-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q0fVomh7mBr2qH8WlEMs3AC9UxjcwmLSgQ0XjE0FxDlKs/qo+hIvcIdOWr5bvM+7 0opO+kh7GdbL59vAFLLFRw== 0000950144-01-004700.txt : 20010409 0000950144-01-004700.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950144-01-004700 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYSTEMONE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000934851 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 650226813 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-21325 FILM NUMBER: 1592378 BUSINESS ADDRESS: STREET 1: 8305 NW 27TH ST STREET 2: STE 107 CITY: MIAMI STATE: FL ZIP: 33122 BUSINESS PHONE: 3055938015 MAIL ADDRESS: STREET 1: 8305 NW 27TH STREET STREET 2: SUITE 107 CITY: MIAMI STATE: FL ZIP: 33122 FORMER COMPANY: FORMER CONFORMED NAME: MANSUR INDUSTRIES INC DATE OF NAME CHANGE: 19960717 10KSB 1 g68025e10ksb.txt SYSTEMONE TECHNOLOGIES 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 000-21325 SYSTEMONE TECHNOLOGIES INC. (F/K/A MANSUR INDUSTRIES INC.) ----------------------------------------------------------------- (Exact name of Small Business Issuer as Specified in its Charter) Florida 65-0226813 --------------------------------------------- ---------------- (State or Other Jurisdiction Of Incorporation (I.R.S. Employer or Organization) Identification No.) 8305 N.W. 27th Street Suite 107 Miami, Florida 33122 (305) 593-8015 ------------------------------------------------------------------------ (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT: Common Stock, $.001 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in PART III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State the issuer's revenues for its most recent fiscal year: $17,524,059. The aggregate market value of the Registrant's Common Stock held by non-affiliates as of March 29, 2001 was $5,335,788 computed by reference to the closing bid price of the Common Stock as reported on the NASDAQ SmallCap Market on such date. As of March 29, 2001, there were 4,742,923 shares of the Registrant's Common Stock issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part III, Items 9-12, is incorporated by reference from the Registrant's definitive proxy statement (to be filed within 120 days after the end of the Registrant's fiscal year). 2 PRELIMINARY NOTE REGARDING FORWARD LOOKING STATEMENTS The following items contain certain "forward-looking statements" within the meaning of section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which represents the expectations or beliefs of SystemOne(R) Technologies Inc., f/k/a Mansur Industries Inc. (the "Company"), including, but not limited to, statements concerning (i) trends affecting the Company's financial condition or results of operations; (ii) the Company's continued growth and operating strategy; and (iii) trends in governmental regulation. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate," "continue," "project," "target," or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company's control. Readers are cautioned that any such forward looking statements are not guarantees of future performance, and that actual results may differ materially from those projected in the forward looking statements as a result of various factors. The accompanying information contained herein including without limitation the information set forth under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business," identifies important factors that could cause such differences. In particular, the Company's performance for the foreseeable future will be dependent almost completely on the performance of Safety-Kleen Systems, Inc., a wholly owned subsidiary of Safety-Kleen Corp. (collectively, "Safety-Kleen"), under the Marketing and Distribution Agreement, that the Company entered into with Safety-Kleen on November 14th, 2000, as amended and restated as of March 8, 2001 (the "Exclusive Marketing Agreement"), the acceptance by Safety-Kleen's customers of the Company's products, the ability of Safety-Kleen to resell or rent the Company's products at attractive price levels, the ability of Safety-Kleen to properly service the Company's products as well as other factors. In addition, Safety Kleen is currently under reorganization pursuant to Chapter 11 of the federal Bankruptcy Code and there can be no assurance that Safety-Kleen will be able to continue its operations as currently conducted or otherwise be in a position to perform under the Exclusive Marketing Agreement. 2 3 ITEM 1. DESCRIPTION OF BUSINESS BUSINESS OVERVIEW The Company designs, manufactures and sells a full line of patented, self-contained, recycling industrial parts washers, marketed as the SystemOne(R) Washers (the "SystemOne(R) Washers"), for use in the automotive, aviation, marine and general industrial repair markets. The Company has been awarded ten patents for its products, which incorporate innovative, proprietary resource recovery and waste minimization technologies to distill contaminated solvent and yield pure solvent and a by-product comparable to used motor oil. The SystemOne(R) Washer integrates a distillation and recovery process which allows the solvent to be used, treated and re-used on demand, without requiring off-site processing. The Company was incorporated in November 1990, commenced the sale of SystemOne(R) Washers in July 1996 and has sold approximately 20,000 total SystemOne(R) units through December 31st, 2000. During 2000, the Company's operating subsidiary was merged with and into the Company and the Company changed its name to SystemOne(R) Technologies Inc. The Company estimates that domestic expenditures in connection with industrial parts cleaning machines and services exceed $1.0 billion annually. Industrial parts cleaning machines are used by automotive, aviation and marine service, repair and rebuilding facilities, gas stations, transmission shops, parts remanufacturers, machine shops, and general manufacturing operations of every size and category requiring parts cleaning. Industrial parts cleaning machines typically remove lubrication oils from tools and parts through the use of mineral spirit solvents that become progressively more contaminated and less effective in the cleaning process. Eventually, the solvent becomes saturated with oil, sludge and other contaminants, and is typically classified as a hazardous waste under federal and state regulations. Under the most common current practice, the contaminated solvent must be stored until pick-up, when pure solvent is delivered and the contaminated solvent is transported to regional refining facilities. This delivery and off-site recycling program is typically scheduled on four to sixteen week cycles. In contrast, the distillation process used in the Company's SystemOne(R) Washers removes all the contaminants from the solvent within the cleaning unit itself, minimizing the volume of waste by-product and providing pure solvent to the customer "on demand", eliminating the need for the costly and potentially dangerous storage and transportation of hazardous waste. Moreover, the small amount of waste by-product yielded in the distillation process used in the SystemOne(R) Washers can typically be recycled or disposed of together with the customer's used motor oil, which is generally not classified as hazardous waste. Based on these factors, the Company believes that its product line presents an attractive and economical alternative to users of other technologically outdated, non-recycling parts cleaning machines, facilitates efficient and economical compliance with environmental regulations, minimizes waste disposal requirements, reduces insurance costs and increases worker productivity as a result of enhanced cleaning solution utilization. RECENT DEVELOPMENTS -- EXCLUSIVE MARKETING AGREEMENT WITH SAFETY-KLEEN On November 14, 2000, the Company entered into the Exclusive Marketing Agreement with industry leader Safety-Kleen representing a major strategic shift in direction and focus for the Company. The Company anticipates that this new relationship will greatly enhance its financial and operating performance and substantially accelerate market penetration. By joining with Safety-Kleen, the Company has united its proprietary breakthrough technologies with the industry market leader for the past thirty years, providing both companies with unparalleled competitive advantages. Under the Exclusive Marketing Agreement, Safety-Kleen has been appointed the exclusive distributor of SystemOne(R) parts washer equipment in the United States, Puerto Rico, Canada and Mexico (the "Territory"). Safety-Kleen is currently commencing marketing the Company's products throughout Safety Kleen's 173 branch locations across North America. The Company has retained the right to distribute its equipment outside of these markets as well as the right, subject to a right of first offer for Safety-Kleen in certain circumstances, to market newly developed industrial and commercial parts washers through other distribution channels. The Exclusive Marketing Agreement provides for minimum annual purchases escalating from 10,000 units during each of the first two years to 18,000 units during the fifth year for specified prices plus deferred payments on each unit purchased payable in 36 equal monthly installments. 3 4 Safety-Kleen has taken over all service, maintenance and repair responsibilities for previously sold SystemOne(R) parts washers, allowing the Company to dismantle its entire national sales and service infrastructure, resulting in estimated annual cost savings in 2001 of approximately $20 million compared to 1999 and $17 million compared to 2000. The Company will incur one-time charges of approximately $6 million as a result of the restructuring required in its transition from direct distribution to distribution through Safety-Kleen, including a non-cash charge related to a warrant issued to Safety-Kleen to purchase up to 1,134,615 shares of the Company's Common Stock at $3.50 per share. See Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")--Restructuring and Other Charges". The Exclusive Marketing Agreement has an initial term of five years plus two additional five-year renewal options and a termination right exercisable by Safety-Kleen 180 days prior to the third year of the initial term. STRATEGY The Company's strategy is to continue its focus on the research, design, development, manufacture and sale of its SystemOne(R) Washers. The Company believes that its products have achieved significant market penetration because of the technological, economic and environmental advantages of the Company's products over competitive equipment. The Company plans to place strong emphasis on the following initiatives: ACCELERATE SALES AND MARKET PENETRATION THROUGH ITS NEW MARKETING AND DISTRIBUTION STRATEGY WITH INDUSTRY LEADER SAFETY-KLEEN. The Company's products are currently being distributed by Safety-Kleen in the Territory. The Company now has the potential to access over 400,000 customers currently being serviced by Safety-Kleen through its sales and service representatives in the Territory. COMMERCIALIZE ADDITIONAL PARTS WASHING EQUIPMENT. The Company expects to broaden its industrial parts cleaning product line with the commercial launch in the fourth quarter of 2001 of new automated products including: immersion washers, power spray washers and spray gun washers. See "Products". The Company has obtained patent protection, developed prototypes and conducted extensive testing of each of these new products. EXPAND PRODUCT LINE. Through its ongoing research and development initiatives, the Company has identified a number of potential applications of its core technologies, including commercial applications in the printing and dry cleaning industries. The Company believes that these applications could be developed without significant additional research expense. EXPAND TO INTERNATIONAL MARKETS. The Company believes that significant opportunities exist for international sales of the SystemOne(R) product line. The Company is currently exploring distribution opportunities in international markets through distribution agreements, licensing, strategic alliances and/or joint ventures. The Company's current plans call for launching sales in certain international markets during 2001. PRODUCTS The Company's product line includes the following self-contained recycling industrial cleaning equipment. These products incorporate proprietary waste minimization technology for which the Company has obtained patent protection. Except as stated below, all of these products are available for commercial sale. All of the Company's products utilize technology that (i) provide continuously recycled cleaning solution during the cleaning process, (ii) eliminate the necessity for continual replacement and disposal of contaminated cleaning solution and (iii) facilitate practical and cost effective compliance with demanding environmental laws and regulations. SYSTEMONE(R) GENERAL PARTS WASHER, was the first of the Company's products to be available in commercial quantities. The SystemOne(R) General Parts Washer provides users with pure mineral spirit solvent "on demand" for parts and tools cleaning purposes, utilizing a low-temperature vacuum distillation process to recycle the used solvent within the unit. This process allows the solvent to be perpetually used and reused without the need for off-site processing, minimizes the volume of waste by-product and eliminates the 4 5 need for storage and disposal of the hazardous waste solvent. The markets for SystemOne(R) General Parts Washers are automotive, aviation and marine service, repair and rebuilding facilities, gas stations, transmission shops, parts remanufacturers, machine shops, and general manufacturing operations of every size and category requiring small parts cleaning. SYSTEMONE(R) INDUSTRIAL PARTS WASHER, is scheduled for commercial introduction in the third quarter of 2001, and is an industrial grade version of our SystemOne(R) General Parts Washer, manufactured to withstand corrosive chemicals utilized in certain industrial environments. SYSTEMONE(R) MOBILE WASHER, is a mobile telescoping mini-parts washer designed specifically for the automotive brake industry to meet Occupational Safety and Health Act standards for the containment of airborne asbestos particles during automobile brake repair operations. As an auxiliary unit to the SystemOne(R) General Parts Washer, the SystemOne(R) Mobile Washer may be placed directly under the automobile being serviced and provides clean solvent on demand to the user by utilizing the SystemOne(R) General Parts Washer to distill the contaminated solvents. SYSTEMONE(R) SPRAY GUN WASHER, scheduled for commercial introduction in the fourth quarter of 2001, incorporates the Company's recycling/reclamation capabilities for paint thinner recovery. The target markets for spray gun washers consist of automotive, aviation and marine paint shops and all general manufacturing operations that maintain painting operations. The Company anticipates that the auto paint industry will represent a substantial market. The SystemOne(R) Spray Gun Washer facilitates compliance with rigorous environmental disposal regulations for the paint industry. SYSTEMONE(R) POWER SPRAY WASHER is currently being field tested on a limited basis and is scheduled for commercial introduction in the fourth quarter of 2001. The Power Spray Washer integrates three processes in one self-contained machine; a power spray wash process, a recycling/reclamation process and a thermal oxidation process. The Power Spray Washer is able to accommodate large and bulky parts or units that are too large for the SystemOne(R) General Parts Washers. The target markets for Power Spray Washers consist of automotive, aviation and marine maintenance, repair and rebuilding facilities, parts remanufacturers, machine shops, transmission shops, and all facets of general manufacturing requiring maintenance and repair of mechanical equipment. SYSTEMONE(R) IMMERSION WASHER, scheduled for commercial introduction in the fourth quarter of 2001, integrates an immersion wash process and a recycling/reclamation process in one self-contained machine. The Immersion Washer is designed to clean complex parts containing substantial integral and highly inaccessible passages requiring a total immersion washing. The primary target markets for immersion washers consist of automotive, aviation and maritime maintenance, repair and rebuilding facilities, parts remanufacturers, machine shops, transmission shops, and all facets of general manufacturing requiring maintenance and repair of mechanical equipment. MANUFACTURING AND SUPPLY OF RAW MATERIALS The Company leases a 75,000 square foot facility located in Miami, Florida which serves as the Company's executive office, manufacturing and research facility. All of the Company's manufacturing operations, including design, fabrication, painting and assembly are performed at this facility. Annual manufacturing capacity of SystemOne(R) Washers at this facility is approximately 25,000 units on two full shifts, more than sufficient to meet the Safety-Kleen minimum volume of 18,000 units in the fifth year of the initial term of the Exclusive Marketing Agreement. The Company currently manufactures its other products in amounts required for testing, test marketing and/or commercial production in these manufacturing facilities. The SystemOne(R) Washers are assembled from raw materials and components all of which the Company believes are readily obtainable in the United States. The Company does not believe that it is dependent upon any of its current suppliers to obtain the raw materials and components necessary to assemble and manufacture SystemOne(R) Washers. The Company currently procures raw materials and components for its SystemOne(R) Washers from approximately 40 sources. 5 6 MARKETING AND DISTRIBUTION See "Item 1 Description of Business -- Recent Developments -- Exclusive Marketing Agreement with Safety-Kleen" which is incorporated herein by reference. DIRECT SALES FINANCING For the past three years through December 2000, the Company offered a lease option to its SystemOne(R) customers through a third party leasing program. The Company is a party to an agreement (the "Product Finance Agreement") with SierraCities.com ("SierraCities.com") formerly known as First Sierra, pursuant to which SierraCities.com provides third party leasing services to customers of the Company. Under the Product Finance Agreement, SierraCities.com does not have recourse against the Company for a customer's failure to discharge its obligations to SierraCities.com unless the Company has breached certain representations and warranties made by the Company to SierraCities.com in connection with the sale of its SystemOne(R) products. The Product Finance Agreement has a term of one year with automatic renewals until either the Company or SierraCities.com terminates the agreement with or without cause upon 60 days prior written notice. The Company does not anticipate that it will require the services of SierraCities.com or any third party leasing company as a result of its entering into the Exclusive Marketing Agreement. See "Item 1 Description of Business -- Recent Developments". PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY The Company has been awarded ten United States patents for its product line including its SystemOne(R) General Parts Washer (four patents), Power Spray Washer, Spray Gun Washer, Immersion Washer, Floor Washer, MiniDisposer (thermal oxidizer) and Vapor Recovery System. The Company intends to apply for additional patents as appropriate. The Company's patents on its principal product, the SystemOne(R) general parts washer, have terms commencing September 1994 and continue through September 2015. The Company currently has a patent pending relating to an advanced vapor recovery system. The Company also holds eight foreign patents in Canada, Mexico and Japan relating to its SystemOne(R) technologies and has nine additional foreign patents pending in Europe, Canada, Mexico and Japan. The Company believes that patent protection is important to its business. There can be no assurance as to the breadth or degree of protection which existing or future patents, if any, may afford the Company, that any patent applications will result in issued patents, that patents will not be circumvented or invalidated or that the Company's competitors will not commence marketing self-contained washers with similar technology. In addition, it is costly to enforce patent and other intellectual property rights against infringing parties. In the event the Company's products or processes infringe patents or proprietary rights of others, the Company may be required to incur costs to defend such claims, modify the design of its products or obtain a license, any of which could harm the Company's results of operations. The Company has received a federal trademark registration with respect to the mark " SystemOne(R)" and design. The Company also relies on trade secrets and proprietary know-how and employs various methods to protect the concepts, ideas and documentation of its proprietary information. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop such know-how or obtain access to the Company's know-how, concepts, ideas and documentation. Although the Company has and expects to continue to have confidentiality agreements with its employees, suppliers and appropriate vendors, there can be no assurance that such arrangements will adequately protect the Company's trade secrets. Because the Company believes that its proprietary information is important to its business, failure to protect such information could have a material adverse effect on the Company. 