein as the "Term") of ten (10) years
beginning on the date hereof. Thereafter, the License and this
Agreement shall be automatically renewed for successive one (1) year
periods unless and until either party provides the other party with
written notice of termination not less than 60 days prior to the end
of the Term or the end of any such one year renewal term.
1.2 Other Licenses/Other Commercial Uses. Licensor
reserves the right to grant one or more SprayWall(R) System licenses for the
Subject Uses to (i) other parties in the Territory, and (ii) other parties who
may have licenses in geographic areas other than the Territory. Operators
holding licenses in territories other than the Territory shall have the right
to utilize the SprayWall(R) System in the Territory subject to the payment of a
Cross- Over Payment and other terms as hereinafter provided in Paragraph 2.2(c)
below. Licensees holding a non-exclusive license in the Territory shall have
the right to utilize the SprayWall(R) System in the Territory without payment
of any Cross-Over Payment to Licensor for the benefit of Operator. For uses
other than the Subject Uses, Licensor reserves the right to utilize the
SprayWall(R) System and to grant licenses to other parties, exclusively or
nonexclusively and in any geographic area, for use of the SprayWall(R) System,
or variations thereof. Operator shall not in any event incorporate or use the
term "Spray Wall", any of the proprietary trademarks, or any other term similar
to any thereof, in its corporate name or the corporate name of any affiliate or
related party.
1.3 Identification of SprayWall(R) System. In all matters
involving the supplying of or the bidding to supply the SprayWall(R) System,
Operator shall identify such matters as involving the SprayWall(R) System, and
Operator shall appropriately mark all types of printed matter as well as
required material and equipment with Licensor's supplied logo, insignia,
trademark and the like, acknowledging, where appropriate, their use under
license from the Licensor. Licensor shall be given reasonable rights of
inspection to verify compliance by Operator with these requirements.
2
<PAGE> 3
1.4 Use of Trademarks. The Operator further acknowledges
that valuable goodwill is attached to all trademarks, service marks, trade
names, and copyrights associated with the SprayWall(R) System, and covenants
that it will use same in and only in the manner and to the extent specifically
licensed by this Agreement. The Licensor, in its sole discretion, has the right
itself to operate businesses under said trademarks, service marks, trade names
and copyrights, and to grant other licenses in, to and under such trademarks,
service marks, trade names and copyrights, on any terms the Licensor deems fit,
except for the limitations set forth herein as to the Subject Uses in the
Territory. The Operator expressly recognizes that any and all goodwill
associated with said trademarks, service marks, trade names, and copyrights,
including any goodwill which might be deemed to have arisen through the
Operator's activities, inures directly and exclusively to the benefit of the
Licensor.
1.5 Basis for License Grant. It is specifically
understood and agreed that the grant of this license for the Territory during
the Term is based upon the size and ability of the Operator to provide and/or
exploit the demand for the SprayWall(R) System for the Subject Uses within the
Territory, and the nature and scope of the Territory has been determined
accordingly. The Licensor reserves the right to vary or otherwise modify the
nature and scope of subsequent licenses granted to subsequent licensees to
accommodate specific applications, territories, population considerations and
other factors. The Operator acknowledges and agrees that the Licensor shall not
be obligated to prevent other of its licensees from exploiting the SprayWall(R)
System in the Territory for the Subject Uses.
1.6 Additional Uses. In the event the Licensor, from time
to time, in its sole but reasonable discretion, determines that the
SprayWall(R) System may be commercialized in the Territory for uses other than
the Subject Uses (the "Additional Uses"), the Licensor shall advise the
Operator of such Additional Uses by written notice delivered to the Operator.
Within 30 days of the date of such notice, the Operator shall notify the
Licensor in writing whether it desires to extend the Subject Uses to include
all, and not less than all, such Additional Uses with respect to which such
notice is being given, subsequent to which the parties shall negotiate, in good
faith, to agree upon equipment and material purchase requirements for such
Additional Uses, which shall in all other respects be subject to the terms and
conditions of this Agreement. If Operator does not timely respond to Licensor's
notice, or if Operator elects not to extend this Agreement to include the
Additional Uses, or if within six months of the Operator's notice as aforesaid
the parties are unable to agree upon such requirements, the Licensor shall be
entitled to solicit a license to a third party (which may be an affiliate of
the Licensor) to commercialize the SprayWall(R) System in the Territory for the
Additional Uses with respect to which such notice is being given.
Notwithstanding any other provisions set forth in this paragraph 1.6, the
Licensor shall not be obligated to commercialize the SprayWall(R) System in any
application other than the Subject Uses.
3
<PAGE> 4
1.7 Grant-Back of New Technology. In the event Operator
invents or develops any new technology relating to the SprayWall(R) System
and/or the Subject Uses therefor during the period this Agreement or any
extension or renewal thereof is in force and effect, Operator hereby agrees
that Licensor shall make an unqualified assignment of all rights, title and
interest to Licensor in and to said technology without payment of any monetary
or other compensation of any kind, this commitment by Operator being in
consideration of this Agreement as a whole. Thereupon, Licensor hereby grants
Operator a license back of said technology on the same terms and conditions and
subject to all limitations and conditions set forth in this Agreement with
respect to all SprayWall(R) System technology licensed hereunder. Operator
shall co-operate fully and immediately to share with Licensor all relevant
and/or useful information pertaining to said technology as the same is being
developed as well as after completion of development, including but not limited
to drawings, manuals, explanatory materials, analyses, hardware and equipment,
systems, operational aids and all other information in whatever medium, if any,
recorded (e.g., written, electronic, photographic, audio and others). To the
extent said technology is not recorded in any medium but is simply known to
Operator or to one or more of Operator's employees, Operator shall cause said
technology to be written and provided to Licensor in writing.
ARTICLE II
INITIAL FEE; CROSS-OVER PAYMENT
2.1 Initial Fee. At the time of execution and delivery of
this Agreement, the Operator shall pay to the Licensor a nonrefundable fee in
the amount of $70,000.00 (U.S. Currency) in cash or other immediately available
funds, which fee shall include the cost of the license and the initial package
as described in Article III and paragraph 5.1.
2.2 Cross-Over Payment.
(a) The Operator shall, during the Term, exploit the
SprayWall(R) System in the Territory in the Subject Uses for the mutual benefit
of the Operator, the Licensor, and the customers and potential customers of the
Operator, in order to fulfill the Operator's obligations hereunder, and the
Operator shall ensure that the customers of the Operator are provided such
information, warranties, and services by the Operator as shall assure that such
obligations are met. In so exploiting the SprayWall(R) System in the Subject
Uses, the Operator shall be required to make significant financial investments,
necessary for market development, in capital and equipment, in marketing and
promotion, and in providing information and services.
(b) The Operator shall make a quarterly Cross-Over
Payment of ten percent (10%) of the Gross Contract Value of all installations
so utilizing the SprayWall(R) System for such Subject Uses in such areas, at
the time of and in addition to the Royalty payable to the Licensor. The
purpose of said Cross-Over Payment is to compensate the Licensor's licensees in
other territories for the making of investments relating to the SprayWall(R)
System in their respective territories, to induce them to do so, and to
compensate for additional possible burdens and responsibilities thrust upon
said licensees when and if the Operator seeks to exploit the SprayWall(R)
System outside of the Territory in any of the Subject Uses and in an area where
a non-exclusive license for the Subject Uses has been granted to others by the
Licensor. All
4
<PAGE> 5
Cross-Over Payments shall be paid by the Operator to the Licensor. Should the
Operator fail to make a Cross-Over Payment to the Licensor within the time
applicable for payment of Royalties, such failure shall be a material breach of
this Agreement. In addition, materials used in such projects which would
otherwise be counted toward the materials purchase objectives under paragraph
4.1 hereof shall not in that event be counted towards Operator's material
purchase objectives under paragraph 4.1.
(c) All licenses governing the commercialization of the
SprayWall(R) System for the Subject Uses shall provide for a similar cross-over
payment in the minimum amount of ten percent (10%) of the Gross Contract Value
of installations utilizing the SprayWall(R) System for any of the Subject Uses
within the Territory, by the licensee thereunder to the Licensor, as agent for
such licensee, who shall in turn promptly after receipt thereof, pay such
Cross-Over Payment to the Operator and other operators licensed in the
Territory for the Subject Uses in such proportions as Licensor determines in
its sole discretion to be appropriate, without deduction or holdback;
provided, however, that no such Cross-Over Payment shall be due for use of the
SprayWall(R) System for any of the Subject Uses within the Territory by other
parties having a non-exclusive license for the Subject Uses in the Territory.
Nothing contained in this Agreement shall obligate the Licensor to take any
collection action with respect to any Cross-Over Payment. Licensor shall give
Operator credit under paragraph 4.1 hereof for the amount of materials used by
such other licensee in such licensee's project within the Territory.
(d) In addition to all other obligations of the Operator
hereinafter set forth, in order to assure product quality, to guard against
product liability and comply with health and safety requirements, it shall be
the responsibility of the Operator to assure that satisfactory arrangements are
made to provide full and complete after-sales service and reasonable warranty
protection for the job involved, including specifically, but not limited to,
the ability to rapidly deploy a repair crew to the site of any such job.
(e) Licensor reserves the right from time to time to
modify the percentage by which the Cross-Over Payment is determined to a
percentage which in Licensor's sole judgment will adequately compensate the
licensees entitled to receive such payment.
2.3 Reports and Payments. The Operator shall submit and
deliver to the Licensor separate written reports at the times hereinafter set
forth and in such form as may be reasonably required and as may be amended,
from time to time, by the Licensor.
Within 30 days after the end of each calendar quarter of the
Term or of any extension or renewal thereof, the Operator shall deliver to the
Licensor a report of work performed by the Operator utilizing the SprayWall(R)
System for the Subject Uses during such calendar quarter, whether or not
invoiced or paid, the total amount invoiced, the Gross Contract Value (as
hereinafter defined) and the terms for the work performed, a computation of the
Royalty (as hereinafter defined), if any, due the Licensor and any Cross-Over
Payment due to the Licensor, and such other information as the Licensor may
reasonably require to enable the Licensor to understand the computation of the
Royalty, and any Cross-Over Payments and assess the Operator's achievement of
the Performance Objectives. Such report shall be accompanied by payment in
full of all Royalties and all Cross-Over Payments.