6 7 RESEARCH AND DEVELOPMENT The Company plans to continue to focus significant resources on the development of additional products utilizing the Company's core recycling technologies. The Company recognizes that the industrial parts cleaning industry may be entering a phase of rapid technological change and progress and the Company will seek to retain what it perceives as its technological superiority over competitors' products. In this regard, the Company intends to continue to seek means of refining and improving its SystemOne(R) Washers. In order to keep pace with the rate of technological change, the Company also intends to devote considerable resources in time, personnel and funds on research and development for future products. The Company recognizes that many of its competitors have far greater financial and personnel resources than the Company which may be devoted to research and development and there can be no assurance that the Company will maintain a technological advantage over its competitors. Additionally, although there can be no assurance that the Company will develop new products capable of commercialization, the Company intends to continue its programs to develop new products, some of which may utilize the Company's patented products and processes. During 2000, research and development expenses increased by $31,962 or 7.5% from $427,666 for the year ended December 31, 1999 to $459,628 for the year ended December 31, 2000. The increase is due to the development of the new 2001 model SystemOne(R) Parts Washer which will be in production in the fourth quarter of 2001 as well as continued development of the SystemOne(R) Paint Gun Washer, SystemOne(R) Immersion Washer and the SystemOne(R) Industrial Parts Washer. COMPETITION Industrial parts cleaning machines are used by automotive, aviation and marine service, repair and rebuilding facilities, gas stations, transmission shops, parts remanufacturers, machine shops, as well as general manufacturing operations of every size and category requiring machinery maintenance, service and repair The Company estimates that businesses in the United States incur more than $1 billion in expenses annually for commercial and industrial parts cleaning using chemical cleaning techniques. The industrial parts cleaning industry is highly competitive and dominated by industry leader Safety-Kleen. The Company believes that Safety-Kleen services a dominant portion of the parts washing machines currently in use and that no other competitor accounts for more than 2% of the parts washer market in the United States. While historically Safety-Kleen has been the Company's primary competitor, by entering into the Exclusive Marketing Agreement, the Company's products will now be marketed through Safety-Kleen's industry leading marketing system. Although the Company anticipates that Safety-Kleen will make all appropriate efforts to market the Company's products, there can be no assurance that ultimate customers will select SystemOne(R) Washers over Safety-Kleen's traditional "closed-loop" recycling system. To the best of the Company's knowledge, no other company is currently commercially marketing a recycling parts washer with characteristics comparable to the Company's SystemOne(R) products. See "--Patents, Trademarks and Proprietary Technology." Certain of the Company's target customers have attempted to enhance the capabilities of their existing industrial parts washers by acquiring stand alone machines capable of distilling solvent. Although there is a wide variety of such machinery currently available to the public, the Company believes that the SystemOne(R) Washers compare favorably with the technologically outdated, non-recycling products of its competitors on the basis of, among other things: (i) delivery of pure solvent "on demand" without frequent solvent replacement; (ii) lower overall cost; (iii) reduced time and cost associated with documenting compliance with applicable environmental and other laws; (iv) reduced safety and environmental risks associated with competitive machines and services; (v) customer service; and (vi) difficulty in handling the regulated substances used and/or generated by competitive machines. GOVERNMENT REGULATION The Company believes that federal and state laws and regulations have been instrumental in shaping the industrial parts washing industry. Federal and state regulations dictate and restrict to varying degrees what types of 7 8 cleaning solvents may be utilized, how a solvent may be stored, and the manner in which contaminated solvents may be generated, handled, transported, recycled and disposed. The Company believes that customer demand for its SystemOne(R) Washers is partially a function of the legal environment in which customers for the Company's products conduct business; accordingly, the federal and state laws and regulations discussed below regulate the behavior of the Company's customers. The Company's SystemOne(R) Washers were designed to help minimize the cost of complying with existing federal and state environmental laws and regulations. Any changes, relaxation or repeal of the federal or state laws and regulations which have shaped the parts washing industry may significantly affect demand for the Company's products and the Company's competitive position. REGULATION OF HANDLING AND USE OF SOLVENTS. Federal and state regulations have restricted the types of solvents that may be utilized in industrial parts cleaning machines. Stoddard solvents, more commonly known as mineral spirits and solvent naphtha, are the cleaning solvents typically used in industrial parts washers. The Company uses mineral spirits with a minimum of 140 degrees Fahrenheit ignitable limits in its SystemOne(R) Washers. Such mineral spirits do not exhibit the ignitability characteristic for liquid hazardous wastes as defined in the Resource Conservation and Recovery Act of 1976, as amended (the "RCRA"), and the regulations under that statute adopted by the United States Environmental Protection Agency (the "EPA"). Certain machines sold by the Company's competitors use mineral spirits with lower ignitable limits, which may, after use, render such mineral spirits subject to regulation as a hazardous waste. The Company believes that the ability to recycle the mineral spirits used in its SystemOne(R) Washers provide a significant economic benefit to the Company's customers by allowing them to avoid the expenses and potential liability associated with the disposal of such solvent as a hazardous waste. Federal, state and many local governments have adopted regulations governing the handling, transportation and disposal of mineral spirit solvents. On the federal level, under the Hazardous Materials Transportation Act ("HMTA"), the United States Department of Transportation has promulgated requirements for the packaging, labeling and transportation of mineral spirits in excess of specified quantities. Relative to the handling and disposal of mineral spirits, many states and local governments have established programs requiring the assessment and remediation of hazardous materials that have been improperly discharged into the environment. Liability under such programs is possible for unauthorized release of mineral spirits in violation of applicable standards. Civil penalties and administrative costs may also be imposed for such violations. The Company's products do not require the transportation of mineral spirits that necessitate compliance with HMTA requirements providing significant economic benefits. REGULATION OF GENERATION, TRANSPORTATION, TREATMENT, STORAGE AND DISPOSAL OF CONTAMINATED SOLVENTS. The generation, transportation, treatment, storage and disposal of contaminated solvents is regulated by the federal and state governments. At the federal level, the RCRA authorized the EPA to develop specific rules and regulations governing the generation, transportation, treatment, storage and disposal of hazardous solvent wastes as defined by the EPA. The Company believes that none of the solvent recycled in SystemOne(R) Washers when used in accordance with its intended purpose and instructions is subject to regulation as a "hazardous waste." In contrast, the Company believes that the mixture of solvent and contaminants which is periodically recovered from the machines of many of its competitors is subject to regulation as "hazardous waste." The Company believes that the ability to manage its residue by-product as used oil rather than as a hazardous waste is economically attractive to the Company's customers for a number of reasons. The Company believes that substantially all of its target customers currently have established systems for the handling, transportation, recycling and/or disposal of used oil. Accordingly, the classification of the residue as used oil would enable the Company's customers to dispose of or recycle the residue at no significant additional cost and avoid certain costs associated with establishing and disposing of wastes in compliance with a hazardous waste disposal system. Even if the residue by-product was required to be handled, transported, recycled and/or disposed of as a hazardous waste, the fact that the SystemOne(R) Washers effect a substantial reduction in the volume of waste product requiring disposal would still serve to significantly minimize disposal costs. 8 9 PRODUCT LIABILITY AND INSURANCE The Company is subject to potential product liability risks through the use of its industrial parts cleaning machines. The Company has implemented strict quality control measures and currently maintains product liability insurance with respect to such potential liabilities although there can be no assurance that such insurance would be adequate to cover any particular claim or that insurance will continue to be available on acceptable terms. EMPLOYEES As of March 12, 2001, the Company had a total of 71 employees. This represents a significant reduction in staff from the same date a year ago when the Company had a total of 305 employees. This reduction is the direct consequence of a major corporate wide restructuring resulting from the Exclusive Marketing Agreement that included the elimination of the Company's entire field sales and service infrastructure. The Company plans to maintain its current corporate staff of approximately 28 personnel including corporate management, research and development and field product support and a manufacturing staff of approximately 43 employees. ITEM 2. PROPERTIES The Company maintains its executive offices and its manufacturing and research and development facilities in a 75,000 square foot building located in Miami, Florida. The initial term of the lease for this facility expires September 30, 2002. This lease provides for a renewal term of five years and is exercisable at the Company's option upon six months' prior written notice. The Company's annual lease payments are approximately $580,000, subject to an annual 4.5% increase, plus the Company must pay all utilities charges and the Company's proportionate share of the facilities maintenance and operating expenses. The Company has the right to cancel this lease upon three months' prior written notice, subject to certain conditions. The Company has also been granted a right of first refusal with respect to vacant space adjoining these facilities. The Company has closed all 56 service centers that supported its previous direct marketing and distribution efforts. ITEM 3. LEGAL PROCEEDINGS The Company is not presently involved in any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the three months ended December 31, 2000. 9 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded in the Nasdaq SmallCap Market ("Nasdaq") under the symbol "STEK". The Company received a Nasdaq Staff Determination letter on March 2, 2001 advising the Company of the Staff's view that it is not in compliance with the net tangible assets, net income and capitalization requirements for continued listing. Because the Company believes that the Exclusive Marketing Agreement should result in enhanced operating and financial performance, it has requested a hearing before a Nasdaq Listing Qualifications Panel to review the Staff determination although there can be no assurance that these enhanced results will be achieved. If the Company does not prevail at the hearing, its securities will be subject to delisting from the Nasdaq SmallCap Market but should continue to be listed on the OTC Electronic Bulletin Board. There can be no assurance that the Company will maintain its burden of demonstrating to the Panel that it can attain and sustain compliance with Nasdaq's listing requirements. The following table sets forth, for the periods indicated, the high and low closing bid quotations for the Common Stock as reported by Nasdaq. The Nasdaq quotations represent quotations between dealers without adjustment for retail markups, markdowns or commissions and may not necessarily represent actual transactions. HIGH BID PRICE LOW BID PRICE -------------- ------------- 1999 Fourth Quarter $ 9.000 $4.125 Third Quarter $12.250 $6.000 Second Quarter $11.625 $6.750 First Quarter $12.625 $6.750 2000 Fourth Quarter $3.375 $1.344 Third Quarter $3.750 $2.125 Second Quarter $6.000 $2.563 First Quarter $9.125 $4.625 As of March 27, 2001, there were 37 holders of record of the Company's Common Stock. The Company believes that there are in excess of 500 beneficial owners of the Common Stock. On March 27, 2001, the closing bid price of the Common Stock was $1.031 per share. To date, the Company has not declared or paid any dividends on its Common Stock. Pursuant to the terms of the Company's outstanding Convertible Subordinated Notes, its Senior Revolver (as defined below) and the Subordinated Loan Agreement (as defined below), the Company may not declare or pay any dividends or make any other distributions, except dividends or distributions payable in equity securities. The payment of dividends, if any, is within the discretion of the Board of Directors and will depend upon the Company's earnings, its capital requirements and financial condition, contractual restrictions and other relevant factors. Also, payment of dividends are limited by the terms of the outstanding series of preferred stock. The Board does not intend to declare any dividends on its common stock in the foreseeable future, but instead intends to retain future earnings, if any, for use in the Company's business operations. 10 11 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the financial statements, including the notes thereto, contained elsewhere in this report. GENERAL The Company was incorporated in November 1990 and, as a development stage company, devoted substantially all of its resources to research and development programs related to its full line of self contained, recycling industrial parts washers until June 1996. The Company commenced its planned principal operations in July 1996. The Company began to generate significant revenue from product sales in 1997 and since its inception has had only one quarter of profitability. The Company's operating expenses increased significantly between 1997 and 2000 in connection with the development of a direct marketing and distribution organization, including the establishment of regional distribution centers and a service fleet. Unfortunately, despite the unparalleled economic, technological and environmental advantages offered by the Company's SystemOne(R) products, the market demand for a capital purchase or capital lease of parts washer equipment proved to be less than projected as there remained a strong preference in the parts washer market for the traditional month-to-month service charge or equipment rental. Consequently, revenues did not increase commensurately with the expenses of a direct marketing and distribution organization and the Company did not have the required large amounts of capital to finance rental inventory necessary to support a month-to-month rental program. The Company made a strategic shift by entering into the Exclusive Marketing Agreement with industry leader Safety-Kleen and, as a result, has eliminated its entire national direct sales and service infrastructure. Under the Exclusive Marketing Agreement, Safety-Kleen has been appointed the exclusive distributor of SystemOne(R) parts washer equipment in the United States, Puerto Rico, Canada and Mexico (the "Territory") and will take over service, maintenance and repair responsibility for previously sold SystemOne(R) Parts Washers. See "Item 1. Description of Business -- Recent Developments -- Exclusive Marketing Agreement with Safety-Kleen". The Company believes that the appointment of Safety-Kleen will substantially accelerate market penetration of its products, permit a reduction in annual operating expenses in 2001 of approximately $20 million compared to 1999 and $17 million compared to 2000 and should allow the Company to achieve positive earnings before interest, taxes, depreciation and amortization ("EBITDA"), a measure of operating cash flow, by the second quarter 2001, although there can be no assurance. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 RESULTS OF OPERATIONS As a result of the Company entering into the Exclusive Marketing Agreement, the Company committed to a plan in November 2000 to restructure its operations with the major focus on its distribution network. The plan consisted of the following strategy: Suspend sales activities on November 30, 2000; terminate all field sales and service personnel; terminate office personnel as appropriate in areas including sales and service support, marketing, and product leasing; close all service centers and terminate leases; terminate leases for service fleet; return all inventory to the Miami warehouse; re-manufacture all used or demo inventory to a "new condition" standard; and sell all new and re-manufactured inventories to Safety-Kleen as well as the Company's small rental inventories. As a result of the Exclusive Marketing Agreement and the related restructuring efforts, the following one time, non-recurring restructuring and other charges, aggregating $5,992,968 were taken: (1) The Company has issued Safety-Kleen a warrant, exercisable for five years, to purchase up to 1,134,615 shares of the Company's Common Stock at $3.50 per share, resulting in a charge of $2,072,146. (2) The Company terminated approximately 200 employees and closed 56 service centers as part of its restructuring plan resulting in a charge of $1,020,635. 11 12 (3) Pursuant to the Exclusive Marketing Agreement, Safety-Kleen will take over all service, maintenance and repair responsibilities for previously sold SystemOne(R) Parts Washers. The Company has agreed to pay Safety-Kleen a service fee of $50.00 per warranty service issue on all previously sold SystemOne(R) Parts Washers still under warranty. In addition, the Company will maintain a call center to receive and track all warranty calls. A warranty charge in the amount of $1,570,508 was taken to cover projected additional warranty expenses over the remaining warranty period for all equipment delivered prior to the Company's entering into the Exclusive Marketing Agreement. (4) The Exclusive Marketing Agreement requires that machines in the Company's inventory to be sold to Safety-Kleen must be new, or if not new, marketable as new. Used machines that could not be economically re-manufactured or upgraded to a new condition standard, were scrapped. These units included either extensively used older demo models, units that malfunctioned and were contaminated in inappropriate industrial environments or units not economically re-manufacturable. As a result, the Company took a charge of $661,467 related to scrapped units and inventory reserves. (5) During much of the fourth quarter of 2000, the manufacturing facilities were under-utilized. Manufacturing personnel spent most of their time receiving, evaluating and re-manufacturing inventories or re-tooling the plant for the model 2001 introduction. The unabsorbed overhead of $362,073 and other miscellaneous items resulted in a charge of $668,212. The Company sold 6,862 SystemOne(R) units during 2000 compared to 7,389 units in 1999. During 2000, all units were sold through the Company's direct distribution infrastructure. Sales revenues decreased by $1,309,266, or 7%, to $17,524,059 for the year ended December 31, 2000 from $18,833,325 for the year ended December 31, 1999. The decrease in sales was due primarily to the Company's discontinuance of all field sales and service activities as of November 30, 2000 as a result of its entering into the Exclusive Marketing Agreement. Gross profit decreased by $752,548, or 7.2%, to $9,672,481 for the year ended December 31, 2000 from $10,425,029 for the year ended December 31, 1999. The decrease in gross profit is primarily volume related inasmuch as the 55.2% gross profit percentage in 2000 is relatively consistent with the 1999 gross profit percentage of 55.4%. Selling, general and administrative expenses incurred in 2000 were $20,682,467, which is a decrease of $3,274,435 or 13.7% from selling, general and administrative expenses in 1999 of $23,956,902. The decrease is the result of several factors: First, the Company continued to recognize reduced selling, general and administrative expenses from the consolidation of the Company's nationwide distribution and service infrastructure commenced in the first quarter of 2000. Second, the Company terminated approximately 90 sales people and sales managers effective November 30, 2000. Third, the Company suspended all sales activities in December 2000 resulting in no commissions or other expenses relating to selling and delivering products. Research and development increased by $31,962 or 7.5% from $427,666 for the year ended December 31, 1999 to $459,628 for the year ended December 31, 2000. The increase is due to the on-going development of the new 2001 model SystemOne(R) Parts Washer which will be in production in the fourth quarter of 2001 as well as continued development of the SystemOne(R) Paint Gun Washer, SystemOne(R) Immersion Washer and the SystemOne(R) Industrial Parts Washer. The Company recognized net interest expense of $2,914,897 during 2000, compared to net interest expense of $1,878,452 during 1999. The increase in net interest expense was primarily the result of increased amounts of debt at higher interest rates, including the amortization of debt discount associated with common stock warrants issued to lenders. See note 7 of notes to financial statements. As a result of the foregoing, the Company incurred a net loss of $20,377,479 for the year ended December 31, 2000 which is an increase of $4,539,488 from a net loss of $15,837,991 for the year ended December 31, 1999. Dividends on redeemable preferred stock increased by $1,168,691 or 257.8% as a result of a full year's dividends on the Series B and Series C Convertible Preferred Stock and the issuance of the Series D Convertible Preferred Stock in 12 13 May 2000. Dividends also include the amortization of preferred stock discounts associated with common stock warrants issued to investors. The Company's basic and diluted net loss to common shares increased $5,708,179 to $21,999,545 at December 31, 2000 from $16,291,366 at December 31, 1999, or a loss per common share of $4.64 for 2000 and $3.54 for 1999. Accounts receivable decreased $1,180,717 or 43% from $2,748,383 at December 31, 1999 to $1,567,666 at December 31, 2000 consistent with the decrease in sales noted above. Inventory decreased $3,088,936 or 62% from $4,961,991 at December 31, 1999 to $1,873,055 at December 31, 2000. The decrease is due to scrapping and reserving for approximately $900,000 of inventory as discussed above and to stopping production of units for most of November and December. There was an effort to sell inventory on hand and minimize raw materials in an effort to conserve cash. Accounts payable and accrued expenses decreased $220,338 or 7% from $3,321,122 at December 31, 1999 to $3,100,784 at December 31, 2000. The decrease is due to reductions in accruals relating to wages, commissions, vacation and related taxes. These reductions are due to both changes in company policies and termination of employees relating to the restructuring plan. The Company's senior line of credit is classified as a long-term debt at December 31, 2000 and as current liability at December 31, 1999. The classification changed as a result of the entry into the Senior Revolver, as more fully discussed in "-- Liquidity and Capital Resources" below, which has a maturity date of May 30, 2003. The borrowings under the Senior Revolver increased $3,243,107 from $956,893 at December 31, 1999 to $4,200,000 at December 31, 2000 to cover working capital requirements. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities for year ended December 31, 2000 decreased by $5,000,703 to $8,600,524, compared to net cash used in operating activities of $13,601,227 for the prior year. The decrease is primarily attributable to: (i) a decrease of $1,180,717 in accounts receivable, (ii) a decrease of $3,088,936 in inventory, (iii) a decrease of $699,448 in other assets, and (iv) an increase of $1,352,545 in accounts payable and accrued expenses including the warranty accrual discussed above. These sources of cash were offset by the $4,539,488 increase in the net loss for the year ended December 31, 2000 over the net loss for the year ended December 31, 1999. Net cash used in investing activities for the year ended December 31, 2000 was $9,224, a decrease of $373,910, compared to $383,134 used during the prior year. This decrease was a result of decreased purchases of machinery and equipment during the year ended December 31, 2000. Net cash provided from financing activities for the year ended December 31, 2000 decreased by $3,512,248 to $8,185,295 from net cash provided from financing activities of $11,697,543 for the year ended December 31, 1999. The decrease is primarily attributable to net proceeds of $786,663 from the issuance of convertible preferred stock for the year ended December 31, 2000 compared to $10,999,983 for the year ended December 31, 1999, partially offset by net proceeds of $4,906,558 from the Senior Revolver and the Subordinated Loan Agreement described below, and proceeds of $3,698,786 for the issuance of common stock warrants. At December 31, 2000, the Company had negative net working capital of $848,165 and cash and cash equivalents totaling $487,784, compared to net working capital of $4,049,833 and cash and cash equivalents of $912,237 at December 31, 1999. On May 2, 2000, the Company sold an aggregate of 20,000 shares of new Series D Convertible Preferred Stock (the "Series D Preferred Stock") and issued warrants (the "May Warrants") to purchase up to 363,636 shares of Common Stock at a price of $5.50 per share for an aggregate purchase price of $2,000,000 to the Environmental Funds and Hanseatic (collectively, the "Investors"). See Note 8 of notes to financial statements which is incorporated herein by reference. In connection with the issuance of the Series D Preferred Stock, the Company entered into a Shareholders Agreement dated May 2, 2000 with the Investors, Environmental Opportunities Fund (Cayman) L.P. and Pierre G. Mansur, the Company's President and a director (the "Shareholders Agreement"). 13 14 Pursuant to the Shareholders Agreement, Messrs. Paul A. Biddelman and Kenneth Ch'uan-k'ai Leung were appointed to the Board of Directors on May 29, 2000. Also, because the Company did not meet certain targeted results of operations during the third quarter of 2000, the holders of Series D Preferred Stock are entitled to nominate up to two additional individuals for the board. In addition, among other things, the Shareholders Agreement provides that certain decisions to be made by the board, including authorization of any merger or similar transaction or material acquisition, the issuance of certain securities or the employment of senior management, require concurrence of the directors designated by the holders of the Series D Preferred Stock. In accordance with its terms, as a result of the issuance of the Series D Preferred Stock the May Warrants and the Lender Warrants (as defined below), the conversion price of the Series B Convertible Preferred Stock was reduced to $4.68 and in accordance with their respective terms, the conversion prices of the Series C and Series D Preferred Stock as well as the exercise price of the May Warrants were reset to $3.50. In addition, each share of the Series B, C and Series D Preferred Stock is now convertible into 21.37, 28.57 and 28.57 shares of the Company's common stock, respectively, and the May Warrants are exercisable for 571,428 shares of the Company's common stock. The Company also amended its 1998 Common Stock Purchase Rights Agreement to allow the Investors to acquire the Series D Preferred Stock and the shares of common stock issuable upon conversion thereof and the exercise of the warrants described above without triggering the issuance of rights certificates. On August 7, 2000 (the "Issuance Date"), the Company entered into a Loan Agreement with Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. (collectively, the "Environmental Funds") and Hanseatic Americas, LDC ("Hanseatic"), as amended on November 10, 2000 and November 30, 2000 (collectively the "Subordinated Loan Agreement"), under which it borrowed an aggregate principal amount of $3,300,000. These borrowings are evidenced by promissory notes (the "Subordinated Promissory Notes"), maturing February 7, 2002, subject to prepayment at any time at the Company's option and mandatory prepayment to the extent of any proceeds received by the Company from the sale of any new securities of the Company or the borrowing of any additional money (other than purchase money debt and borrowings under the Senior Revolver). The Subordinated Promissory Notes initially bear interest at the rate of 12% per annum until the six month anniversary of the Issuance Date, 14% from the six month anniversary until the nine month anniversary of the Issuance Date and 16% thereafter until repaid in full. The Company's obligations under the Loan Agreement are secured by a lien on substantially all of its assets other than its intellectual property although such obligations have been subordinated to the Senior Revolver. Each of the Environmental Funds and Hanseatic are shareholders of the Company and Mr. Paul A. Biddelman, President of Hanseatic Corporation, and Mr. Kenneth Ch'uan-K'ai Leung, Chief Investment Officer of the Environmental Funds, are directors of the Company. Pursuant to the Loan Agreement the Company issued warrants to purchase an aggregate of up to 942,858 shares of its common stock at $3.50 per share (the "Lender Warrants") and the Company is required to register such shares of common stock for resale under the Securities Act of 1933, as amended. The Company assigned a fair value of $2,513,142 to the Lender Warrants and has recorded this amount as a discount to the Subordinated Promissory Notes with a corresponding increase in Additional Paid In Capital. This discount is being amortized into interest expense over the term of the Subordinated Promissory Notes. The Lender Warrants may only be exercised for 50% and 75% of the common stock underlying the Lender Warrants prior to May 7, 2001 and August 7, 2001, respectively. In addition, if the Subordinated Promissory Notes are repaid prior to May 7, 2001, then 50% of the Lender Warrants will terminate, and, thereafter, if the loan is repaid prior to August 7, 2001, then 25% of the Lender Warrants will terminate. On November 30, 2000, the Company entered into a revolving credit loan agreement (the "Senior Revolver") with Hansa Finance Limited Liability Company ("Hansa") that provides the Company with a revolving line of credit for up to $5 million with a scheduled maturity of May 30, 2003. In connection with the Senior Revolver, the Company granted Hansa a security interest in substantially all of its assets including its intellectual properties. Pursuant to the Senior Revolver, the Company may borrow twice a month up to the Advance Limit. The Advance Limit is the lesser of $5,000,000 or the sum of the Advance Supplement plus an amount based on the Company's accounts receivable and inventory. The Advance Supplement was $3,000,000 through March 31, 2001 and $2,500,000 for the period April 1 2001 until maturity. Amounts advanced under the Senior Revolver accrue interest at the rate of 14% per annum payable monthly in arrears commencing December 31, 2000. As of December 31, 2000, amounts 14 15 advanced under the Senior Revolver totaled $4,200,000. Hansa is controlled indirectly by Hanseatic Corporation and Paul Biddelman, one of the Company's directors, is the President of Hanseatic Corporation. Proceeds from the Senior Revolver were used to satisfy the Loan and Security Agreement with Guarantee Business Credit Corporation, as assignee of Capital Business Credit, a division of Capital Factors, Inc., which has been terminated. The Company's primary sources of cash have been the net proceeds from sales of Preferred Stock, the Company's lease financing arrangement with SierraCities.Com, the Senior Revolver, the Subordinated Loan Agreement and direct sales to customers. The Company's material financial commitments are obligations to make lease payments on the Company's principal executive and manufacturing facility in Miami, Florida and equipment leases (approximately $85,000 per month), installment payments for financed manufacturing equipment (approximately $28,000 per month), noncash interest payments on the Company's 8.25% Subordinated Convertible Notes (the "Notes") (approximately $132,000 per month), noncash dividends on the Company's Series B, Series C, and Series D Convertible Preferred Stock (approximately $97,000 per month), interest payments on its Senior Revolver (up to approximately $58,000 per month) and Subordinated Loan Agreement (approximately $38,000 per month). Since the Exclusive Marketing Agreement with Safety-Kleen became effective, the Company has commenced shipping machines to Safety-Kleen and Safety-Kleen has commenced paying the Company according to the terms of the agreement. Assuming Safety-Kleen's continued performance, the Company currently anticipates that for 2001 it will not require additional equity or debt financing in excess of that available under the Senior Revolver, although there can be no assurance. However, as described in notes 7 and 8 of notes to the financial statements, if none of the outstanding convertible debt and convertible preferred stock is converted to common stock, significant amounts of cash would be required commencing in 2002 to repay long-term debt and the redeemable preferred stock as follows: DEBT PREFERRED STOCK TOTAL ----------- --------------- ----------- 2002 $ 4,292,199 $ -- $ 4,292,199 2003 27,191,022 -- 27,191,022 2004 -- 20,326,215 20,326,215 ----------- ----------- ----------- Total $31,483,221 $20,326,215 $51,809,436 =========== =========== =========== The Company believes that it may need to obtain new debt or equity capital to fund all or part of the required payments. There is no certainty that the Company would be able to obtain the required funds on acceptable terms. The Company has suffered recurring losses from operations, primarily resulting from the significant expenses incurred in the establishment of its direct national marketing and distribution organization, and has a net capital deficiency. As of December 31, 2000, the Company's accumulated deficit totaled $57,255,636. The Company's independent auditors have included an explanatory paragraph in their report on the Company's financial statements for the year ended December 31, 2000 because of the Company's recurring losses from operations; its accumulated capital deficit; and the uncertainties associated with (a) the Exclusive Marketing Agreement, including the fact that Safety-Kleen has not yet emerged from bankruptcy proceedings, and (b) the Company's ability to raise additional capital that may be required to meet maturities of long-term debt and redeemable preferred stock, commencing in 2002. YEAR 2000 The Company's computer operating systems, and those of its vendors, customers and key suppliers are compliant with Year 2000 standards and the Company did not experience any adverse effects on its business operations as result of the Year 2000 issue. 15 16 NEW ACCOUNTING STANDARD In June, 1998 the Financial Accounting Standards Board issued Statement of Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), as amended, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company will adopt SFAS No. 133, as amended, during the three months ending March 31, 2001 and anticipates that there will be no material impact to the Company's financial statements and notes thereto. ITEM 7. FINANCIAL STATEMENTS The Financial Statements of the Company required by Form 10-KSB are attached hereto following Part III of this report commencing on page F-1. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 16 17 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Incorporated by reference from the Company's definitive proxy statement to be filed within 120 days after the end of the Registrant's fiscal year. ITEM 10. EXECUTIVE COMPENSATION Incorporated by reference from the Company's definitive proxy statement to be filed within 120 days after the end of the Registrant's fiscal year. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the Company's definitive proxy statement to be filed within 120 days after the end of the Registrant's fiscal year. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the Company's definitive proxy statement to be filed within 120 days after the end of the Registrant's fiscal year. ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) EXHIBITS EXHIBIT DESCRIPTION ------- ----------- *3.1 Amended and Restated Articles of Incorporation of the Company, as amended to date (incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000 (Commission File Number: 000-21325)). *3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company's Registration Statement on Form S-1, as amended (No. 333-08657)). *4.1 The rights of holders of shares of the Company's Common Stock, par value $.001, Series B Preferred Stock, $1.00 par value per share, Series C Preferred Stock, $1.00 par value per share and Series D Preferred Stock, $1.00 par value per share are set forth in the Company's Amended and Restated Articles of Incorporation as referenced in Exhibits 3.1 and 3.2 hereto. *4.2 Certificate for Shares of Common Stock, $.001 par value per share (incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-1, as amended (No. 333-08657)). *4.3 Certificate for Shares of Series B Preferred Stock, $1.00 par value per share (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K filed with the Commission on May 27, 1999 (Commission File Number: 000-21325)). 17 18 EXHIBIT DESCRIPTION ------- ----------- *4.4 Certificate for Shares of Series C Preferred Stock, $1.00 par value per share (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K filed with the Commission on August 31, 1999 (Commission File Number: 000-21325)). *4.5 Certificate for Shares of Series D Preferred Stock, $1.00 par value per share (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K filed with the Commission on May 15, 2000 (Commission File Number: 000-21325)). *4.6 Representatives' Warrant Agreement between the Company and the Underwriter (incorporated by reference to Exhibit 4.3 of the Company's Registration Statement on Form S-1, as amended (No. 333-08657)). 4.7 Form of Warrant dated November 10, 2000 *4.8 Form of Warrant dated May 2, 2000 (incorporated by reference to Exhibit 4.1 of the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000 (Commission File Number 000-21325)). *4.9 1998 Common Stock Purchase Rights Agreement, dated as of October 1, 1998, between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.1 of the Company's Form 8-A12G filed with the Commission on October 6, 1998 (Commission File Number: 000-21325)), as amended by (i) First Amendment to Rights Agreement, dated as of May 2, 2000, by and between the Company and Continental Stock Transfer and Trust Company. (incorporated by reference to Exhibit 4.2 of the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000 (Commission File Number: 000-21325)), (ii) Second Amendment to Rights Agreement, dated as of August 7, 2000, by and between the Company and Continental Stock Transfer and Trust Company. (incorporated by reference to Exhibit 4.3 of the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000 (Commission File Number: 000-21325)), and (iii) Third Amendment to Rights Agreement, dated as of November 7, 2000, by and between the Company and Continental Stock Transfer and Trust Company. (incorporated by reference to Exhibit 4.1 of the Company's Form 8-A12G/A filed with the Commission on December 28, 2000 (Commission File Number: 000-21325)). *4.10 Subordinated Convertible Note Purchase Agreement, dated February 23, 1998 between the Company and the Investors party thereto (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed with the Commission on March 3, 1998 (Commission File Number: 000-21325)). *4.11 Form of 8 1/4% Subordinated Convertible Note dated February 23, 1998 (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K filed with the Commission on March 3, 1998 (Commission File Number: 000-21325)). 18 19 EXHIBIT DESCRIPTION ------- ----------- 4.12 First Amendment to 81/4% Subordinated Convertible Notes, dated July 31, 2000. *10.1 Shareholders Agreement, dated May 2, 2000 by and among the Company and the other parties thereto (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the Commission on May 15, 2000 (Commission File Number: 000-21325)). *10.2 The Company's Executive Incentive Plan, as amended to date (incorporated by reference to Annex A of the Company's Definitive Schedule 14A, filed with the Commission on June 14, 2000 (Commission File Number: 000-21325)). *10.3 Form of Indemnification Agreement between the Company and each of its directors and executive officers (incorporated by reference to Exhibit 10.3 of the Company's Registration Statement on Form S-1, as amended (No. 333-08657)). *10.4 Intertek Testing Services Listing, Labeling, and Follow-up Service Agreement (incorporated by reference to Exhibit 10.32 of the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997 (Commission File Number 000-21325)). *10.5 Vendor Lease Plan Agreement between the Company and First Sierra Financial, Inc. dated as of November 15, 1998 (incorporated by reference to Exhibit 10.39 of the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998 (Commission File Number 000-21325)). *10.6 Loan Agreement, dated August 7, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000 (Commission File Number: 000-21325)). 10.7 First Amendment to Loan Agreement, dated November 10, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC. 10.8 Second Amendment to Loan Agreement, dated November 30, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC. *10.9 Letter Agreement regarding the Loan Agreement, dated August 7, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P., Environmental Opportunities Fund (Cayman), L.P., Hanseatic Americas LDC, Paul Mansur and Pierre Mansur (incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000 (Commission File Number: 000-21325)). 19 20 EXHIBIT DESCRIPTION ------- ----------- 10.10 Form of Subordinated Promissory Note dated November 30, 2000. *10.11 Security Agreement, dated August 7, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC (incorporated by reference to Exhibit 10.4 of the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000 (Commission File Number: 000-21325)). 10.12 First Amendment to Security Agreement, dated November 10, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC. 10.13 Second Amendment to Security Agreement, dated November 30, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC. 10.14 Employment Agreement between Pierre G. Mansur and the Company dated July 1, 2000 10.15 Employment Agreement between Paul I. Mansur and the Company dated July 1, 2000 10.16 Second Amended and Restated Marketing and Distribution Agreement, dated as of March 8, 2001 by and between the Company and Safety-Kleen Systems, Inc. 10.17 Revolving Credit Loan Agreement by and between the Company and Hansa Finance Limited Liability Company, dated as of November 30, 2000. 10.18 Revolving Credit Note, dated as of November 30, 2000. 10.19 Security Agreement by and between the Company and Hansa Finance Limited Liability Company, dated as of November 30, 2000. 10.20 Master Lease Agreement, dated as of December 14, 1997 between the CIT Group/Equipment Financing, Inc. and the Company. 23.1 Consent of KPMG LLP -------------- * Previously Filed (B) REPORTS OF FORM 8-K On December 28, 2000 the Company filed a Current Report on Form 8-K disclosing that the Exclusive Marketing Agreement with Safety-Kleen became fully effective. 20 21 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYSTEMONE TECHNOLOGIES INC. Dated: March 30, 2001 By: /s/ PAUL I. MANSUR --------------------------- Chief Executive Officer (Principal Executive Officer) In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ PIERRE G. MANSUR Chairman of the Board and March 30, 2001 - ----------------------------------------- President; Director Pierre G. Mansur /s/ PAUL I. MANSUR Chief Executive Officer; March 30, 2001 - ----------------------------------------- Principal Executive Officer; Paul I. Mansur Director /s/ STEVEN M. HEALY Director of Finance and March 30, 2001 - ----------------------------------------- Controller; Principal Steven M. Healy Financial Accounting Officer /s/ KENNETH CH'UAN-K'AI LEUNG Director March 30, 2001 - ----------------------------------------- Kenneth C. Leung /s/ PAUL A. BIDDELMAN Director March 30, 2001 - ----------------------------------------- Paul A. Biddelman