5
<PAGE> 6
In order to verify the accuracy of the reports and other
information provided by Operator to Licensor, Licensor shall have the right at
reasonable times, on reasonable notice, during normal business hours, to
inspect and/or audit and, as necessary, copy any and all books and records of
Operator relating to royalties, Cross-Over Payments, Performance Objectives and
other matters concerning this Agreement and Operator's performance of its
obligations under this Agreement.
2.4 Materials and Equipment. All payments for materials
and equipment to be made by Operator to Licensor under this Agreement shall be
paid in cash, wire transfer or other immediately available funds unless
otherwise agreed by Licensor in advance.
2.5 Default in Payment. Should the Operator fail to pay
the License Fee, any Royalty or any Cross-Over Payment as aforesaid, or fail
to pay for Materials and/or Apparatus, arising from or in connection with this
Agreement, when due, or fail to deliver any report due under Section 2.3
hereof, this Agreement shall, at the option of Licensor (subject, without
limitation, to any applicable notice and cure periods therein), terminate.
ARTICLE III
THE INITIAL PACKAGE
Licensor shall provide to Operator the following services:
3.1 Training. Licensor shall provide, and Operator shall
attend and shall fully participate in, a training course for the SprayWall(R)
System which shall be at a time selected by Licensor. Operator shall furnish
not less than three (3) nor more than six (6) members of its staff who in
Licensor's judgment, reasonably exercised, possess qualifications for such
training. Such training shall be given at Licensor's facilities at
Jacksonville, Florida for such time as may, in Licensor's judgment be required,
but not more than three weeks in the aggregate. All costs of conducting such
training shall be borne by Licensor with the exception of salaries, salary
related costs, transportation and room and board for the trainees, which cost
shall be borne by Operator. An on-sight observation of a commercial manhole
rehabilitation job will be made available to the trainees, if such job is
conveniently available and is such as will permit such observation. The
training course shall include the assembly, maintenance and use of the
SprayWall(R) application equipment to be acquired by Operator pursuant to
Article V. Also included shall be training for the preparation, handling and
use of materials, and for the use of related mobile equipment for
transportation and on-job-site support. Licensor shall provide training to
additional members of Operator's staff and/or additional training sessions at
Licensor's then prevailing fee at a time and place to be determined by
Licensor. The training course shall not include any training with respect to
business organization, operation or management, or marketing or promotional
activities.
3.2 Equipment and Material. The equipment used during
the initial training, together with one set of spare parts, shall be and become
the property of Operator at the termination of such initial training session.
Licensor shall supply all of the materials used in the initial training session
at no additional cost to Operator.
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3.3 Manuals. Three Operator's Manuals for the use of the
SprayWall(R) System for the Subject Uses shall be provided at no additional
cost to Operator.
3.4 Optional Field Equipment. Sample plans for the
assembly of mobile handling and transportation vehicles shall be provided. At
the request of Operator, Licensor shall furnish, at a reasonable price to be
determined by the Licensor, all, or specified parts of, the required handling
and transportation equipment. Such shall be delivered F.O.B. Licensor's site
according to a delivery schedule to be mutually agreed upon by Licensor and
Operator.
3.5 On Site and Field Support. Upon Operator's request,
and subject to the availability of Licensor's technical staff, Licensor shall
provide an initial visit and one visit annually by a member of Licensor's
technical staff provided the Operator shall be responsible for all expenses
involved with such a visit. Such visit shall, at Operator's option, be at
Operator's place of business or a job site, and each visit will be for a period
of not more than five consecutive business days, if required and shall be for
the sole purpose of rendering technical assistance related to the SprayWall(R)
System. In addition, Licensor shall furnish to Operator, at no additional
charge and during all normal business hours for the term of the Agreement,
reasonable telephonic, technical information support by a qualified member of
Licensor's technical staff. Licensor may at its discretion designate one or
more persons to or through whom all inquiries or requests for technical
assistance shall be made or channeled.
ARTICLE IV
OPERATOR'S PURCHASES OF MATERIALS
4.1 Quantity. Use of materials which are known to perform
satisfactorily for the Subject Uses is essential to the SprayWall(R) System.
Licensor has developed proprietary formulations of materials which are uniquely
suited to the SprayWall(R) System for the Subject Uses and which, to Licensor's
knowledge, are not available through other sources. In order to assure the
quality of the SprayWall(R) application and in order to maintain the goodwill
associated therewith, Operator shall, for a period of five years commencing on
the date hereof, purchase all materials necessary for the use of the
SprayWall(R).
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System for the Subject Uses exclusively from Licensor. Exhibit B, attached
hereto and made a part hereof, sets forth the purchase terms and quantities of
the materials required to be purchased by Operator, during the aforesaid five
year period. Operator acknowledges that a performance objective as determined
by a volume of required purchases of the SprayWall(R) proprietary materials is
reasonable in relation to the effort and expense invested in the development of
the SprayWall(R) System and for the development of the Territory. Operator's
failure to meet such requirements in any of the respective years of the five
year period shall be a material breach and legal cause for Licensor's
termination of the License granted hereby, without any refunds by Licensor of
fees of any kind.
4.2 Quality. Licensor shall furnish SprayWall(R)
materials of the type and quality required for the proper performance of the
SprayWall(R) System, which quality shall be subject to and limited by
Licensor's warranty obligations as hereinafter set forth. Any materials
acquired by Operator following the five year exclusive purchasing period shall
be of like quality as determined by Licensor in Licensor's sole judgment,
reasonably exercised.
4.3 Second Phase Purchases. Not less than 180 days prior
to the end of the fifth year of the Term, Operator shall notify Licensor of
Operator's election with respect to Operator's purchases of materials during
years 6 through 10 of the Term. Operator shall elect (i) to continue
purchasing materials from Licensor, in which event the terms of Exhibit B shall
continue to apply to such purchases; (ii) to obtain from a supplier of
Operator's choosing materials which, although not the SprayWall(R) materials,
will function properly with the SprayWall(R) System, in which event the
provisions of paragraphs 4.4 and 4.5 shall be applicable; or (iii) to terminate
this license, in which event the non-compete provisions of paragraph 7.3(c)
shall be applicable.
4.4 Outside Suppliers and Royalties. In the event
Operator elects pursuant to paragraph 4.3 to obtain materials from an outside
supplier for use in the SprayWall(R) System during the second five years of the
Term, Operator shall, prior to the use of any materials supplied by a supplier
other than Licensor, obtain the written approval of Licensor to the use of such
material in the SprayWall(R) System, which approval shall not be unreasonably
withheld. In connection therewith, Operator shall supply Licensor with such
information regarding such material and sufficient quantities thereof as may be
necessary for Licensor's evaluation. Licensor's approval of any such material
shall not constitute nor be deemed to be a warranty or guaranty by Licensor of
any such material and Licensor shall have no liability for the use of any
material supplied by any other party regardless of whether Licensor has
approved the use thereof.
4.5 Royalty. In the event Operator elects pursuant to
paragraph 4.3 to obtain materials from an outside supplier for use in the
SprayWall(R) System during the second five years of the Term, Operator shall
pay to Licensor a royalty (the "Royalty") computed as set forth herein.
(a) The Operator shall pay to the Licensor, within 30
days after the end of each calendar quarter during the second five years of the
Term of this Agreement, a Royalty equal to eight percent (8%) of that portion
of the Gross Contract Value (as hereinafter defined) of all contracts for the
use or sale of the SprayWall(R) System, and all preparatory and finishing
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work therefor, carried out by the Operator, or any agent, employee,
subcontractor or independent contractor retained for such purpose, in the
Territory and in any other geographic area during the period to which such
Royalty is applicable, such Gross Contract Value (adjusted for all proper
change orders and contractually required adjustments) being calculated after
adding back trade discounts and other preferences.
(b) The "Gross Contract Value" of any contract shall mean
the total cost of all labor, raw materials, services and other costs necessary
to complete the installation of the SprayWall System. If some or all of the
foregoing are acquired from sources other than Licensor by or for the benefit
of the Operator, the cost thereof shall be included in the Gross Contract Value
for the purpose of computing the Royalty. Additionally, for the purpose of
computing the Royalty, the Gross Contract Value shall also include the value of
any actual, preparatory and/or finishing work performed by Operator or any
subcontractor or independent contractor, whether retained or hired by the
Operator, its agents or employees, the ultimate customer, or any other party,
when such actual, preparatory and/or finishing work is performed as a part of
and/or as an adjunct to the installation and use of the SprayWall(R) System.
(c) Notwithstanding anything contained herein to the
contrary, Operator's Royalty payment obligation shall not be less than
$150,000.00 for each year during the second five (5) year period of the Term,
or in any renewal year thereafter. Each quarterly payment shall be not less
than the greater of $37,500 or the royalty specified in Paragraph 4.5(a) and
4.5(b) above; provided, at the end of each year there shall be an adjustment so
that Operator shall be refunded any aggregate payments for the then immediately
past year which exceed the greater of $150,000 or the actual royalty due under
said Paragraphs 4.5(a) and 4.5(b).
ARTICLE V
OPERATOR'S PURCHASE OF EQUIPMENT
5.1 Initial Equipment Packages. As part of the Initial
Package, Licensor shall supply Operator with one set of SprayWall(R) System
equipment, certain spare parts and one personal air supply system. In the event
that Operator requires one or more additional sets of such equipment, or
components thereof, the first such set of equipment or components shall be
purchased from Licensor at the then prevailing market price. Additional sets of
equipment may, subject to the provisions of paragraph 5.2, be acquired from
other suppliers.
5.2 Additional Equipment. The proper application of the
SprayWall(R) System requires the use of equipment which is designed and
manufactured for use with the SprayWall(R) materials. The equipment supplied by
Licensor has been specifically configured for the proper application of the
SprayWall(R) materials. Prior to the purchase, leasing, or other acquisition of
any equipment for use with the SprayWall(R) System which has not previously
been approved by Licensor for use in the SprayWall(R) System, Operator shall
obtain the written approval of Licensor for the use of such equipment in the
SprayWall(R) System. Licensor's approval of any equipment shall not be withheld
unreasonably.