21 22 INDEX TO FINANCIAL STATEMENTS PAGE ---- Independent Auditors' Report F-2 Balance Sheets as of December 31, 2000 and 1999 F-3 Statements of Operations for the years ended December 31, 2000 and 1999 F-4 Statements of Stockholders' Deficit for the years ended December 31, 2000 and 1999 F-5 Statements of Cash Flows for the years ended December 31, 2000 and 1999 F-6 Notes to Financial Statements F-7 F-1 23 INDEPENDENT AUDITORS' REPORT The Board of Directors SystemOne Technologies Inc. We have audited the accompanying balance sheets of SystemOne Technologies Inc., formerly known as Mansur Industries Inc. (the "Company"), as of December 31, 2000 and 1999, and the related statements of operations, stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations primarily resulting from the significant expenses incurred in the establishment of its national direct marketing and distribution organization and has a net capital deficiency. The Company may also need to raise additional capital that may be required to pay maturing issues of long term debt and redeemable convertible preferred stock. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans to address these matters, relating principally to a recently executed marketing and distribution agreement with Safety-Kleen Services, Inc. are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. /s/ KPMG LLP Miami, Florida March 2, 2001 F-2 24 SYSTEMONE TECHNOLOGIES INC. BALANCE SHEETS DECEMBER 31, 2000 AND 1999
2000 1999 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 487,784 $ 912,237 Accounts receivable, net 1,567,666 2,748,383 Inventory, net 1,873,055 4,961,991 Other assets 124,463 584,461 ------------ ------------ Total current assets 4,052,968 9,207,072 Property and equipment, net 2,228,778 2,866,114 Other assets 666,950 906,400 ------------ ------------ Total assets $ 6,948,696 $ 12,979,586 ============ ============ LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued expenses $ 3,100,784 $ 3,321,122 Restructuring accrual 300,936 -- Warranty accrual 1,029,553 400,174 Deferred revenue 188,914 159,826 Line of credit -- 956,893 Current installments of obligations under capital leases 280,546 956,893 ------------ ------------ Total current liabilities 4,901,133 5,157,239 ------------ ------------ Long-term debt 25,363,958 18,262,362 Other long-term liabilities 943,504 -- ------------ ------------ Total liabilities 31,208,595 23,419,601 ------------ ------------ Redeemable convertible preferred stock, at redemption value 15,542,400 12,403,200 Less unamortized discount (1,680,313) (949,842) ------------ ------------ Net redeemable convertible preferred stock 13,862,087 11,453,358 ------------ ------------ Stockholders' deficit: Preferred stock, $1.00 par value per share. Authorized 1,500,000 shares, 155,424 issued and outstanding (124,032 in 1999), at redemption value 15,542,400 12,403,200 Less redeemable preferred stock (15,542,400) (12,403,200) Common stock, $0.001 par value per share. Authorized 25,000,000 shares, issued and outstanding 4,742,923 4,743 4,743 Additional paid-in capital 19,128,907 13,357,975 Accumulated deficit (57,255,636) (35,256,091) ------------ ------------ Total stockholders' deficit (38,121,986) (21,893,373) ------------ ------------ Total liabilities, redeemable convertible preferred stock and stockholders' deficit $ 6,948,696 $ 12,979,586 ============ ============
See accompanying notes to financial statements. F-3 25 SYSTEMONE TECHNOLOGIES INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 ------------ ------------ Revenue $ 17,524,059 $ 18,833,325 Costs of goods sold (7,851,578) (8,408,296) ------------ ------------ Gross profit 9,672,481 10,425,029 ------------ ------------ Operating expenses: Selling, general and administrative 20,682,467 23,956,902 Research and development 459,628 427,666 Restructuring and other charges 5,992,968 -- ------------ ------------ Total operating expenses 27,135,063 24,384,568 ------------ ------------ Loss from operations (17,462,582) (13,959,539) Interest expense (2,952,775) (1,967,830) Interest income 37,878 89,378 ------------ ------------ Net loss (20,377,479) (15,837,991) Dividends and accretion of discount on redeemable convertible preferred stock (1,622,066) (453,375) ------------ ------------ Net loss to common shares (21,999,545) $(16,291,366) ============ ============ Basic loss per common share $ (4.64) $ (3.54) ============ ============ Weighted average shares outstanding 4,742,923 4,605,708 ============ ============
See accompanying notes to financial statements. F-4 26 SYSTEMONE TECHNOLOGIES INC. STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
COMMON STOCK ADDITIONAL TOTAL ------------------------ PAID-IN ACCUMULATED STOCKHOLDERS' SHARES PAR CAPITAL DEFICIT DEFICIT --------- ------------ ------------ ------------ ------------ Balance, December 31, 1998 4,601,309 $ 4,601 $ 11,115,858 $(18,964,725) $ (7,844,266) Shares issued for advisory fees 6,060 6 43,171 43,177 Conversion of notes into common stock 135,554 136 2,198,946 2,199,082 Net loss (15,837,991) (15,837,991) Payment of in-kind dividends on preferred stock (453,375) (453,375) --------- ------------ ------------ ------------ ------------ Balance, December 31, 1999 4,742,923 4,743 13,357,975 (35,256,091) (21,893,373) Warrants issued 5,770,932 5,770,932 Net loss (20,377,479) (20,377,479) Payment of in-kind dividends and accretion of discount on preferred stock (1,622,066) (1,622,066) --------- ------------ ------------ ------------ ------------ Balance, December 31, 2000 4,742,923 $ 4,743 $ 19,128,907 $(57,255,636) $(38,121,986) ========= ============ ============ ============ ============
See accompanying notes to financial statements. F-5 27 SYSTEMONE TECHNOLOGIES INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 ------------ ------------ Cash flows from operating activities: Net loss $(20,377,479) $(15,837,991) Adjustments to reconcile net loss to net cash used in operating activities Depreciation 811,952 699,027 Amortization 947,546 -- Payment-in-kind of interest on convertible debt 1,708,484 1,595,687 Restructuring and other charges 2,373,082 -- Other 404,547 74,000 Changes in operating assets and liabilities: Accounts receivable 1,026,590 (567,329) Inventories 2,673,124 (884,843) Other assets 449,997 2,552 Accounts payable and accrued expenses 1,352,545 1,331,632 Deferred revenue 29,088 (13,962) ------------ ------------ Net cash used in operating activities (8,600,524) (13,601,227) ------------ ------------ Cash flows used in investing activities: Purchase of equipment (9,224) (383,134) ------------ ------------ Cash flows from financing activities: Proceeds from issuance of long-term debt 4,986,858 -- Proceeds from issuance of common stock warrants 3,698,786 -- Proceeds from line of credit 1,209,284 956,893 Proceeds from issuance of preferred stock 786,663 10,999,983 Repayment of line of credit (2,166,177) -- Repayments of capital lease obligations (330,119) (259,333) ------------ ------------ Net cash provided by financing activities 8,185,295 11,697,543 ------------ ------------ Net decrease in cash and equivalents (424,453) (2,286,818) Cash and equivalents at beginning of year 912,237 3,199,055 ------------ ------------ Cash and equivalents at end of year $ 487,784 $ 912,237 ============ ============ Supplemental disclosures: Interest paid $ 294,774 $ 98,871 Taxes paid $ -- $ -- Noncash financing and investing activities: Value of common stock purchase warrants issued in connection with the Safety-Kleen agreement $ 2,072,146 $ -- New capital lease obligations $ -- $ 8,875 Payment of in-kind interest on convertible debt $ 1,708,484 $ 1,595,687 Payment of in-kind dividends on redeemable preferred stock $ 1,622,066 $ 453,375
See accompanying notes to financial statements. F-6 28 SYSTEMONE TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS (1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) THE COMPANY During 2000, the Company changed its name from Mansur Industries Inc. to SystemOne Technologies Inc. The Company designs, manufactures and sells a full line of patented, self-contained, recycling industrial parts washers for use in the automotive, aviation, marine and general industrial repair markets. The Company has been awarded ten patents for its products, which incorporate innovative, proprietary resource recovery and waste minimization technologies to distill contaminated solvent and yield pure solvent and a by-product comparable to used motor oil. The Company was incorporated in November 1990, commenced the sale of SystemOne washers in July 1996 and sold approximately 20,000 total SystemOne units through December 31, 2000. On November 14, 2000, the Company entered into an exclusive Marketing and Distribution Agreement, as amended (the "Exclusive Marketing Agreement") with industry leader Safety-Kleen Systems, Inc., a wholly-owned subsidiary of Safety-Kleen Corp. (collectively, "Safety-Kleen") representing a major strategic shift in direction and focus for the Company. The Company anticipates that this relationship will greatly enhance its financial and operating performance and substantially accelerate market penetration. By joining with Safety-Kleen, the Company has united its proprietary breakthrough technologies with the industry market leader for the past thirty years, providing both companies with unparalleled competitive advantages. Under the Exclusive Marketing Agreement, Safety-Kleen has been appointed the exclusive distributor of SystemOne parts washer equipment in the United States, Canada, Mexico and Puerto Rico (the "Territory"). Safety-Kleen commenced marketing the Company's products throughout Safety-Kleen's 173 branch locations across North America during early 2001. The Company has retained the right to distribute its equipment outside of these markets as well as the right, subject to a right of first offer for Safety-Kleen, to market newly developed industrial and commercial parts washers through other distribution channels. As a result of the Exclusive Marketing Agreement, the Company committed to a plan in November 2000 to restructure its operations. The plan consisted of the following strategy: Suspend sales activities on November 30, 2000; terminate all field sales and service personnel; terminate office personnel as appropriate in areas including sales and service support, marketing, and product leasing; close all service centers and terminate leases; terminate leases for the service fleet; return all equipment inventory to the Miami warehouse and classify as new, demo, requiring re-manufacturing or to be scrapped; re-manufacture all used or demo inventory to a "New Condition" standard; and sell all new, re-manufactured and rental equipment inventories to Safety-Kleen. See note 10 for a summary of restructuring and other charges relating to restructuring of the Company's operations. (b) BASIS OF PRESENTATION The balance sheet for December 31, 1999 has been restated to classify convertible preferred stock with mandatory redemption provisions outside of stockholders' equity. Certain other amounts in the 1999 financial statements have been reclassified to conform with the 2000 presentation. (c) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, demand deposits, and short-term investments with original maturities of three months or less. (d) INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. F-7 29 (e) PROPERTY AND EQUIPMENT, NET Property and equipment are stated at cost. Equipment under capital leases is stated at the present value of minimum lease payments. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Equipment held under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. (f) OTHER ASSETS Debt issue costs associated with the Company's 8.25% Subordinated Convertible Notes due 2003 are being amortized using the effective interest method over the term of the notes. Amortization expense, included in interest expense, for the year ended December 31, 2000 and 1999 was $245,284 and $273,272, respectively. The balance of unamortized debt issue costs at December 31, 2000 was $546,116. (g) WARRANTY ACCRUAL The Company warrants that its products will be free of material defects during the warranty period and, if properly used in accordance with the operator manual, will not generate hazardous waste under current interpretations of applicable federal and state regulations. For sales prior to May 1999, the standard warranty period on all products of the Company was five years. Commencing in May, 1999, the standard warranty was reduced to three years and, for an additional fee, customers could purchase an extended two-year warranty contract. The Company accrues estimated standard warranty costs at the time parts washers are sold to customers. Revenue received for extended warranty contracts is deferred and amortized over the extended warranty period. See note (h) below. As part of the Exclusive Marketing Agreement, Safety-Kleen assumed all service, maintenance and repair responsibilities for the Company's installed base of SystemOne parts washers. The Company is obligated to pay Safety-Kleen for each service issue associated with warranty matters. As a result of eliminating its service infrastructure and the need to maintain a call center for warranty calls, the Company accrued additional warranty costs of $1,570,508. (h) DEFERRED REVENUE Deferred revenue relates to (a) extended two-year warranty contracts purchased by customers, and (b) amounts received in advance from customers who have enrolled in the Company's "Total Care Program", an agreement to provide solvent replenishment and maintenance services for a one-year term. Deferred revenue is recognized in income on the straight-line basis over the terms of each contract. (i) FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's long term debt and redeemable convertible preferred stock has been estimated by discounting the future cash flows at rates currently offered to the Company for similar securities of comparable maturities. The fair values of all other financial instruments approximate their carrying amounts. (j) REDEEMABLE CONVERTIBLE PREFERRED STOCK The shares of each series of redeemable convertible preferred stock were issued at discounts from their mandatory redemption values. The carrying amounts of the preferred stocks are being accreted to their mandatory Liquidation Values using the straight-line method, from the date of issuance of each series to the date of mandatory redemption. (k) REVENUE RECOGNITION The Company recognizes revenue at the time equipment is delivered to and accepted by its customers. F-8 30 (l) RESEARCH AND DEVELOPMENT Research and development expenses incurred in connection with engineering activities related to the development of industrial parts cleaning machinery are expensed as incurred. (m) INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. For the years ended December 31, 2000 and 1999, a valuation allowance has been recorded to reduce the net deferred tax assets to the estimated recoverable amounts. (n) BASIC AND DILUTED NET LOSS PER SHARE For the years ended December 31, 2000 and 1999, basic and diluted net loss per share is computed based on a weighted-average number of common shares outstanding of 4,742,923 and 4,605,708, respectively. Diluted loss per share has not been presented separately, because the effect of the additional shares issuable for convertible debt, convertible preferred stock and the outstanding common stock options and warrants are anti-dilutive for each year. Common shares issuable in connection with convertible debt, convertible preferred stock and common stock options and warrants total 8,080,667 and 2,788,652 shares, respectively, at December 31, 2000 and 1999. (o) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) LIQUIDITY As indicated in the accompanying financial statements, the Company's accumulated deficit totaled $57,255,636 and $35,256,091 at December 31, 2000 and 1999, respectively. Through November of 2000, such deficits have primarily resulted from expenses incurred to establish a national direct marketing, distribution and support organization. As described in note 1(a) above, in November 2000, the Company entered into the Exclusive Marketing Agreement with Safety-Kleen. The Company has incurred significant costs and expenses related to the Exclusive Marketing Agreement and in connection with restructuring its operations. See note 10 for additional information. Safety-Kleen is currently operating under Chapter 11 of the US Bankruptcy code. The Exclusive Marketing Agreement, which has been approved by the Bankruptcy Court, (a) makes Safety-Kleen the exclusive marketer, distributor and service provider for certain models of the Company's parts washing equipment within the Territory, and (b) obligates Safety-Kleen to purchase minimum quantities of the Company's parts washing equipment for each contract year within the Exclusive Marketing Agreement. The initial term of the Exclusive Marketing Agreement is five years and the Exclusive Marketing Agreement may be automatically extended for two additional five-year terms. However, with 180 days prior notice, Safety-Kleen may terminate the Exclusive Marketing Agreement after the second contract year. Also, the automatic extensions are dependent upon the parties reaching an agreement in writing as to Safety-Kleen's minimum purchase commitments for each contract year during any renewal term. Outside the Territory, the Company retains the rights to sell, lease, rent and service all of its parts washing equipment directly, or through other distributors or agents. The minimum annual sales escalate from 10,000 equivalent units during each of the first two contract years to 18,000 equivalent units during the fifth F-9 31 contract year at specified prices, including deferred payments on each unit sold payable in 36 equal monthly installments. At prices currently in effect, the minimum revenue from the Exclusive Marketing Agreement is estimated to be $17,000,000 for 2001. Also, Safety-Kleen has taken over all service, maintenance and warranty responsibilities for the installed base of SystemOne(R) Parts Washers, allowing the Company to dismantle its entire national sales and service infrastructure. As a result of the Exclusive Marketing Agreement, management estimates annual selling, general and administrative cost savings in 2001 of approximately $20 million compared to 1999 and $17 million compared to 2000. Primarily as a result of the Exclusive Marketing Agreement, management estimates that no additional financing will be required in 2001 and that cash provided by operating activities will be positive. However, as described in notes 7 and 8, if the convertible debt and redeemable convertible preferred stock are not converted to common stock, significant amounts of cash would be required commencing in 2002 as follows: DEBT PREFERRED STOCK TOTAL ----------- ---------------- ----------- 2002 $ 4,292,199 $ -- $ 4,292,199 2003 27,191,022 -- 27,191,022 2004 -- 20,326,215 20,326,215 ----------- ----------- ----------- Total $31,483,221 $20,326,215 $51,809,436 =========== =========== =========== The Company may need to obtain new debt or equity capital to fund all or part of the required cash payments. There is no certainty that the Company would be able to obtain the required funds on acceptable terms. (3) ACCOUNTS RECEIVABLE, NET Accounts receivable, net consist of the following at December 31, 2000 and 1999: 2000 1999 ---------- ---------- Trade receivables $1,836,636 $2,863,225 Less: allowance for doubtful accounts 268,970 114,842 ---------- ---------- $1,567,666 $2,748,383 ========== ========== (4) INVENTORY, NET Inventories consist of the following at December 31, 2000 and 1999: 2000 1999 ---------- ---------- Raw materials $1,326,588 $1,667,674 Work in process and finished goods 733,160 3,346,422 ---------- ---------- 2,059,748 5,014,096 Less: allowance for obsolete inventories 186,693 52,105 ---------- ---------- $1,873,055 $4,961,991 ========== ========== F-10 32 (5) PROPERTY AND EQUIPMENT, NET Property and equipment, net as of December 31, 2000 and 1999 consist of the following:
USEFUL 2000 1999 LIVES ---- ---- ----- Furniture and equipment $ 607,083 $ 672,657 5 years Machinery and equipment 2,768,038 2,775,989 5 years Leasehold improvements 294,825 294,825 5 years ------------ ------------ 3,669,946 3,743,471 Less accumulated depreciation and amortization 1,441,168 877,357 ------------ ------------ $ 2,228,778 $ 2,866,114 ============ ============
(6) LEASE AGREEMENTS The Company has a lease obligation for its corporate headquarters that expires on September 30, 2002. This lease provides for a renewal term of five years exercisable at the Company's option upon six months prior written notice. The Company's annual lease payments under this lease are approximately $580,000 subject to an annual increase of 4.5 percent, which does not include utilities and the Company's proportionate share of the facilities maintenance and operating expenses. The Company has closed all 56 service centers that supported its previous direct marketing and distribution efforts. The Company also leased approximately 57 service fleet vehicles under various operating leases expiring in twelve to twenty-four months. These leases are in the process of being assigned to or subleased by Safety-Kleen. Total rent expense was $2,500,851 and $2,295,890 for the years ended December 31, 2000 and 1999, respectively. The Company is obligated under capital leases for certain machinery and equipment that expire at various dates during the next five years. At December 31, 2000 and 1999, the gross amount of property and equipment and related accumulated amortization recorded under capital leases were as follows: 2000 1999 ---------- ---------- Machinery and equipment $1,298,853 $1,582,629 Less accumulated amortization 292,309 258,683 ---------- ---------- $1,006,544 $1,323,946 ========== ========== Amortization of assets held under capital leases is included with depreciation expense. F-11 33 Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 2000 are as follows:
CAPITAL OPERATING YEAR ENDING DECEMBER 31, LEASES LEASES ------------------------ ------ ------ 2001 $318,043 $928,515 2002 314,699 533,525 2003 154,916 --------- ---------- Total minimum lease payments 787,658 $1,462,040 ========== Less amount representing interest (at rates ranging from 6.35% to 8.25%) 77,014 --------- Present value of net minimum capital lease payments 710,644 Less current installments of obligations under capital leases 280,946 --------- Obligations under capital leases, excluding current installments $429,698 =========
(7) LONG TERM DEBT Long-term debt consists of the following:
2000 1999 ----------- ----------- Subordinated Convertible Notes, with interest at 8.25%, due February 23, 2003 $19,070,969 $17,540,823 Revolving credit loan, with interest at 14%, due May 30, 2003 4,200,000 -- Subordinated promissory notes payable, with interest at rates ranging from 12% to 16%, due February 7, 2002 3,300,000 -- Capital leases (note 6) 429,698 721,539 Accrued interest 178,338 -- ----------- ----------- 27,179,005 18,262,362 Less unamortized note discount 1,815,047 -- ----------- ----------- $25,363,958 $18,262,362 =========== ===========