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ARTICLE VI
IMPROVEMENTS; SECRECY
6.1 Commercialization of Improvements. The Operator
recognizes and agrees that, from time to time hereafter, the Licensor may, in
its discretion, change or modify the SprayWall(R) System and/or adopt and use
new or modified trade names, trademarks, service marks, or copyrighted
materials with respect thereto, and that the Operator, at the election of the
Licensor, will accept, use and display for the purpose of this Agreement any
such changes and such new or modified trade names, trademarks, service marks or
copyrighted materials as if they were part of this Agreement at the time of
execution hereof. The Operator shall furnish such cooperation as such changes
or modifications may reasonably require, and do so within a reasonable time.
6.2 Secrecy. Operator shall, and shall instruct all of
its officers, directors, employees, agents or representatives to, hold in
absolute secrecy and treat confidentially all materials and information related
to the SprayWall(R) System (the "Confidential Material"), and not disclose,
reproduce, publish, distribute or by any other means disseminate, in whole or
in part, any such Confidential Material, except as shall be specifically
necessary in order to exercise its rights under this Agreement. Neither the
Operator nor any of its officers, directors, employees, agents or
representatives may in any manner use any such Confidential Material except as
shall be specifically necessary for the Operator to exercise its rights
authorized under this Agreement, whether for itself, for others, or otherwise.
6.3 Remedies.
(a) Without in any manner limiting the obligation of
Operator to cause its officers, directors, agents, employees and
representatives to comply with the provisions of Sections 6.2 and 6.3 hereof,
as applicable, Operator shall cause each of its officers, directors and key
employees to execute an agreement in the form attached hereto as Exhibit C;
provided, however, that the Operator shall not thereby be relieved of any of
its other obligations under this Agreement.
(b) In view of the irreparable harm and damage which
would be incurred by Licensor in the event of any violation by Operator or any
of its officers, directors, employees, agents or representatives of any of the
provisions of Sections 6.2 or 6.3 hereof, as applicable, Operator hereby
consents and agrees that, if it or any of its officers, directors, employees,
agents or representatives violate any such provision, Licensor shall be
entitled to an injunction or similar equitable relief to be issued by any court
of competent jurisdiction restraining Operator and its officers, directors,
employees, agents and representatives from committing or continuing any such
violation, which remedy shall be in addition to any and all other rights
Licensor might have due to or arising out of such violation.
(c) The provisions of Sections 6.2 and 6.3, in accordance
with their respective terms, survive the termination or expiration of this
Agreement, regardless of the reason for said termination or any expiration.
Without limiting the generality of any other provision hereof, Operator shall
enforce the provisions hereof insofar as they relate to Operator's officers,
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directors, employees, agents, and representatives; provided, however, that
Operator shall not be liable for the acts of its employees, agents, and
representatives which are not within the scope of their employment except to
the extent such acts result from or are permitted by the failure of Operator to
enforce the terms hereof or result from Operator's negligence.
ARTICLE VII
TERMINATION; NONCOMPETE
7.1 Termination by Operator. The Operator may terminate
this Agreement at any time more than five (5) years after the date hereof by
service of written notice to such effect on the Licensor 180 days in advance of
the effective date thereof and by complying with the applicable terms and
conditions of this Article VII. During such period after notice but prior to
actual termination, the Operator shall not bid or accept any additional jobs
which will require the utilization of the SprayWall System without the written
consent of the Licensor. Licensor may refuse to grant such consent for any
additional job to the Operator if such job shall, in the sole discretion of
Licensor, be detrimental to a new licensee in the Territory. The holder of any
such license shall not be required to make a Cross-Over Payment and shall be
entitled to receive its share of all Cross-Over Payments for the Territory from
and after the date of granting such license, as determined by Licensor in its
sole discretion.
7.2 Termination by Licensor.
(a) In the event the Operator:
(i) becomes insolvent or a petition in bankruptcy
is filed by or against Operator, or Operator becomes subject to an
operational or administrative disability or serious restrictions under
the law of any county or state due to Operator's financial problems,
and, if involuntary, is not removed within 90 days thereafter, or a
receiver is appointed for the Operator; or
(ii) utilizes the SprayWall System in any
application outside of the Subject Uses; or
(iii) fails to purchase the minimum quantity of
material as described in Section 4.1, if any, hereof in any calendar
year and does not both 1) purchase an amount of materials during the
following year equal to the total of the deficiency plus the minimum
quantity for such following year, and (2) purchase an amount of
material during the first six months of the following year which, if
annualized, would cause Operator to be in compliance with (1) above;
or
(iv) fails to pay when validly due for materials
and/or equipment due to the Licensor or any of its affiliates arising
from or in connection with this Agreement and such failure shall
continue for a period of 15 days after written notice from the
Licensor to the Operator; or
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(v) fails to perform any other term or condition
of this Agreement or the Supply Agreement and fails to correct the
same within 30 days after written notice from the Licensor to the
Operator, or if not reasonably capable of correction within such
period, fails to commence such correction within such period and
thereafter to diligently proceed to make such correction; or
(vi) fails to submit and deliver to the Licensor
any written report required under Section 2.3 hereof when due and such
failure shall continue for a period of 30 days after written notice
from the Licensor to the Operator;
then, in any such event, the Licensor may declare this Agreement terminated
immediately by delivering written notice of termination to the Operator.