The Subordinated Convertible Notes are unsecured and are subordinate and junior to all indebtedness of the Company. Pursuant to these notes, the Company is not permitted to incur, create, assume or guarantee, or otherwise become liable in any manner with respect to any indebtedness (the "Incurrence") unless, after giving pro forma effect to the Incurrence, the ratio of total debt, as defined, to income before (i) interest, (ii) income taxes, and (iii) depreciation and amortization, is less than 6.0:1.0; provided, however, the Company may incur up to $10 million of total debt, excluding the notes, at any time. Through February 2000, interest is payable semi-annually on the Company's Subordinated Convertible Notes through the issuance of additional such notes and thereafter, at the election of the Company, is payable either in cash or through the issuance of additional such notes. The Subordinated Convertible Notes are convertible by the holders thereof into shares of the Company's common stock at a conversion price equal to $17.00 per share. F-12 34 The Subordinated Convertible Notes may be redeemed by the Company at a redemption price of 104% of the principal amount plus any accrued but unpaid interest commencing February 24, 2001. After February 23, 2002 the redemption price is 102% of the principal amount plus any accrued but unpaid interest. The Revolving Credit Loan Agreement (the "Senior Revolver") provides the Company with a $5 million revolving line of credit. In connection with the Senior Revolver, the Company granted the lender a security interest in substantially all of the Company's assets, including its intellectual properties. Pursuant to the Senior Revolver, the Company may borrow twice a month up to the Advance Limit. The Advance Limit is the lesser of $5,000,000 or the sum of the Advance Supplement plus an amount based on the Company's accounts receivable and inventory. The Advanced Supplement was $3,000,000 through March 31, 2001 and $2,500,000 for the period April 1, 2001 until maturity. Interest on the Subordinated Promissory Notes increased from 12% to 14% on February 7, 2001 and then increases to 16% on May 7, 2001. Interest is due and payable on maturity of the Subordinated Promissory Notes, which is February 7, 2002. In connection with the Subordinated Promissory Notes, the Company granted the lenders a security interest in substantially all of the Company's assets other than its intellectual property. The security interest is subordinated to the Senior Revolver. The Company issued warrants to the lenders under the Subordinated Promissory Notes expiring in August 2005, to purchase an aggregate of up to 942,858 shares of the Company's common stock at an exercise price of $3.50 per share. The warrants may be exercised for 50% and 75% of the common stock underlying the warrants prior to May 7, 2001 and August 7, 2001, respectively. If the Subordinated Promissory Notes are paid prior to May 7, 2001, 50% of the warrants will terminate. If the Subordinated Promissory Notes are paid after May 7, 2001 and prior to August 7, 2001, 25% of the warrants will terminate. The fair value of the warrants, based on the Black-Scholes option pricing model, of $2,513,442 was charged to unamortized note discount and credited to additional paid-in capital. The discount is being amortized to interest expense over the term of the Subordinated Promissory Notes. The Senior Revolver and the Subordinated Promissory Notes may be prepaid without penalty. Any cash proceeds from any new financing or the issuance of stock must be used for the payment of interest and principal on the Senior Revolver and the Subordinated Promissory Notes. Long-term debt matures as follows: 2001 $ -- 2002 3,623,601 2003 23,555,404 ----------- $27,179,005 =========== Assuming the Company (a) continues to pay in-kind interest on the Subordinated Convertible Notes, and (b) pays interest currently on the Senior Revolver, the aggregate amounts payable on the scheduled maturities would be as follows: 2002 $ 4,292,199 2003 27,191,022 ----------- $31,483,221 =========== The carrying amount of debt, excluding capital leases, was approximately $24.9 million and $17.5 million at December 31, 2000 and 1999, respectively. Management estimates the fair value of the debt to be $15.9 million and $15.5 million at December 31, 2000 and 1999, respectively. F-13 35 (8) REDEEMABLE CONVERTIBLE PREFERRED STOCK Shares of redeemable convertible preferred stock (the "Preferred Stock"), stated at redemption values of $100 per share net of unamortized discount, are outstanding as follows:
2000 1999 ------------ ------------ 8.25% Series B. Authorized 150,000 shares, issued and outstanding 57,590 shares (53,085 in 1999) $ 5,759,000 $ 5,308,500 8.00% Series C. Authorized 150,000 shares, issued and outstanding 76,735 shares (70,947 in 1999) 7,673,500 7,094,700 8.25% Series D. Authorized 150,000 shares, issued and outstanding 21,099 shares 2,109,900 -- ------------ ------------ 15,542,400 12,403,200 Less unamortized discount (1,680,313) (949,842) ------------ ------------ $ 13,862,087 $ 11,453,358 ============ ============
Each series of the Preferred Stock has a Liquidation Value of $100 per share. The dividend rate payable on all outstanding shares is applied to the Liquidation Value of each share per annum. Through the second anniversary of the issuance of each series of the Preferred Stock, all dividends are payable by the issuance of additional shares of the applicable Preferred Stock valued at the Liquidation Value. Thereafter, all dividends may, at the option of the Company, be paid either through the issuance of additional shares of the applicable Preferred Stock, cash or any combination of such Preferred Stock or cash. At any time prior to May 7, 2004 (the "Mandatory Redemption Date"), each holder of Preferred Stock may convert all or part of their shares of Preferred Stock into shares of the Company's common stock at the following conversion prices (in each case subject to adjustment in certain circumstances): $4.68 per share for the Series B Preferred Stock $3.50 per share for the Series C Preferred Stock $3.50 per share for the Series D Preferred Stock Commencing on May 17, 2002, the Company shall have the right to redeem any outstanding shares of each series of Preferred Stock at a redemption price of 104% of the Liquidation Value of the redeemed shares, if redemption occurs during 2002 or 102%, if redemption occurs during 2003. The holders of the Preferred Stock are entitled to vote together with the holders of the Company's Common Stock as a single class on all matters to come before a vote of the shareholders of the Company. Each share of Preferred Stock is entitled to the number of votes equal to the number of shares of Common Stock into which it is then convertible. The Company is also required to register the shares of common stock underlying each series of Preferred Stock for resale under the Securities Act of 1933, as amended. On the Mandatory Redemption Date, the Company is required to redeem each series of Preferred Stock outstanding at a redemption price per share equal to the Liquidation Value plus accrued and unpaid dividends. Assuming the Company continues to issue dividends on each series of Preferred Stock by issuing additional shares of Preferred Stock, the aggregate amount redeemable on May 17, 2004 would be $20,326,215. If on the Mandatory Redemption Date, funds legally available are insufficient to redeem all shares, any available funds will be used to redeem shares of Preferred Stock on a proportionate basis. If all outstanding shares of Preferred Stock are not redeemed, the then current conversion price with respect to any shares not redeemed will be reduced (but not increased) to the greater of (a) 50% of the then current conversion price, and (b) the closing price of the Company's common stock as reported by Nasdaq on the Mandatory Redemption Date. F-14 36 The purchasers of the Series D Preferred Stock received warrants which expire in April 2005, to acquire an aggregate of 571,428 shares of the Company's common stock at an exercise price of $3.50 per share. The fair value of the warrants, based on the Black-Scholes option pricing model, of $1,185,644 was charged to unamortized discount and credited to additional paid-in capital. The discount is being accreted to dividends on the Preferred Stock over the period through to the Mandatory Redemption Date. The carrying amount of the Preferred Stock was approximately $13.9 million and $11.5 million at December 31, 2000 and 1999, respectively. Management estimates the fair value of the Company's Preferred Stock to be $9.9 million and $11.5 million at December 31, 2000 and 1999, respectively. (9) STOCKHOLDERS' DEFICIT In connection with the initial public offering in October 1996, the Company agreed to sell to the underwriters, for nominal consideration, warrants to purchase from the Company 100,000 shares of common stock at a price of $9.00 per share. The warrants are initially exercisable for a period of four years ending September 27, 2001. In connection with the Safety-Kleen Agreement, the Company issued to Safety-Kleen a five-year warrant to purchase up to 1,134,615 shares of the Company's common stock at $3.50 per share. The fair value of the warrant, based on the Black-Scholes option pricing model, of $2,072,146 was charged to expense and credited to additional paid-in-capital. At December 31, 2000, an aggregate of 7,688,743 shares of common stock could potentially be issued pursuant to provisions of warrants and conversion privileges at amounts per share ranging from $3.50 to $17.00. At December 31, 1999, an aggregate of 2,420,240 shares of common stock could potentially be issued pursuant to provisions of warrants and conversion privileges at amounts per share ranging from $8.25 to $17.00. In December 1999, a holder of an aggregate $2,000,000 in principal amount of the Company's outstanding 8.25% Subordinated Convertible Notes due 2003, converted such notes into the Company's Common Stock, par value $.001 per share, in accordance with the terms thereof. Including accrued and unpaid interest, a total of $2,304,418 was converted into the Company's Common Stock, at a conversion price of $17.00 per share, resulting in an aggregate of 135,554 shares of Common Stock being issued, and unamortized debt issue costs totaling $105,336 were charged to Additional Paid-In Capital. At December 31, 2000 the Company had 4,742,923 Common Stock purchase rights (the "Rights") outstanding which expire on September 30, 2008. The Rights contain provisions to protect shareholders in the event of an unsolicited attempt to acquire the Company that is not believed by the board of directors to be in the best interest of shareholders. The Rights are evidenced by the certificates for common stock, are subject to anti-dilution provisions and are not exercisable, transferable or exchangeable apart from the Common Stock until 10 days after an Acquiring Person, as defined, acquires beneficial ownership of 15% or more, or, in the case of an Adverse Person, as defined, 10% or more of the Company's Common Stock. The Rights entitle the holder, except such an Acquiring Person or Adverse Person to buy that number of shares of Common Stock of the Company which at the time of such acquisition would have a market value of two times the exercise price of the Right. The Rights have no voting rights and are redeemable, at the option of the Company, at a price of $0.001 per Right prior to the acquisition by an Acquiring Person of 15% or more of the Company's Common Stock. The holders of the Company's Preferred Stock, at the time of any such unsolicited acquisition, are entitled to buy that number of shares of common stock of the Company that would have a market value of two times the exercise price of the Rights that Preferred Stock holders would have received if the Preferred Stock had been converted to common stock immediately prior to such consolidation, merger, sale or transfer. STOCK-BASED COMPENSATION The Company has an executive incentive compensation plan (the "Plan") pursuant to which the Company's board of directors may grant stock options to officers and key employees. Pursuant to an amendment approved by the Company's shareholders during 2000, stock options to purchase up to 750,000 shares of F-15 37 common stock may be granted under the Plan. Stock options are granted with an exercise price equal to the stock's fair market value at the date of grant. All stock options have seven-year terms and vest and become exercisable over a three year period from the date of grant. At December 31, 2000 and 1999, there were 358,076 and 106,588 additional shares, respectively, available for grant under the Plan. Per share weighted-average fair value on the date of grant of stock options granted during 2000 and 1999 was $4.02 and $7.78, respectively, using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2000-expected dividend yield of zero percent, risk-free interest rate of 5.46 percent, expected life of seven years and a volatility rate of 161.1 percent; 1999-expected dividend yield of zero percent, risk-free interest rate of 6.48 percent, expected life of seven years and a volatility rate of 118.19 percent. The Company accounts for stock options issued using the intrinsic value method and, accordingly, no compensation cost has been recognized for stock options granted. If the Company determined compensation cost based on the fair value of the options at the grant date, the Company's net loss to common shares and basic and diluted net loss per common share would have reflected the pro forma amounts shown below: 2000 1999 Net loss to common shares As reported $(21,999,545) $(16,291,366) Pro forma (21,173,244) (16,929,591) Basic loss per common share As reported $ (4.64) $ (3.54) Pro forma (4.68) (3.68) Stock-option activity during the periods indicated is as follows: WEIGHTED AVERAGE NUMBER OF SHARES EXERCISE PRICE ---------------- -------------- Balance at December 31, 1998 196,222 $15.32 Granted 216,677 8.81 Exercised -- -- Forfeited (44,487) 9.34 Expired -- -- ------- ------ Balance at December 31, 1999 368,412 8.29 Granted 394,701 6.11 Exercised -- -- Forfeited (371,189) 7.99 Expired -- -- ------- ------ Balance at December 31, 2000 391,924 $10.01 ======= ====== At December 31, 2000, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $3.50 -- $19.50 and 3.82 years, respectively. At December 31, 1999, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $7.50 - $19.50 and 5.35 years, respectively. At December 31, 2000 and 1999, the number of options exercisable was 155,563 and 105,300, respectively, and the weighted-average exercise prices of those options were $14.29 and $14.21, respectively. F-16 38 (10) RESTRUCTURING AND OTHER CHARGES As described in note 1(a), the Company initiated a significant restructuring program in connection with the Exclusive Marketing Agreement. A summary of restructuring and other non-recurring charges is as follows: 2000 ---------- Common stock purchase warrant issued to Safety-Kleen $2,072,146 Additional warranty costs for outsourcing services to Safety-Kleen 1,570,508 Inventory write-downs 661,467 Employee severance and facility closing 1,020,635 Idle capacity and other 668,212 ---------- $5,992,968 ========== The remaining accrual for restructuring charges as of December 31, 2000 is $300,936, relating to employee severance, stock options and facility closure costs. (11) INCOME TAXES There is no current or deferred tax expense for the years ended December 31, 2000 and 1999. The actual income tax expense differs from the expected income tax effect (computed by applying the U.S. federal corporate tax rate of 34 percent to loss before income taxes) for the years ended December 31, 2000 and 1999 as follows: 2000 1999 ----------- ----------- Computed "expected" income tax benefit $(6,928,343) $(5,384,917) State income tax benefit, net of U.S. federal income tax benefit (1,187,324) (460,702) Change in deferred taxes due to difference in rates (139,606) (14,540) Change in valuation allowance 8,529,191 5,771,008 Other (273,918) 89,151 ----------- ----------- Income tax expense $ -- $ -- =========== =========== F-17 39 Temporary differences between financial statement carrying amounts and tax basis of assets and liabilities that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2000 and 1999 are as follows:
2000 1999 ----------- ----------- Deferred tax assets: Net operating loss $20,805,493 $11,944,971 Deferred revenue 74,443 62,984 Warranty 402,108 157,700 Start-up costs 21,492 107,464 Research and development 487,214 534,919 Severance and restructuring reserve 34,547 Inventory reserve 88,477 20,533 Inventory 288,398 613,771 Bad debt reserve 105,989 42,354 Accrued expenses 184,697 95,328 Patent 391,155 375,936 ----------- ----------- Total gross deferred tax assets 22,884,013 13,955,960 =========== =========== Less valuation allowance 22,390,505 13,861,314 ----------- ----------- Net deferred tax asset 493,508 94,646 ----------- ----------- Deferred tax liabilities: Debt issue cost 114,677 5,193 Depreciation 246,572 57,018 Original issue discount 132,259 32,435 Total gross deferred tax liabilities 493,508 94,646 ----------- ----------- Deferred tax assets, net $ -- $ -- =========== ===========
At December 31, 2000, the Company had net operating loss carryforwards of $53,152,162 which expire beginning in the year 2012 through 2020. In addition, if certain substantial changes in ownership should occur there would be an annual limitation on the amount of tax attribute carryforwards which can be utilized in the future. (12) COMMITMENTS AND CONTINGENCIES The Exclusive Marketing Agreement obligates the Company to produce minimum quantities of equivalent units of its industrial parts washers over a five-year term. See notes 1(a) and 2 for additional information about the Exclusive Marketing Agreement, including termination provisions, the fact that Safety-Kleen is operating under Chapter 11 of the U.S. Bankruptcy code, and that the Company has dismantled its sales and distribution network in reliance upon the Exclusive Marketing Agreement. As described in note 2, the Company may need to raise additional capital that may be required to pay, at maturity, estimated aggregate long-term debt and redeemable convertible preferred stock of approximately $51.8 million. There can be no assurance that the Company would be able to obtain the required funds on acceptable terms. F-18 40 The Company has received a Nasdaq Staff Determination letter advising the Company of the Staffs' view that the Company is not in compliance with the net tangible assets, net income and market capitalization requirements for continued listing. Management believes the Exclusive Marketing Agreement with Safety-Kleen will greatly enhance the Company's operating and financial performance. Therefore management has requested a hearing to review the Staff determination. If it does not prevail at the hearing, the Company's securities will be subject to delisting from the Nasdaq Small Cap Market but should continue to be quoted on the OTC Electronic Bulletin Board. There is no assurance that the Company will prevail at the hearing. F-19 41 EXHIBITS EXHIBIT DESCRIPTION ------- ----------- 4.7 Form of Warrant dated November 10, 2000 4.12 First Amendment to 81/4% Subordinated Convertible Notes, dated July 31, 2000. 10.7 First Amendment to Loan Agreement, dated November 10, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC. 10.8 Second Amendment to Loan Agreement, dated November 30, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC. 10.10 Form of Subordinated Promissory Note dated November 30, 2000. 10.12 First Amendment to Security Agreement, dated November 10, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC. 10.13 Second Amendment to Security Agreement, dated November 30, 2000, by and among the Company, Environmental Opportunities Fund II, L.P., Environmental Opportunities Fund II (Institutional), L.P. and Hanseatic Americas LDC. 10.14 Employment Agreement between Pierre G. Mansur and the Company dated July 1, 2000 10.15 Employment Agreement between Paul I. Mansur and the Company dated July 1, 2000 10.16 Second Amended and Restated Marketing and Distribution Agreement, dated as of March 8, 2001 by and between the Company and Safety-Kleen Systems, Inc. 10.17 Revolving Credit Loan Agreement by and between the Company and Hansa Finance Limited Liability Company, dated as of November 30, 2000. 10.18 Revolving Credit Note, dated as of November 30, 2000. 10.19 Security Agreement by and between the Company and Hansa Finance Limited Liability Company, dated as of November 30, 2000. 10.20 Master Lease Agreement, dated as of December 14, 1997 between the CIT Group/Equipment Financing, Inc. and the Company. 23.1 Consent of KPMG LLP F-20 EX-4.7 2 g68025ex4-7.txt WARRANT FOR PURCHASE OF SHARE 1 Exhibit 4.7 THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION. AS OF AUGUST 7, 2000 SYSTEMONE TECHNOLOGIES INC. (Incorporated under the laws of the State of Florida) Warrant for the Purchase of Shares of Common Stock NO. WRT-A1 FOR VALUE RECEIVED, SYSTEMONE TECHNOLOGIES INC., a Florida corporation (the "Company"), hereby certifies that _______________ or assigns (the "Holder") is entitled, subject to the provisions of this Warrant, to purchase from the Company, up to ______________ fully paid and non-assessable shares of Common Stock at a price of $3.50 per share (the "Exercise Price"). The term "Common Stock" means the Common Stock, par value $.001 per share, of the Company as constituted on the date of issuance of this Warrant (the "Base Date"). The number of shares of Common Stock to be received upon the exercise of this Warrant may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter referred to as "Warrant Stock." The term "Other Securities" means any other equity or debt securities that may be issued by the Company in addition thereto or in substitution for the Warrant Stock in accordance with the terms hereof. The term "Company" means and includes the corporation named above as well as (i) any immediate or more remote successor corporation resulting from the merger or consolidation of such corporation (or any immediate or more remote successor corporation of such corporation) with another corporation, or (ii) any corporation to which such corporation (or any immediate or more remote successor corporation of such corporation) has transferred its property or assets as an entirety or substantially as an entirety. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed or mutilated shall be at any time enforceable by anyone. 2 The Holder agrees with the Company that this Warrant is issued, and all the rights hereunder shall be held subject to, all of the conditions, limitations and provisions set forth herein. 1. EXERCISE OF WARRANT. 