(b) In the event the Operator fails to pay the License
Fee, any Royalty or any Cross-Over Payment in accordance with Article II
hereof, or fails to provide any written report required under paragraph (b) of
Section 2.3 hereof in accordance with such provision and, in the case of the
first such breach in any calendar year, such failure shall continue for a
period of 15 days after written notice from the Licensor to the Operator, then
in any such event, this Agreement shall terminate immediately at the option of
Licensor on delivering written notice of termination to the Operator.
(c) No termination under this Section 7.2 shall limit or
affect any other right or remedy of the Licensor, including the right to
damages resulting from the Operator's breach.
(d) Operator agrees to co-operate reasonably with
Licensor to facilitate a smooth and expeditious disengagement whereby Licensor
obtains all benefits of the SprayWall(R) System theretofore held by Operator,
and whereby Operator's association and use and benefit thereof ceases.
7.3 Consequences of Expiration or Termination.
(a) Upon expiration or termination of this Agreement, the
Operator shall promptly pay the Licensor all amounts then due under this
Agreement, terminate all use by it of the word "SprayWall(R)" as a service
mark, trade name, trademark, certification mark or corporate name; avoid all
subsequent use of all service marks, tradenames, trademarks, certification
marks or corporate names likely to be confused with "SprayWall(R)" as well as
all stationery, invoices, signs or other visual devices displaying or otherwise
associated with "SprayWall(R)"; terminate all use of the SprayWall(R) System
and the Licensor's Confidential Material, as well as the use and sale of any
and all products under any patent rights or copyrights; and assign to the
Licensor, free of charge, all claims to and any and all rights arising from the
use of "SprayWall(R)", or any combination involving "SprayWall(R)"; and return
to the Licensor all Confidential Material in its possession, including but not
limited to Operator's Manuals and any and all copies of any of the foregoing.
Following termination, the Operator shall continue to be obligated to provide
all after-sale services for which it has theretofore contracted, including the
honoring of all warranties. Should the Operator fail to fulfill such
obligations, and should the Licensor, in its reasonable discretion after notice
to the Operator, whether for reason of preserving product goodwill or
otherwise, choose to perform any such
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obligations (this paragraph in no way to be construed as an assumption by the
Licensor of any obligations for which it is not specifically contractually
responsible), then the Operator shall promptly reimburse the Licensor the
reasonable charges incurred by the Licensor in performing such obligations of
the Operator.
(b) At the end of the Term, and/or in the event of early
termination of this Agreement or the license granted hereby by either party for
any reason, including, but not limited to, termination pursuant to paragraph
4.3, Operator shall not, for the longer of (i) the balance of the Term, or (ii)
three years from the date of such termination, utilize within the Territory or
any other geographic area any process by which polyurethane, polyester, epoxy
or other chemicals are spray-applied for the Subject Uses. In the event of
violation of this provision, Licensor shall have the right to injunctive relief
against Operator and the period of such non-use shall be extended by the length
of time equal to the period from the date of the first such violation to the
later of the date such violations are enjoined or halted. This paragraph shall
not, however, prohibit the use by Operator during such period of any such
process which has been developed independently by a party which has not had
access to the SprayWall(R) System.
ARTICLE VIII
REPRESENTATIONS AND COVENANTS OF OPERATOR
8.1 Business Acumen. Operator represents that Operator
possesses sufficient business acumen and expertise to operate its business in
an efficient and profitable manner. Operator further represents and covenants
that it has not entered into the Agreement with an expectation that Operator
will receive the benefit of any business expertise of Licensor. Licensor shall
not be obligated to provide Operator with any business expertise or assistance
in the areas of business operation, organization, marketing or promotion.
8.2 Use and Promotion of SprayWall System. Operator
covenants (i) that it will utilize the SprayWall(R) System in a professional
manner to maintain and enhance the reputation of and the goodwill associated
with the SprayWall(R) System; (ii) that it shall use its reasonable efforts to
promote and develop the use of the Spraywall* System within the Territory; and
(iii) that the SprayWall(R) System, the SprayWall(R) materials and the
SprayWall(R) equipment shall be used by Operator solely and exclusively for the
Subject Uses.
ARTICLE IX
WARRANTIES; INDEMNIFICATION
9.1 Limited Warranty.
(a) The Licensor warrants that the SprayWall(R) System can, in
many situations, successfully rehabilitate certain appurtenances to sewer
utility systems, provided said System is properly utilized in accordance with
Licensor's instructions. Reasonable precautions will be taken by the Licensor
in compiling all data and offering instructions in the methods of use of the
SprayWall(R) materials and apparatus purchased from the Licensor for operation
hereunder to
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assure that they comply with the Licensor's exacting standards and that the use
of the SprayWall(R) System for the Subject Uses in accordance with the terms
and conditions of this Agreement results in a high standard of quality. To the
best of Licensor's knowledge, all information given will be correct in all
material respects. However, it is impossible to anticipate every possible
variation in the manner of use or the conditions under which the Operator will
utilize the SprayWall(R) System and Licensor shall under no circumstances be
held responsible for any results that occur as a consequence of a departure
from the instructions, materials or equipment provided by the Licensor or from
negligence or malfeasance on the part of the Operator.