1.1 CASH EXERCISE. This Warrant may be exercised, in whole or in part, at any time, or from time to time during the period commencing on the date hereof and expiring 5:00 p.m. Eastern Time on the fifth anniversary of the Base Date (the "Expiration Date"), by presentation and surrender of this Warrant to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Warrant Exercise Form attached hereto duly executed and accompanied by payment (either in cash or by certified or official bank check, payable to the order of the Company) of the Exercise Price for the number of shares specified in such form and instruments of transfer, if appropriate, duly executed by the Holder or his or her duly authorized attorney; provided, however, that, prior to the date which falls nine months after the Base Date, this Warrant may not be exercised with respect to in excess of 50% of the maximum amount of Warrant Stock issuable under this Warrant and, prior to the first anniversary of the Base Date, this Warrant may not be exercised with respect to in excess of 75% of the maximum amount of Warrant Stock issuable under this Warrant; and, provided, further, that, in the event the entire Loan (as hereinafter defined), and all interest thereon, advanced by the original Holder of this Warrant pursuant to the Loan Agreement dated as of the date of this Warrant (the "Loan Agreement") is satisfied on or prior to the date which falls nine months after the Base Date, this Warrant may not thereafter be exercised with respect to in excess of 50% of the maximum amount of Warrant Stock issuable under this Warrant and, in the event that the entire Loan, and all interest thereon, advanced by the original Holder of this Warrant pursuant to the Loan Agreement is satisfied on or prior to the date which falls on the first anniversary of the Base Date, this Warrant may not thereafter be exercised with respect to in excess of 75% of the maximum amount of Warrant Stock issuable under this Warrant. For purposes hereof, the "Loan" shall have the meaning set forth in the Loan Agreement. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the shares purchasable hereunder. Upon receipt by the Company of this Warrant, together with the Exercise Price, at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on exercise of this Warrant. 1.2 CASHLESS EXERCISE. This Warrant may be exchanged, in whole or in part (subject to the limitations on exercise hereinabove set forth in Section 1.1) (a "Warrant Exchange"), at any time, or from time to time, during the period commencing on the date hereof and ending on the Expiration Date, into the number of shares of Common Stock determined in accordance with this Section 1.2, by presentation and surrender of this Warrant to the Company at its principal office, or at the office of its stock transfer agent, if any, accompanied by a notice (a "Notice of Exchange") stating that this Warrant is being exchanged and the number of shares -2- 3 of Common Stock to be exchanged. In connection with any Warrant Exchange, this Warrant shall represent the right to subscribe for and acquire the number of shares of Common Stock (rounded to the nearest whole number) equal to (i) the number of shares specified by the Holder in its Notice of Exchange (the "Total Number") less the number of shares equal to the quotient obtained by dividing (A) the product of the Total Number and the then applicable Exercise Price by (B) the then fair market value (determined in accordance with Section 3 below) per share of Common Stock. If this Warrant should be exchanged in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the shares purchasable hereunder. Upon receipt by the Company of this Warrant, together with a duly executed Notice of Exchange, at its office, or by the stock transfer agent of the Company at its office, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exchange, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on exchange of this Warrant. 2. RESERVATION OF SHARES. The Company will at all times reserve for issuance and delivery upon exercise of this Warrant all shares of Common Stock or other shares of capital stock of the Company (and Other Securities) from time to time receivable upon exercise of this Warrant. All such shares (and Other Securities) shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid and non-assessable and free of all preemptive rights. 3. FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but the Company shall pay the Holder an amount equal to the fair market value of such fractional share of Common Stock in lieu of each fraction of a share otherwise called for upon any exercise of this Warrant. For purposes of this Warrant, the fair market value of a share of Common Stock shall be determined as follows: (a) If the Common Stock is listed on a National Securities Exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the NASDAQ system, the current market value shall be the last reported sale price of the Common Stock on such exchange or system on the last business day prior to the date of exercise of this Warrant or if no such sale is made on such day, the average of the closing bid and asked prices for such day on such exchange or system; or (b) If the Common Stock is not so listed or admitted to unlisted trading privileges, the current market value shall be the mean of the last reported bid and asked prices reported by the National Quotation Bureau, Inc. on the last business day prior to the date of the exercise of this Warrant; or (c) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value shall be an amount, not less than book value thereof as at the end of the most recent fiscal year of -3- 4 the Company ending prior to the date of the exercise of the Warrant, determined by the Board of Directors of the Company in good faith. 4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations, entitling the Holder or Holders thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, subject to the provisions of Section 7 hereof, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants that carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. 5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant. 6. ANTI-DILUTION PROVISIONS. 6.1 ADJUSTMENT FOR RECAPITALIZATION. If the Company shall at any time subdivide its outstanding shares of Common Stock (or Other Securities at the time receivable upon the exercise of the Warrant) by recapitalization, reclassification or split-up thereof, or if the Company shall declare a stock dividend or distribute shares of Common Stock to its shareholders, the number of shares of Common Stock subject to this Warrant immediately prior to such subdivision shall be proportionately increased and the Exercise Price shall be proportionately decreased, and if the Company shall at any time combine the outstanding shares of Common Stock by recapitalization, reclassification or combination thereof, the number of shares of Common Stock or Other Securities subject to this Warrant immediately prior to such combination shall be proportionately decreased and the Exercise Price shall be proportionately increased. Any such adjustments pursuant to this Section 6.1 shall be effective at the close of business on the effective date of such subdivision or combination or if any adjustment is the result of a stock dividend or distribution then the effective date for such adjustment based thereon shall be the record date therefor. 6.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case of any reorganization of the Company (or any other entity, the securities of which are at the time receivable on the exercise of this Warrant) after the Base Date or in case after such date the Company (or any such other entity) shall consolidate with or merge into another entity or convey all or substantially all of its assets to another entity, then, and in each such case, the Holder of this Warrant upon the exercise thereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the securities and property receivable upon the exercise of this Warrant prior to such consummation, the securities or property to which such Holder would have been entitled -4- 5 upon such consummation if such Holder had exercised this Warrant immediately prior thereto; in each such case, the terms of this Warrant shall be applicable to the securities or property receivable upon the exercise of this Warrant after such consummation. 6.3 NO DILUTION. (a) From the date of issuance of this Warrant until the later of (1) the first anniversary date of such issuance and (2) the date on which the Company first consummates a sale of shares of its equity securities (within the meaning of Section 3(a)(11) of the Securities Exchange Act of 1934, as amended) or debt securities convertible into equity securities for gross cash proceeds to the Company of more than $2.0 million (such period through such later date, hereinafter referred to as the "Reset Period") other than Excluded Shares (as hereinafter defined), if the Company shall issue or enter into any agreement to issue any shares of Common Stock other than Excluded Shares for consideration per share (the "Issuance Price") less than the Exercise Price per share in effect immediately prior to such issuance, the Exercise Price in effect immediately prior to such issuance shall be reduced (but shall not be increased) to the Issuance Price. For purposes hereof, the term "Excluded Shares" shall mean (1) any shares of Common Stock issued in a transaction described in Sections 6.1 and 6.2 of this Warrant; (2) issuances of shares of Common Stock from time to time pursuant to employment agreements, stock option or bonus plans authorized by the Board of Directors of the Corporation as of the date hereof, (3) issuances of Common Stock, or options to acquire shares of Common Stock, or securities convertible into or exchangeable for Common Stock pursuant to the terms of any acquisition by the Company of all or substantially all of the operating assets, or more than fifty percent (50%) of the voting capital stock or other controlling interest of any business entity in a transaction negotiated on an arms-length basis and expressly approved in advance by the Board of Directors of the Company; (4) issuances of shares of Common Stock from time to time upon the exercise, exchange or conversion of warrants, options, convertible securities, the Company's outstanding 8 1/4% Subordinated Convertible Notes Due 2003 or other securities outstanding as of the date hereof and pursuant to the written terms of such securities as they exist as of the date hereof, and (5) issuances of shares of Common Stock from time to time pursuant to the anti-dilution provisions of other securities of the Company, including shares of the Company's outstanding Series B, Series C and Series D Convertible Preferred Stock. For purposes hereof, "voting capital stock" shall be deemed to be capital stock of any class or classes, however designated having ordinary voting power for the election of members of the board of directors or other governing body and "controlling" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a party, whether through the ownership of voting capital stock, by contract or otherwise. (b) If, at any time from the date of issuance of this Warrant, the Company shall issue or enter into any agreement to issue any shares of Common Stock other than Excluded Shares for consideration per share lower than the market price per share in effect immediately prior to such issuance, the Exercise Price in effect immediately prior to such issuance shall be reduced (but shall not be increased) to the price (calculated to the nearest cent) determined by multiplying the Exercise Price in effect immediately prior to such issuance by the factor determined by dividing (1) an amount equal to the sum of (A) the number of shares of Common Stock outstanding on a fully diluted basis immediately prior to such issuance multiplied by the market price per share in effect immediately prior to such issuance and (B) the -5- 6 consideration, if any, received by the Company upon such issuance by (2) the number of shares of Common Stock outstanding on a fully diluted basis immediately after such issuance multiplied by the market price per share in effect immediately prior to such issuance; PROVIDED, HOWEVER, no adjustment shall be made to the Exercise Price if (1) such issuance is in connection with a firm commitment underwritten public offering or (2) the consideration per share is equal to or greater than 85% of the market price per share in effect immediately prior to such issuance. For purposes hereof, the "market price" as of any measurement date shall be the average of the closing prices of the Common Stock for each of the 10 consecutive trading days immediately preceding such measurement date. (c) The Company will not, by amendment of its Articles of Incorporation or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against dilution or other impairment. (d) For further clarity, any change to the exercise price or other terms of the 8-1/4% Subordinated Convertible Notes Due 2003 shall not count to determining the Reset Period, but shall be taken into account in determining whether any adjustment to the Exercise Price is due under this Section 6.3. (e) The Exercise Price shall be subject to adjustment from time to time as previously provided in this section 6.3. Upon each adjustment of the Exercise Price, the holder of the Warrant evidenced hereby shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Common Stock (calculated to the nearest whole share pursuant to Section 3) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product by the Exercise Price resulting from such adjustment. 6.4 CERTIFICATE AS TO ADJUSTMENTS. In each case of an adjustment in the number of shares of Warrant Stock or Other Securities receivable on the exercise of this Warrant, or the Exercise Price, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate executed by an executive officer of the Company setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Company will forthwith mail a copy of each such certificate to the Holder. 6.5 NOTICES OF RECORD DATE, ETC. In case: (a) the Company shall take a record of the holders of its Common Stock (or Other Securities at the time receivable upon the exercise of the Warrant) for the purpose of entitling them to receive any dividend (other than a cash dividend at the same rate as the rate of the last cash dividend theretofore paid) or other distribution, or any right to subscribe for, -6- 7 purchase or otherwise acquire any shares of stock of any class or any other securities, or to receive any other right; or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another entity, or any conveyance of all or substantially all of the assets of the Company to another entity; or (c) of any voluntary or involuntary dissolution, liquidation, partial liquidation or winding up of the Company, or (d) any event resulting in the expiration of the Reset Period, then, and in each such case, the Company shall mail or cause to be mailed to each Holder of the Warrant at the time outstanding a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up is to take place, and the time, if any, to be fixed, as to which the holders of record of Common Stock (or such other securities at the time receivable upon the exercise of the Warrant) shall be entitled to exchange their shares of Common Stock (or such other securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding up. Such notice shall be mailed at least 20 days prior to the date therein specified. 7. TRANSFER TO COMPLY WITH THE SECURITIES ACT. Notwithstanding any other provision contained herein, this Warrant and any Warrant Stock or Other Securities may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (a) to a person who, in the opinion of counsel to the Company, is a person to whom this Warrant or the Warrant Stock or Other Securities may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act with respect thereto; or (b) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act relating to such securities and the offering thereof for such sale or disposition, and thereafter to all successive assignees. 8. LEGEND. Unless the shares of Warrant Stock or Other Securities have been registered under the Securities Act, upon exercise of any of the Warrants and the issuance of any of the shares of Warrant Stock or Other Securities, all certificates representing such securities shall bear on the face thereof substantially the following legend: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, offered for sale, assigned, transferred or otherwise disposed of, unless registered pursuant to the provisions of that Act or unless an opinion of counsel is obtained stating that such disposition is in compliance with an available exemption from such registration. -7- 8 9. NOTICES. All notices required hereunder shall be in writing and shall be deemed given when telegraphed, delivered personally or within two days after mailing when mailed by certified or registered mail, return receipt requested, to the Company at its principal office, or to the Holder at the address set forth on the record books of the Company, or at such other address of which the Company or the Holder has been advised by notice hereunder. 10. APPLICABLE LAW. The Warrant is issued under and shall for all purposes be governed by and construed in accordance with the laws of the State of Florida, without giving effect to the choice of law rules thereof. IN WITNESS HEREOF, the Company has caused this Warrant to be signed on its behalf, in its corporate name, by its duly authorized officer, all as of the day and year first above written. SYSTEMONE TECHNOLOGIES INC. By:____________________________________ Name: Kenneth C. Leung Title: Director -8- 9 WARRANT EXERCISE FORM The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing ____________ shares of Common Stock of SystemOne Technologies Inc., a Florida corporation, and hereby makes payment of $____________ in payment therefor. __________________________________________ Signature __________________________________________ Signature, if jointly held __________________________________________ Date INSTRUCTIONS FOR ISSUANCE OF STOCK (if other than to the registered holder of the within Warrant) Name --------------------------------------------------------------------------- (Please typewrite or print in block letters) Address ------------------------------------------------------------------------ Social Security or Taxpayer Identification Number ------------------------------------------------- -9- 10 ASSIGNMENT FORM FOR VALUE RECEIVED, ------------------------------------------------------------ hereby sells, assigns and transfers unto Name --------------------------------------------------------------------------- (Please typewrite or print in block letters) the right to purchase Common Stock of SystemOne Technologies Inc., a Florida corporation, represented by this Warrant to the extent of shares as to which such right is exercisable and does hereby irrevocably constitute and appoint ___________________________________________ Attorney, to transfer the same on the books of the Company with full power of substitution in the premises. DATED: ____________, 200_. ____________________________________ Signature ____________________________________ Signature, if jointly held -10- EX-4.12 3 g68025ex4-12.txt FIRST AMENDMENT 7/31/00 1 EXHIBIT 4.12 FIRST AMENDMENT THIS FIRST AMENDMENT (this "Amendment") is made as of the 31st day of July, 2000, by and between SYSTEMONE INDUSTRIES INC. (f/k/a MANSUR INDUSTRIES INC.), a Florida corporation (the "Company"), and the undersigned holders (the "Holders"). RECITALS WHEREAS, on February 23, 1998, the Company issued (8 1/4%) Subordinated Convertible Notes due February 23, 2003 (the "Notes") to the Holders; and WHEREAS, Section 11(c) of the Notes provides that the Notes may be amended by a written instrument signed by the Company and Holders of at least 51% in principal amount of Notes at the time outstanding; and WHEREAS, the Company and the Holders of greater than 51% in principal amount of the outstanding Notes desire to amend the Notes according to the terms of this Amendment; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Section 2(h) of the Notes is hereby amended by deleting Section 2(h) in its entirety and substituting therefor a new Section 2(h) to read as follows: LIMITATION OF INCURRENCE OF INDEBTEDNESS. The Company will not, and will not permit any of its subsidiaries to, at any time, incur, create, assume or guarantee, or otherwise become or be liable in any manner with respect to any indebtedness (the "Incurrence") unless, after giving pro forma effect of the Incurrence thereof, the ratio of Total Debt (as defined below) to Consolidated EBITDA (as defined below) for any period of twelve months then most recently ended shall be less than 6.0:1.0; provided, however, the Company may incur up to $10,000,000 of Total Debt (excluding the Notes) at any time. "Total Debt" shall mean the principal amount of all indebtedness of the Company and its subsidiaries, determined on a consolidated basis in accordance with generally accepted accounting principals, (a) in respect of money borrowed or evidenced by a promissory note, debenture or like written obligation to pay money (including the Notes), (b) in respect of any capital lease obligation; (c) obligations incurred or assumed as part of the deferred purchase price of any assets acquired by the Company or its subsidiaries; (d) all obligations or liabilities of others secured by a lien on any asset owned by the Company or any of its subsidiaries, irrespective of whether such obligation or liability is 2 assumed, to the extent of the lesser of such obligation or liability or the fair market value of such asset; and (e) any guarantees by the Company or its subsidiaries of any indebtedness of another person or entities, provided, however, that in determining the indebtedness of the Company or any subsidiary, all liabilities of which the Company or any subsidiary is jointly and severally liable with one or more other persons or entities (including, without limitation, all liabilities of any partnership or joint venture of which the Company is a general partner or co-venturer) shall be included at the full amount thereof without regard to any right the Company or subsidiary may have against any such other person or entity for contribution or indemnity. 2. Except as specifically amended hereby, the Notes are and remain unmodified and in full force and effect and are hereby ratified and confirmed. 3. This Amendment shall be deemed a contract made under the laws of the State of Florida and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State. 4. This Amendment may be executed in counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall constitute but one and the same instrument. 2 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. 