(b) The Licensor makes no representation nor warranty
that performance in accordance with this Agreement will not infringe upon any
existing or subsequently issued or pending patent (other than that as of the
date hereof the Licensor has no knowledge of the existence of any such patent
or patent application upon which a claim of infringement may reasonably be
based). Licensor makes no representation or warranty that "SprayWall(R)" is
available for use as a trademark, in the United States or in Denmark or
elsewhere, (other than that, as of the date hereof, Licensor has no actual
knowledge of the existence of any such trademark, upon which a claim of
infringement may reasonably be based); provided, however, that Licensor will
undertake reasonable efforts to register "SprayWall" as a service mark on the
Principal or Supplemental Register of the United States Patent and Trademark
Office. Further, the Licensor shall not be held responsible for use by the
Operator of any SprayWall(R) equipment or material or Confidential Material in
such manner as to infringe any patent, trademark or copyright owned by another.
(c) Except as expressly set forth herein, Licensor makes
no warranty, express or implied, including, without limitation, a warranty of
merchantability or of fitness for a particular purpose, with respect to the
SprayWall(R) System or the materials or equipment sold or to be sold by
Licensor for utilization in conjunction therewith. In no event shall Licensor
be liable to Operator for incidental or consequential damages nor for punitive,
treble or other enhanced damages, and Licensor's sole liability and obligation
shall be to replace the defective material or equipment sold by Licensor.
9.2 Indemnification by Operator. The Operator agrees to
indemnify, defend and hold the Licensor harmless from any and all claims,
including, without limitation, claims for bodily injury (including death),
personal injury and damage to property of the Operator, the Licensor and/or
others, which arise from the alleged negligence or malfeasance of the Operator
or from the existence or use of materials or equipment acquired from sources
other than the Licensor or which are produced by the Operator.
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ARTICLE X
INDEPENDENT CONTRACTORS
This Agreement does not constitute either party as an agent,
legal representative, joint venturer, partner, employee, or servant of the
other party for any purpose whatsoever; and it is understood between the
parties hereto that each party is an independent contractor and is in no way
authorized to make any contract, agreement, warranty or representation on
behalf of the other party, or to create any obligation, express or implied, on
behalf of the other party. The Operator shall prominently display in its place
of business a notice to the public stating that said business is operated by
the Operator as a licensee of the Licensor, and not as an agent thereof, said
notice to be in such form and content, if any, as Licensor may from time
specify.
ARTICLE XI
MISCELLANEOUS
11.1 Attorneys' Fees. Although it is the intent of the
parties that there be no litigation between them and that their disputes, if
any, shall be resolved as set forth in Paragraph 11.2 below, in the event that
court permits litigation to proceed, the prevailing party in any such
litigation concerning this Agreement shall be entitled to recover from the
non-prevailing party the costs and expenses, including reasonable attorneys'
fees and paralegals' fees whether incurred at trial, on appeal or in
collection, incurred by the prevailing party in such litigation. In no event
shall litigation be permitted in any location other than Jefferson County,
Alabama, USA.
11.2 Arbitration and Mediation. In the event there should
arise any dispute concerning or growing out of this Agreement or any
relationship of the parties hereto or transaction between or involving the
parties hereto or transaction between or involving the parties hereto, said
dispute shall be resolved by binding arbitration by a panel of three
arbitrators, said arbitration to be conducted solely in Jefferson County,
Alabama, under the auspices and subject to the rules and regulations and
procedures of the American Arbitration Association, except as otherwise
expressly provided herein. Said arbitration proceedings shall be conducted in
the English language. Each party shall appoint one arbitrator and the two
arbitrators so appointed shall then select a third arbitrator from a group of
potential arbitrators whose names shall be submitted to the two initial
arbitrators by the American Arbitration Association. Said panel of three
arbitrators shall be required to submit an opinion, together with its award,
setting forth its findings of material facts and reasons for its decision and
award. The parties have agreed to discuss between themselves the possibility
of non-binding mediation preliminary to resorting to binding arbitration, but
the parties recognize that time constraints and other possible considerations
might not necessarily make it feasible in every case to attempt mediation prior
to binding arbitration. It is the intent and agreement of the parties that in
no event may they resort to litigation as a means for resolving their disputes.
All payments specified or required to be made by Operator to
Licensor under the provisions of this Agreement shall be made unconditionally
and shall not be subject to any set-off, recoupment or other reductions for any
reason. To the extent Operator shall have any claim
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against Licensor, the same shall be resolved through negotiation and the
procedures specified in this Paragraph 11.2, without any such set-off,
recoupment or other reduction, and with all royalty and other payments to
Licensor continuing while any and all such claims are being resolved through
such negotiation and Paragraph 11.2 arbitration and mediation procedures.