3 4 SYSTEMONE TECHNOLOGIES INC. By:__________________________________ HOLDERS Morgan Guaranty Trust Company of New York, as Trustee for the Commingled Pension Trust Fund (Multi-Market Special Investment Fund II) of Morgan Guaranty Trust Company of New York c/o J.P. Morgan Investment, Inc. Attn: Joan Huggins 522 Fifth Avenue New York, New York 10036 Original principal amount $4,200,000 By:__________________________________ Morgan Guaranty Trust Company of New York, as Trustee for the Multi-Market Special Investment Trust Fund of Morgan Guaranty Trust Company of New York c/o J.P. Morgan Investment, Inc. Attn: Joan Huggins 522 Fifth Avenue New York, New York 10036 Original principal amount $900,000 By:__________________________________ Morgan Guaranty Trust Company of New York, as Agent and Investment Manager of The Alfred P. Sloan Foundation (Multi-Market Account) c/o Bost & Company Attn: David Corin 120 Broadway (13th Floor) New York, New York 10031 Original principal amount $900,000 By:__________________________________ 4 5 Gulfband & Co. c/o Emerging Growth Advisors, Inc. World Trade Center Baltimore 401 E. Pratt Street, Suite 211 Baltimore, Maryland 211202 Attention: Peter Welles Original principal amount $52,000,000 By:__________________________________ Mieksel H. & Ann V. Welles c/o Emerging Growth Advisors, Inc. World Trade Center Baltimore 401 E. Pratt Street, Suite 211 Baltimore, Maryland 211202 Attention: Peter Welles Original principal amount $15,000 By:__________________________________ Robert L & Thomasine M. Thompson c/o Emerging Growth Advisors, Inc. World Trade Center Baltimore 401 E. Pratt Street, Suite 211 Baltimore, Maryland 211202 Attention: Peter Welles Original principal amount $10,000 By:__________________________________ 5 6 Custo. FBO Peter S. Welles' IRA c/o Alex Brown & Sons Incorp 375 W. Padonia Timonium, Maryland 21203 Original principal amount $40,000 By:__________________________________ Pitt & Company c/o Emerging Growth Advisors, Inc. World Trade Center Baltimore 401 E. Pratt Street, Suite 211 Baltimore, Maryland 211202 Attention: Peter Welles Original principal amount $175,000 By:__________________________________ Gillet Welles, Jr. c/o Emerging Growth Advisors, Inc. World Trade Center Baltimore 401 E. Pratt Street, Suite 211 Baltimore, Maryland 211202 Attention: Peter Welles Original principal amount $50,000 By:__________________________________ Anne Henry Welles c/o Emerging Growth Advisors, Inc. World Trade Center Baltimore 401 E. Pratt Street, Suite 211 Baltimore, Maryland 211202 Attention: Peter Welles Original principal amount $45,000 By:__________________________________ Gillet Welles III c/o Emerging Growth Advisors, Inc. World Trade Center Baltimore 401 E. Pratt Street, Suite 211 Baltimore, Maryland 211202 Attention: Peter Welles Original principal amount $15,000 By:__________________________________ 6 EX-10.7 4 g68025ex10-7.txt FIRST AMENDMENT TO LOAN AGREEMENT 1 EXHIBIT 10.7 FIRST AMENDMENT TO LOAN AGREEMENT THIS FIRST AMENDMENT (this "Amendment") is made as of this 10th day of November, 2000, by and among SystemOne Technologies Inc. (f/k/a Mansur Industries Inc.), a Florida corporation (the "Borrower"), Hanseatic Americas LDC ("Hanseatic"), Environmental Opportunities Fund II, LP ("Environmental II") and Environmental Opportunities Fund II (Institutional), LP ("Environmental Institutional", collectively with Environmental II, the "Environmental Funds" and collectively with Hanseatic and Environmental II, the "Lenders"). RECITALS WHEREAS, on August 7, 2000 (the "Closing Date"), the Borrower and the Lenders executed that certain Loan Agreement (the "Loan Agreement") and in connection therewith the Borrower issued to the Lenders promissory notes in the aggregate principal amount of $2,500,000 (the "Original Notes") and warrants exercisable for in the aggregate 714,286 shares of the Borrower's common stock, $.001 par value (the "Original Warrants"); WHEREAS, on October 16, 2000, the Borrower executed a promissory note in favor of Hanseatic for the principal sum of $400,000 (the "$400,000 Note"); and WHEREAS, the Borrower and the Lenders desire to cancel the Original Notes, Original Warrants and $400,000 Note and amend the Loan Agreement and Loan Documents (as defined in the Loan Agreement) to increase the aggregate principal amount of the Loan (as defined in the Loan Agreement) to $3,300,000 (such amount to include the original $2,500,000 Loan plus the $400,000 advanced by Hanseatic and an additional $400,000 to be advanced by the Environmental Funds to the Borrower), issue new promissory notes in the aggregate principal amount of $3,300,000 (the "New Notes") and new warrants exercisable for an aggregate of 942,858 shares of the Borrower's common stock (the "New Warrants"), all according to the terms of the Loan Agreement as amended by this Amendment; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 2 1. The second recital of the Loan Agreement is hereby amended by deleting the second recital in its entirety and substituting therefor a new second recital to read as follows: WHEREAS, in order to provide funds for the operation and expansion of the Business, the Borrower has requested that the Lenders loan an aggregate amount of $3,300,000 (hereinafter referred to as the "Loan") to the Borrower; and 2. Article I, Section 1.1 (ix) of the Loan Agreement is hereby amended by deleting Article I, Section 1.1 (ix) in its entirety and substituting therefor a new Article I, Section 1.1 (ix) to read as follows: (ix) The term "CAPITAL INDEBTEDNESS" shall mean indebtedness of the Borrower with respect to money borrowed pursuant to the Loan and Security Agreement dated May 17, 1999 (as amended December 21, 1999 and November 2, 2000, respectively) between the Borrower and Guaranty Business Credit Corporation, as assignee of Capital Business Credit, a division of Capital Factors, Inc. 3. Article I, Section 1.1(xxvii) of the Loan Agreement is hereby amended by deleting Article I, Section 1.1(xxvii) in its entirety and substituting therefor a new Article I, Section 1.1(xxvii) to read as follows: (xxvii) The term "INITIAL WARRANTS" shall mean warrants to purchase an aggregate of 942,858 shares of the Common Stock (allocated among the Lenders as set forth on Annex 1). 4. Article I, Section 1.1(xxix) of the Loan Agreement is hereby amended by deleting Article I, Section 1.1(xxix) in its entirety and substituting therefor a new Article I, Section 1.1(xxix) to read as follows: (xxix) The term "INITIAL WARRANT SHARES" shall mean the shares of Common Stock issuable upon exercise of the Initial Warrants. 5. Article I, Section 1.1(xxxviii) of the Loan Agreement is hereby amended by deleting Article I, Section 1.1(xxxviii) in its entirety and substituting therefor a new Article I, Section 1.1(xxxviii) to read as follows: 2 3 (xxxviii) The term "NOTES" shall mean those notes, each in the form attached hereto as Exhibit A dated as of the Closing Date, executed by the Borrower, as the maker, and delivered to each Lender, as payee, in the aggregate principal amount of Three Million Three Hundred Thousand Dollars ($3,300,000), which Notes, collectively, evidence the Loan under this Agreement. 6. Article I, Section 1.1(xxxxviii) of the Loan Agreement is hereby amended by deleting Article I, Section 1.1(xxxxviii) in its entirety and substituting therefor a new Article I, Section 1.1(xxxxviii) to read as follows: (xxxxviii) The term "SECURITY AGREEMENT" shall mean that certain Security Agreement in the form attached hereto as Exhibit C, dated the Closing Date, and Amended by that certain First Amendment dated November 10, 2000, whereby the Borrower has pledged, assigned, hypothecated, conveyed, transferred, given and granted to the Lenders, and each of them, a continuing pledge, of and security interest in all of the security described therein. 7. The following new sections are hereby added immediately following Article I, Section 1.1 (lvii): (lviii) The term "ORIGINAL NOTES" shall mean the Borrower's promissory notes in the aggregate principal amount of $2,500,000 issued pursuant to this Agreement to the Lenders, respectively, on the Closing Date. (lviv) The term "ORIGINAL WARRANT CERTIFICATES" shall mean the Borrower's warrant certificates issued pursuant to this Agreement to the Lenders, respectively, on the Closing Date and evidencing warrants exercisable for 714,286 shares of Common Stock in the aggregate. (lv) The term "SUPPLEMENTAL CLOSING DATE" shall mean November 10, 2000. 3 4 8. Article II, Section 2.2 of the Loan Agreement is hereby amended by deleting Article II, Section 2.2 in its entirety and substituting therefor a new Article II, Section 2.2 to read as follows: Section 2.2 NOTES. The obligation of the Borrower to repay all monies advanced by the Lenders, and each of them, to the Borrower in connection with the Loan shall be evidenced by the Notes, each in the form of Exhibit A annexed hereto. On the Supplemental Closing Date, the Borrower shall have duly executed and delivered to each Lender, in substitution for the Original Note held thereby, a Note, which shall (i) be dated as of the Closing Date, (ii) be registered in the name of the Lender to whom issued, (iii) have a principal sum equal to the aggregate amounts advanced by such Lender to the Borrower (the dates of each such advance, and the amount of each, to be appropriately inserted therein), which shall be payable in the amounts and on the dates provided for in Section 2.4 hereof and (iv) bear interest at the rates payable on the dates and in the manner provided for in Section 2.3 hereof. 9. Article II, Section 2.3 of the Loan Agreement is hereby amended by deleting the second sentence thereof in its entirety and substituting therefor a new sentence to read as follows: Each note shall bear an initial interest rate of twelve percent per annum (12%), to be applied to the principal amount of the Note as set forth therein, for the period from and after the Closing Date through the six-month anniversary of the Closing Date, which shall increase to fourteen percent per annum (14%) for the period from and after the sixth month anniversary of the Closing Date through the nine-month anniversary of the Closing Date, and shall thereafter increase by an additional two percent (2%) per annum at the end of each successive 90-day period (commencing on the nine-month anniversary of the Closing Date) until final repayment in full of said Note. 10. Article II, Section 2.10 of the Loan Agreement is hereby amended by: (a) deleting in its entirety the phrase "issued on the Closing Date" 4 5 contained in the second sentence thereof; and (b) deleting in its entirety the first sentence thereof and substituting therefor a new sentence to read as follows: In connection with the facilities provided hereunder, the Borrower shall, on the Supplemental Closing Date, have issued and delivered to each of the Lenders the number of Initial Warrants set forth opposite the name of such Lender on Annex 1 (hereinafter with respect to all Lenders referred to as the "Initial Warrant Shares"), evidenced by an Initial Warrant Certificate dated the Closing Date, registered in the name of such Lender, executed and delivered to such Lender in substitution for the Original Warrant Certificate held thereby. 11. Article IV, Section 4.4(a) of the Loan Agreement is hereby amended by deleting Article IV, Section 4.4(a) in its entirety and substituting therefor a new Article IV, Section 4.4(a) to read as follows: Section 4.4 CAPITALIZATION. (a) The authorized capital stock of the Borrower consists of (i) 25,000,000 shares of Common Stock and (ii) 1,500,000 shares of preferred stock, of which (A) 150,000 shares have been designated Series B Convertible Preferred Stock, (B) 150,000 shares have been designated Series C Convertible Preferred Stock and (C) 150,000 shares have been designated Series D Convertible Preferred Stock. As of the date hereof and at the Supplemental Closing Date, 4,742,923 shares of Common Stock are and will be issued and outstanding, 55,311 shares of Series B Convertible Preferred Stock are and will be issued and outstanding, 73,784 shares of Series C Convertible Preferred Stock are and will be issued and outstanding and 20,265 shares of Series D Convertible Preferred Stock will be issued and outstanding, respectively. All of the outstanding shares of the 5 6 capital stock of the Borrower are validly issued, fully paid and non-assessable. As of the Supplemental Closing Date, the following additional securities are and will be issued and outstanding: (i) options to purchase an aggregate of 627,335 shares of Common Stock, (ii) warrants to purchase 1,639,286 shares of Common Stock, including the Initial Warrants issued pursuant to the terms of this Agreement and anti-dilution adjustments in the warrants issued in connection with the Series D Preferred Stock arising from consummation of the transactions hereunder and (iii) subordinated debentures convertible into an aggregate of 1,085,094 shares of Common Stock. There are no other scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights exchangeable or convertible into, any shares of capital stock of the Borrower, or contracts, commitments, understandings or arrangements by which the Borrower is or may become bound to issue additional shares of capital stock of the Borrower or options, warrants, scrip, rights to subscribe to, or commitments to purchase or acquire, any shares, or securities or rights convertible into shares, of capital stock of the Borrower (except as contemplated by this Agreement). No event has occurred prior to the date hereof which, subsequent to the date hereof, will cause any adjustment in any conversion or exercise price or ratio with respect to any such securities pursuant to any anti-dilution provisions thereunder, nor as a result of any such event, will the number of shares of capital stock issuable upon such conversion or such exercise, as the case may be, be subject to adjustment. No such 6 7 conversion or exercise price or ratio will be subject to adjustment as a consequence of the consummation of the transactions contemplated by this Agreement, nor, as a consequence of such consummation, will the numbers of shares of capital stock issuable upon such conversion or such exercise, as the case may be, be subject to adjustment, except that as a consequence of consummation of the transaction hereunder the Series B Convertible Preferred Stock, the Series C Convertible Preferred Stock and the Series D Convertible Preferred Stock, and the warrants issued in connection with the Series D Preferred Stock, will be adjusted as herein set forth. 12. Article IV, Section 4.14 of the Loan Agreement is hereby amended by deleting Article IV, Section 4.14 in its entirety and substituting therefor a new Article IV, Section 4.14 to read as follows: Section 4.14 NO MATERIAL ADVERSE CHANGE. Since June 30, 2000, the date through which the most recent quarterly report of the Borrower on Form 10-QSB has been prepared and filed with the Commission, a copy of which is included in the SEC Documents, no event which had or is likely to have a Material Adverse Effect has occurred or exists with respect to the Borrower. 13. Article IV, Section 4.15 of the Loan Agreement is hereby amended by deleting Article IV, Section 4.15 in its entirety and substituting therefor a new Article IV, Section 4.15 to read as follows: Section 4.15 NO UNDISCLOSED LIABILITIES. The Borrower does not have any liabilities or obligations not disclosed in the SEC Documents other than those liabilities incurred in the ordinary course of its business since June 30, 2000 or liabilities or obligations, individually or in the aggregate, which do not or would not have a Material Adverse Effect on the Borrower. 14. Article VIII, Section 8.2 of the Loan Agreement is hereby amended by deleting each reference therein to the "Closing Date" and substituting therefor a reference to the "Supplemental Closing Date". 15. Article IX, Section 9.12 of the Loan Agreement is hereby amended by 7 8 deleting Article IX, Section 9.12 in its entirety and substituting therefor a new Article IX, Section 9.12 to read as follows: SECTION 9.12 SUBORDINATION. THE RIGHTS AND REMEDIES OF THE LENDERS HEREUNDER ARE SUBJECT AND SUBORDINATED TO THE TERMS AND PROVISIONS OF THOSE CERTAIN SUBORDINATION AGREEMENTS, EACH DATED AUGUST 7, 2000 ENTERED INTO BY THE LENDERS, RESPECTIVELY, WITH CAPITAL BUSINESS CREDIT, A DIVISION OF CAPITAL FACTORS, INC., AND THOSE CERTAIN REAFFIRMATION OF SUBORDINATION AGREEMENTS, DATED NOVEMBER 2, 2000 AND NOVEMBER 10, 2000, RESPECTIVELY, ENTERED INTO WITH GUARANTY BUSINESS CREDIT AS ASSIGNEE OF SAID SENIOR CREDITOR. 16. Annex 1 to the Loan Agreement is hereby amended by deleting Annex 1 in its entirety and substituting therefor a new Annex 1 to read as follows:
PROPORTIONATE AMOUNT ALLOCATION OF INITIAL LENDER PROPORTIONATE SHARE OF LOAN WARRANTS - ------ ------------------- -------------------- --------------------- Hanseatic Americas LDC 50% $1,650,000 471,429 450 Park Avenue, Suite 2302 New York, New York 10022 Environmental Opportunities Fund II, L.P. 10.7% $ 353,100 100,886 c/o Sanders Morris Harris 3100 Chase Tower 600 Travis Street, Suite 3100 Houston, Texas 77002 Environmental Opportunities Fund II 39.3% $1,296,900 370,543 (Institutional), L.P. c/o Sanders Morris Harris 3100 Chase Tower 600 Travis Street, Suite 3100 Houston, Texas 77002
17. Exhibit A to the Loan Agreement is hereby deleted in its entirety and Exhibit A annexed hereto is hereby substituted therefor. Schedule 4.12 to the Loan Agreement is hereby supplemented by the Supplement to Schedule 4.12 annexed hereto. 8 9 18. Except as specifically amended hereby, the Loan Agreement is and remains unmodified and in full force and effect and is hereby ratified and confirmed. 19. Contemporaneously with the execution of this Amendment, Lenders shall deliver the Original Notes, $400,000 Note and Original Warrants to the Borrower. Contemporaneously with the execution of this Amendment, the Borrower shall (i) cancel the Original Notes, $400,000 Note and Original Warrants and (ii) deliver the New Notes and New Warrants to the Lenders, in the form required by the Loan Agreement, as amended hereby and acceptable to the Lenders. 20. Contemporaneously herewith, the parties hereto shall execute and deliver an Amendment to the Security Agreement in the form of Exhibit B annexed hereto. 21. The Borrower hereby certifies to the Lenders that the representations and warranties made in Article IV of the Loan Agreement, as amended hereby, are true and correct in all material respects at and as of the date first-above written with the same effect as though all such representations and warranties were made at and as of such date (except for representations and warranties which are as of a specific date or which relate to a specific period other than or not including the date first-above written, as the case may be, and except for changes therein contemplated or permitted by the Loan Agreement, as amended hereby). 22. The Borrower herewith delivers to each of the Lenders: (a) an opinion of Greenberg Traurig, P.A. counsel to the Borrower, dated as of the date first-above written, in form satisfactory to the Required Lenders (as defined in the Loan Agreement) and their respective counsel, appropriately updating the opinion of said counsel delivered on the Closing Date to the date hereof; (b) a certificate of the Secretary or an Assistant Secretary of the Borrower stating: (i) that attached thereto is a true and complete copy of the text of the corporate resolutions adopted by the Board of Directors of the Borrower authorizing the transactions contemplated by this Amendment and designating the officers who are authorized to execute this Amendment, the New Notes and the New Warrants; (ii) that none of the certificate of incorporation and by-laws of the Borrower 9 10 has been modified since the Closing Date and all are in full force and effect; (iii) that the individual signing this Amendment is a duly elected officer of the Borrower; and (iv) that set forth thereon is a true specimen of the signature of each officer of the Borrower who is authorized to execute the New Notes and the New Warrants; and containing a certification by another officer of the Borrower as to the incumbency and signature of the Secretary or Assistant Secretary executing such certificate; and (c) such additional financing statements, or amendments thereto, as shall be requested by the Lenders in order to perfect the interests granted under the Security Agreement, as amended hereby. 23. The Borrower shall promptly pay, or reimburse the Lenders, and each of them, on demand for, all out-of-pocket fees and expenses incurred by them, including, without limitation, the reasonable fees and disbursements of counsel to the Lenders, in connection with the negotiation, preparation, execution, and delivery of this Amendment and any other instruments or documents required hereunder. 24. This Amendment shall be deemed a contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State. 25. This Amendment may be executed in counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall constitute but one and the same instrument. 10 11 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SYSTEMONE TECHNOLOGIES INC. By: ----------------------------------------- LENDERS HANSEATIC AMERICAS LDC By: Hansabel Partners LLC By: Hanseatic Corporation By: ----------------------------------------- Paul A. Biddelman President ENVIRONMENTAL OPPORTUNITIES FUND II, L.P. ENVIRONMENTAL OPPORTUNITIES FUND II (INSTITUTIONAL), L.P. By: Fund II Mgt. Co., LLC General Partner By: ----------------------------------------- Bruce McMaken Manager 11 EX-10.8 5 g68025ex10-8.txt 2ND AMENDMENT TO LOAN AGREEMENT 11/30/00 1 EXHIBIT 10.8 SECOND AMENDMENT TO LOAN AGREEMENT THIS SECOND AMENDMENT (this "Amendment") is made as of this 30th day of November, 2000, by and among SystemOne Technologies Inc. (f/k/a Mansur Industries Inc.), a Florida corporation (the "Borrower"), Hanseatic Americas LDC ("Hanseatic"), Environmental Opportunities Fund II, LP ("Environmental II") and Environmental Opportunities Fund II (Institutional), LP ("Environmental Institutional", collectively with Environmental II, the "Environmental Funds" and collectively with Hanseatic and Environmental II, the "Lenders"). RECITALS WHEREAS, the Borrower and the Lenders have entered into a Loan Agreement dated August 7, 2000, as amended by the terms of a First Amendment to the Loan Agreement dated as of November 10, 2000 (as amended, the "Loan Agreement"), and in connection therewith the Borrower issued to the Lenders, among other things, promissory notes in the aggregate principal amount of $3,300,000 (the "Substituting Notes"); WHEREAS, the Borrower desires to refinance its obligations to Guaranty Business Credit Corporation ("GBCC"), as assignee of Capital Business Credit, a division of Capital Factors, Inc. and otherwise establish a revolving credit facility (the "Credit Facility") with Hansa Finance Limited Liability Company in an amount not to exceed the aggregate principal amount of up to $5,000,000; WHEREAS, it is a condition to closing under the Credit Facility that the Borrower and the Lenders amend the Loan Agreement as more fully set forth below; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Article I, Section 1.1 (xxxxviii) of the Loan Agreement is hereby amended by deleting Article I, Section 1.1 (xxxxviii) in its entirety and substituting therefore a new Article I, Section 1.1 (xxxxviii) to read as follows: (xxxxviii) The term "SECURITY AGREEMENT" shall mean that certain Security Agreement in the form attached hereto as Exhibit C, dated the Closing Date, as from time to time amended, whereby the Borrower has pledged, assigned, hypothecated, conveyed, transferred, given and granted to the Lenders, and each of them, a continuing pledge, of and security interest in all of the security described therein. 