11.3 Notices. Any notice required or permitted to be given
or served upon either party hereto pursuant to this Agreement shall be
sufficiently given or served if sent to such party by United States certified
mail, return receipt requested, postage prepaid addressed to such party as set
forth below and/or to such other address as it shall designate by written
notice to the other party, as follows:
<TABLE>
<CAPTION>
<S> <C>
In case of notice to the Licensor: In case of notice to Operator:
SPRAYROQ, Inc. PER AARSLEFF A/S
11511 Phillips Highway Lovesvej 15
P.O. Box 24447 DK-8230 Abyh#j
Jacksonville, Florida 32241-4447 Denmark
Attention: General Manager Attention: Director
</TABLE>
11.4 Transfer of License; Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, with the specific understanding
and requirement that the Operator, without the Licensor's prior written consent
(which consent shall not be unreasonably withheld) shall not, by operation of
law or otherwise, sell, assign, transfer, convey, subcontract, give away, or
encumber to any person, firm or corporation, its interest in this Agreement, or
its interest in the license granted hereby, nor offer, permit, or suffer the
same. Any such assignment permitted by the Licensor to any affiliate of the
Operator shall be made on the express condition that the assignor guarantees
the performance of its assignee strictly in accordance with the terms and
provisions hereof. In the event that the Operator is a corporation or
partnership, should beneficial ownership of an amount of the outstanding
capital stock or other interest, as the case may be, or other indicia of
ownership in the Operator be conveyed so as to effect a change in control of
the Operator, whether by sale, conveyance, operation of law or otherwise,
without having first obtained the written consent of the Licensor (which
consent shall not be unreasonably withheld) to transfer the license the
Licensor shall, at its option, have the right immediately to terminate this
Agreement, without waiver of any other rights Licensor might have. Any
purported assignment, transfer, conveyance or subcontract of this Agreement not
having the aforesaid consent shall be null and void and shall constitute a
material breach and default hereunder.
11.5 Exclusions. It is the intention of the Licensor and
the Operator that the provisions of this Agreement shall be enforced to the
fullest extent permissible by law, but that the unenforceability of any
provisions of this Agreement shall not render unenforceable, or impair, the
remainder of this Agreement. In the event that any one or more of the
provisions of this Agreement is, or are, held to be invalid, it is agreed
between the parties that, if legally practical, said provision or provisions
shall be considered never to have been contained herein, and this Agreement
shall otherwise continue in force and effect. To the extent that the provisions
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of this Agreement provide for periods of notice less than those required by
applicable law, or provide for termination, cancellation, nonrenewal or the
like other than in accordance with applicable law, such provisions shall, to
the extent such are not in accordance with applicable law, not be effective,
and the Licensor shall comply with applicable law in connection with each of
these matters. References in this Agreement to the materiality of any terms
hereof are not intended to be exhaustive of all such material terms, and shall
not preclude any other provisions from construction as or constituting a
material provision hereof.
11.6 Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral and written understandings and agreements
between the parties hereto concerning the subject matter hereof. The article
headings of this Agreement are for convenience only and have no other
significance. The provisions of this Agreement shall not be waived, modified or
amended, except by a subsequent writing signed by both parties.
11.7 Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Alabama, USA.
11.8 Standard of Dealing. The parties shall perform such
further acts and deeds as shall be necessary to effectuate the purposes of this
Agreement and shall, in their respective performance hereunder, at all times
deal with the utmost good faith with each other.
11.9 Payments. All payments of any and every kind under
this Agreement shall be made in United States currency. All royalty and other
payments hereunder shall be net of all taxes, fees, charges, duties or other
deductions, which shall be borne solely by Operator without any diminution of
the amounts specified under this Agreement to be paid to Licensor.
11.10 Mail and Courier Service. Wherever in this Agreement
reference is made to United States certified mail, the same for the purpose of
this Agreement shall be construed to mean any responsible international air
courier service with normal delivery within forty-eight hours, utilizing a
delivery receipt system for verifying to the sender the fact and time of
delivery.
11.11 Remedies not Cumulative. No right or remedy herein
conferred upon or reserved to either party is exclusive of any other right or
remedy herein or by law or equity provided or permitted, except as provided in
Paragraph 11.2 above, but otherwise each shall be cumulative of every right or
remedy given hereunder. In addition to whatever remedy or remedies a party may
have by way of damages for violation of the provisions of this Agreement and/or
expiration or termination of the same, such party shall also have the right to
injunctive relief to enforce the provisions of this Agreement upon an
arbitration award.
11.12 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and both of which shall
constitute one and the same agreement.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
SPRAYROQ, INC. PER AARSLEFF A/S
By: ___________________________ By: ___________________________
Title: Vice President/General Mgr. Title: Director
Date:___________________________ Date:___________________________
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ENVIROQ FOR THE YEAR ENDED MARCH 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-START> MAR-26-1995
<PERIOD-END> MAR-30-1996
<CASH> 3,628,990
<SECURITIES> 0
<RECEIVABLES> 126,397
<ALLOWANCES> 0
<INVENTORY> 118,390
<CURRENT-ASSETS> 3,920,705
<PP&E> 390,746
<DEPRECIATION> 56,402
<TOTAL-ASSETS> 4,290,038
<CURRENT-LIABILITIES> 1,216,071
<BONDS> 0
0
0
<COMMON> 10,094
<OTHER-SE> 3,063,873
<TOTAL-LIABILITY-AND-EQUITY> 4,290,038
<SALES> 1,116,930
<TOTAL-REVENUES> 1,116,930
<CGS> 698,498
<TOTAL-COSTS> 2,262,199
<OTHER-EXPENSES> (3,952,777)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,109,010
<INCOME-TAX> 1,040,504
<INCOME-CONTINUING> 1,068,506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,068,506
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
</TABLE>