2. Article I, Section 1.1 (liii) of the Loan Agreement is hereby amended by deleting Article I, Section 1.1 (liii) in its entirety and substituting as new Article I, Section 1.1 (liii) to read as follows: 2 (1iii) the term "SUBORDINATION AGREEMENTS" shall mean the Subordination Agreements, dated November 30, 2000, executed by the Lenders, respectively, to Hansa Finance Limited Liability Company. 3. Article IX, Section 9.12 of the Loan Agreement is hereby amended by deleting Article IX, Section 9.12 in its entirety and substituting therefor a new Article IX, Section 9.12 to read as follows: SECTION 9.12 SUBORDINATION. THE RIGHTS AND REMEDIES OF THE LENDERS HEREUNDER ARE SUBJECT AND SUBORDINATED TO THE TERMS AND PROVISIONS OF THOSE CERTAIN SUBORDINATION AGREEMENTS, EACH DATED NOVEMBER 30, 2000 ENTERED INTO BY THE LENDERS, RESPECTIVELY, WITH HANSA FINANCE LIMITED LIABILITY COMPANY. 4. Exhibit A to the Loan Agreement is hereby deleted in its entirety and Exhibit A annexed hereto is hereby substituted therefor. 5. Except as specifically amended hereby, the Loan Agreement is and remains unmodified and in full force and effect and is hereby ratified and confirmed. 6. Contemporaneously with the execution of this Amendment: (a) Lenders shall deliver the Substitute Notes to the Borrower; (b) Borrower shall cancel the Substitute Notes; (c) Borrower shall deliver to each Lender, in substitution for the Substitute Note held thereby, a new promissory note, in the form of Exhibit A hereto, which shall be registered in the name of such Lender and have a principal sum equal to the aggregate amounts advanced by such Lender to the Borrower (the dates of each such advance, and the amount of each, to be appropriately inserted therein); and (d) the parties hereto shall execute and deliver an Amendment to the Security Agreement (as defined in the Loan Agreement) in the form of Exhibit B annexed hereto. For purposes of the Loan Documents (as defined in the Loan Agreement) and each of them, the notes issued and delivered pursuant to this Amendment shall for all purposes substitute for the Substitute Notes, respectively. 7. The Borrower herewith delivers to each of the Lenders such additional financing statements, or amendments thereto, as shall be requested by the Lenders in order to perfect the interests granted under the Security Agreement, as amended hereby. 8. This Amendment shall be deemed a contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State. 9. This Amendment may be executed in counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall constitute but one and the same instrument. 2 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SYSTEMONE TECHNOLOGIES, INC. By: ------------------------------ LENDERS: HANSEATIC AMERICAS LDC By: Hansabel Partners LLC By: Hanseatic Corporation By: ------------------------------ Paul A. Biddelman President ENVIRONMENTAL OPPORTUNITIES FUND II, L.P. ENVIRONMENTAL OPPORTUNITIES FUND II (INSTITUTIONAL), L.P. By: Fund II Mgt. Co., LLC General Partner By: ------------------------------ Bruce McMaken Manager 3 EX-10.10 6 g68025ex10-10.txt FORM OF SUBORDINATED PROMISSORY NOTE 11/30/00 1 EXHIBIT 10.10 SYSTEMONE TECHNOLOGIES INC. PROMISSORY NOTE $_______________________ As of August 7, 2000 New York, New York SECTION 1. GENERAL. SYSTEMONE TECHNOLOGIES INC., a Florida corporation (hereinafter referred to as the "Borrower"), with offices at 8305 N.W. 27th Street, Miami, Florida 33122, for value received, hereby promises to pay to ________, or order, the principal amount of $___________, on the Maturity Date (as defined in the Loan Agreement hereinafter described), in such coin or currency of the United States of America as at the time of payment shall be legal tender therein for the payment of public and private debts and to pay interest on such principal amount at the rates and on the dates described in Section 2.3 of the Loan Agreement hereinafter described; provided, however, that the interest on $__________ of the principal amount shall be calculated and accrue from August 7, 2000 and the interest on the remaining $___________of the principal amount shall be calculated and accrue from _______________ ___, 2000. The Borrower further agrees to pay interest at such rates on any overdue principal and (to the extent permitted by law) on any overdue interest, from the due date thereof until the obligation of the Borrower with respect to the payment thereof shall be discharged; all payments and prepayments of principal of this Note and all payments of the interest on this Note to be made at _____________________, or such other location as shall be specified in writing by the holder of this Note to the Borrower. SECTION 2. GOVERNING LAW. This Note shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such state. SECTION 3. RELATED AGREEMENT. This Note is issued pursuant to, and is one of the Notes referred to in, the Loan Agreement dated as of August 7, 2000, as amended by that First Amendment to Loan Agreement dated November 10, 2000 and that Second Amendment to Loan Agreement dated November 30, 2000 (herein referred to as the "Loan Agreement") among the Borrower, Hanseatic Americas LDC, Environmental Opportunities Fund II, L.P. and Environmental Opportunities Fund II (Institutional), L.P., and is entitled to the benefits and is subject to the provisions thereof (including, without limitation, those providing for the optional and mandatory prepayment of this Note and the acceleration of the maturity hereof), and to the benefits of the Security Agreement, dated August 7, 2000, as amended by that First Amendment to Security Agreement dated November 10, 2000 and that Second Amendment to Security Agreement dated November 30, 2000, among the Borrower, Hanseatic Americas LDC, Environmental Opportunities Fund II, L.P. and Environmental Opportunities Fund II (Institutional), L.P. Copies of such agreements may be obtained by any holder of this Note at the principal executive offices of the Borrower. 2 SECTION 4. SUBORDINATION. THE RIGHTS AND REMEDIES OF THE HOLDER HEREOF ARE SUBJECT TO AND SUBORDINATED TO THE TERMS AND PROVISIONS OF A SUBORDINATION AGREEMENT, DATED NOVEMBER 30, 2000, ENTERED INTO WITH HANSA FINANCE LIMITED LIABILITY COMPANY. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first-above written. ATTEST: SYSTEMONE TECHNOLOGIES INC. ______________________ By__________________________ 2 EX-10.12 7 g68025ex10-12.txt FIRST AMENDMENT TO SECURITY AGREEMENT 1 EXHIBIT 10.12 FIRST AMENDMENT TO SECURITY AGREEMENT THIS FIRST AMENDMENT TO SECURITY AGREEMENT (this "Amendment") is made as of this 10th day of November, 2000, by and among SystemOne Technologies Inc. (f/k/a Mansur Industries Inc.), a Florida corporation (the "Company"), Hanseatic Americas LDC, Environmental Opportunities Fund II, LP and Environmental Opportunities Fund II (Institutional), LP (collectively, the "Lenders"). RECITALS WHEREAS, on August 7, 2000, the Company and the Lenders executed that certain Loan Agreement (the "Loan Agreement") and in connection therewith the parties also executed that certain Security Agreement of even date (the "Security Agreement"); WHEREAS, the Company and the Lenders are contemporaneously herewith amending the Loan Agreement to increase the aggregate principal amount of the Loan (as defined in the Loan Agreement) to $3,300,000 and now desire to amend the Security Agreement according to the terms of this Amendment; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The first recital of the Security Agreement is hereby amended by deleting the first recital in its entirety and substituting therefor a new first recital to read as follows: WHEREAS, under the terms and conditions of a Loan Agreement dated as of August 7, 2000 and as amended on November 10, 2000 (hereinafter referred to as the "Loan Agreement"), among the Borrower and the Lenders, the Lenders have agreed to advance to the Borrower the aggregate principal amount of $3,300,000 (hereinafter referred to as the "Loan"), which Loan is to be evidenced by certain Notes dated as of the date hereof (hereinafter referred to, collectively, as the "Notes"), with payment of the Notes and any other obligations of the Borrower to the Lender to be secured as provided for in the Loan Agreement; 2 2. Section 2 of the Security Agreement is hereby amended by deleting Section 2 in its entirety and substituting therefor a new Section 2 to read as follows: 2. CREATION OF SECURITY INTEREST. As an inducement to the Lenders, and each of them, to enter into the Loan Agreement, to make the Loan, and to secure prompt payment, performance and discharge in full of all the Borrower's obligations (hereinafter referred to as the "Obligations") on the part of the Borrower to be performed under the Loan Agreement and the Notes, the Borrower hereby unconditionally and irrevocably grants to the Lenders, and each of them, a continuing security interest, a lien upon and a right of set-off against all of the Collateral, which shall be senior and first-in-right with respect to all other security interests and liens other than the interest of Guaranty Business Credit Corporation, as assignee of Capital Business Credit, a division of Capital Factors, Inc. (hereinafter referred to as "Capital") pursuant to that certain Loan and Security Agreement dated May 17, 1999, as amended December 21, 1999 and November 10, 2000 (hereinafter referred to as the "Senior Credit Agreement"), between the Borrower and Capital and other Permitted Encumbrances (as defined in the Loan Agreement). Upon the payment, performance and discharge in full of all Obligations, the security interest granted herein shall expire. 3. Section 20 of the Security Agreement is hereby amended by deleting Section 20 in its entirety and substituting a new Section 20 to read as follows: 20. SUBORDINATION. THE RIGHTS AND REMEDIES OF THE LENDERS HEREUNDER ARE SUBJECT TO AND SUBORDINATED TO THE TERMS AND PROVISIONS OF THOSE CERTAIN SUBORDINATION AGREEMENTS, EACH DATED AUGUST 7, 2000 ENTERED INTO BY THE LENDERS, RESPECTIVELY, WITH CAPITAL BUSINESS CREDIT, A DIVISION OF CAPITAL FACTORS, INC., AND THOSE CERTAIN REAFFIRMATION OF SUBORDINATION AGREEMENTS, DATED OCTOBER 16, 2000, NOVEMBER 2, 2 3 2000 AND NOVEMBER 10, 2000, RESPECTIVELY, ENTERED INTO WITH GUARANTY BUSINESS CREDIT AS ASSIGNEE OF SAID SENIOR CREDITOR. 4. The Borrower hereby certifies to the Lenders that the representations and warranties made in paragraph 4 of the Security Agreement are true and correct in all material respects at and as of the date first-above written with the same effect as though all such representations and warranties were made at and as of the date first-above written (except for representations and warranties which are as of a specific date or which relate to a specific period other than or not including the date first-above written, as the case may be, and except for changes therein contemplated or permitted by the Security Agreement, as amended hereby). 5. Except as specifically amended hereby, the Security Agreement is and remains unmodified and in full force and effect and is hereby ratified and confirmed. 6. This Amendment shall be deemed a contract made under the laws of the State of Florida and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State. 7. This Amendment may be executed in counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall constitute but one and the same instrument. 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SYSTEMONE TECHNOLOGIES INC. By: ----------------------------------------- LENDERS HANSEATIC AMERICAS LDC By: Hansabel Partners LLC By: Hanseatic Corporation By: ----------------------------------------- Paul A. Biddelman President ENVIRONMENTAL OPPORTUNITIES FUND II, L.P. ENVIRONMENTAL OPPORTUNITIES FUND II (INSTITUTIONAL), L.P. By: Fund II Mgt. Co., LLC General Partner By: ----------------------------------------- Bruce McMaken Manager 4 EX-10.13 8 g68025ex10-13.txt 2ND AGREEMENT TO SECURITY AGREEMENT 11/30/00 1 EXHIBIT 10.13 SECOND AMENDMENT TO SECURITY AGREEMENT THIS SECOND AMENDMENT TO SECURITY AGREEMENT (this "Amendment") is made as of this 30th day of November, 2000, by and among SystemOne Technologies Inc. (f/k/a Mansur Industries Inc.), a Florida corporation (the "Company"), Hanseatic Americas LDC, Environmental Opportunities Fund II, LP and Environmental Opportunities Fund II (Institutional), LP (collectively, the "Lenders'). RECITALS WHEREAS, the Company and the Lenders executed that certain Loan Agreement dated August 7, 2000, as amended by the terms of the First Amendment to the Loan Agreement dated as November 10, 2000 (as amended, the "Loan Agreement") and in connection therewith the parties also executed that certain Security Agreement dated August 7, 2000, as amended by the terms of a First Amendment to the Security Agreement dated as of November 10, 2000 (as amended, the "Security Agreement"); WHEREAS, the Company the Lenders are contemporaneously herewith amending the Loan Agreement and now desire to amend the Security Agreement according to the terms of this Amendment; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The first recital of the Security Agreement is hereby amended by deleting the phrase "amended on November 10, 2000" and substituting therefore a reference to "may from time to time be amended". 2. Section 2 of the Security Agreement is hereby amended by deleting Section 2 in its entirety and substituting therefore a new Section 2 to read as follows: 2. CREATION OF SECURITY INTEREST. As an inducement to the Lenders, and each of them, to enter into the Loan Agreement, to made the Loan, and to secure prompt payment, performance and discharge in full of all the Borrower's obligations (hereinafter referred to as the "Obligations") on the part of the Borrower to be performed under the Loan Agreement and the Notes, the Borrower hereby unconditionally and irrevocably grants to the Lenders, and each of them, a continuing security interest, in lien upon and a right of set-off against all of the Collateral, which shall be senior and first-in-right with respect to all other security interests and liens other than the interest of Hansa Finance Limited Liability Company ("Hansa") pursuant to that certain Revolving Credit Loan Agreement dated November 30, 2000, as may from time to time be amended (hereinafter referred to as the "Senior Credit Agreement"), between the Borrower 2 and Hansa and other Permitted Encumbrances (as defined in the Loan Agreement). Upon the payment, performance and discharge in full of all Obligations, the security interest granted herein shall expire. 3. The third sentence of Section 4(a) of the Security Agreement is hereby deleted in its entirety and the following two new sentences substituted therefor: The Borrower shall preserve the Collateral and abstain from and not permit the commission of waste with regard thereto; and shall not sell, lease, or transfer or otherwise dispose of any of the Collateral except: (I) (x) sales of inventory or dispositions of obsolete assets, (y) licensing to third parties and (z) sales of the Royalty (as defined in that certain Marketing and Distribution Agreement dated as of November 13, 2000 between the Borrower and Safety-Kleen Systems Inc. [the "Safety-Kleen Agreement"]), or part thereof, in each case under clauses (x), (y) and (z) immediately preceding in the ordinary course of business to third parties not constituting Affiliates (as defined in the Loan Agreement) of the Borrower and for consideration equal to the fair market value thereof (the interest so conveyed to any third party to be free of the lien of this Agreement) and (II) except as permitted by Section 5. For purposes hereof, performance by the Borrower of the Safety-Kleen Agreement shall not be deemed prohibited by this Agreement, nor shall Safety-Kleen Systems Inc. nor any Affiliate thereof be deemed an Affiliate of the Borrower by virtue of its holding of the warrant issued by the Borrower pursuant to the Safety-Kleen Agreement or of the shares underlying such warrant. 4. The references to "Capital" contained in the last sentence of Section 4(a), and in Section 4(d) and in Section 5(a), of the Security Agreement are hereby deleted and a reference to "Hansa" substituted in lieu thereof. 5. Section 20 of the Security Agreement is hereby amended by deleting Section 20 in its entirety and substituting a new Section 20 to read as follows: 20. SUBORDINATION. THE RIGHTS AND REMEDIES OF THE LENDERS HEREUNDER ARE SUBJECT TO AND SUBORDINATED TO THE TERMS AND PROVISIONS OF THOSE CERTAIN SUBORDINATION AGREEMENTS, EACH DATED NOVEMBER 30, 2000 ENTERED INTO BY THE LENDERS, RESPECTIVELY, WITH HANSA FINANCE LIMITED LIABILITY COMPANY. 6. Except as specifically amended hereby, the Security Agreement is and remains unmodified and in full force and effect and is hereby ratified and confirmed. 7. This Amendment shall be deemed a contract made under the laws of the State of Florida and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State. 2 3 8. This Amendment may be executed in counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. SYSTEMONE TECHNOLOGIES INC. By: --------------------------------- LENDERS HANSEATIC AMERICAS LDC By: Hansabel Partners LLC By: Hanseatic Corporation By: --------------------------------- Paul A. Biddelman President ENVIRONMENTAL OPPORTUNITIES FUND II, L.P. ENVIRONMENTAL OPPORTUNITIES FUND II (INSTITUTIONAL), L.P. By: Fund II Mgt. Co., LLC General Partner By: --------------------------------- Bruce McMaken Manager 3 EX-10.14 9 g68025ex10-14.txt EMPLOYMENT AGREEMENT - PIERRE MANSUR 1 EXHIBIT 10.14 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (hereinafter "Agreement") is made as of the first day of July, 2000 by and between SYSTEMONE TECHNOLOGIES INC. AND MANSUR INDUSTRIES INC., Florida corporations (hereinafter collectively the "Employer") and PIERRE G. MANSUR, an individual (hereinafter "Employee"). RECITALS: A. The Employer desires to assure itself of the services of the Employee and to that end desires to enter into a contract of employment with the Employee upon the terms and conditions herein set forth; and B. The Employee is desirous of entering into such a contract of employment. NOW, THEREFORE, in consideration of the premises, representations, warranties and the mutual covenants herein set forth, the parties hereto agree as follows: 1. EMPLOYMENT DUTIES. (a) Employer hereby hires Employee during the Employment Period (defined below) as Executive Director, to perform such services and duties in accordance with Section 1 of this Agreement. Employee also agrees to assume the responsibilities for the position of interim President pending the hiring of a permanent President by the Employer. (b) During the Employment Period, the Employee shall faithfully perform the Employee's duties to the best of the Employee's ability and in accordance with the directions of the Employer, at all times exercising the Employee's best business judgement. The Employee shall devote such amount of working time, attention and energies as the Employee deems necessary and required for the proper and complete performance of such duties although Employee shall not be required to maintain specific working hours beyond the period as interim President. In addition to the duties assigned to the Employee by the Employer during the Employment period, the Employee shall perform such other duties as are commensurate with the Employee's position and title, including, by way of illustration and not in limitation, overseeing the overall management of the Employer's Company with specific emphasis on the research, development and manufacturing activities of the Employer and furnishing to the Employer the Employee's best advice, information, judgement and knowledge with respect to the operations of the Employer's businesses. 2. EMPLOYMENT TERM. (a) "The Employment Period" shall be a period of eighteen (18) months from the date of effectiveness of this Agreement which is first day of July, 2000 and any extensions of such period. (b) At least ninety (90) days prior to the expiration of the initial Employment Period or any Renewal Period as that term is hereinafter defined, the Employer shall notify the Employee of its intention to extend the Employment Period for an additional one (1) year (the "Renewal Period"). If the Employer notifies the Employee of its intention to extend the Employment Period, the Employer shall inform the Employee of any modifications to the salary, employee plans and fringe benefit arrangements for the extended Employment Periods as least sixty (60) days prior to the expiration of the Employment Period and the Employee shall, at least thirty (30) days prior to the expiration 2 of the employment Period, submit in writing notification of his acceptance of the Employer's offer to extend the Employment Period. Failure of the Employer to provide notice in a timely manner as provided in the first section of 2(b) hereof shall result in the automatic extension of this Agreement for one (1) year with all the same terms and provisions hereof, except that the Base Salary (as defined in Section 3(a) below) shall be increased pursuant to Section 3(a). (c) In the event of the Employee's death prior to the expiration of the Employment Period, all obligations of the Employer under this Agreement shall terminate except of the Employer's obligations to pay for services rendered by the Employee prior to his death. (d) Employee may terminate this Agreement at anytime upon one hundred twenty (120) days notice to the Company of his intention to resign as the interim President and/or Executive Director. All salary earned but unpaid at the date of his resignation shall become due and payable upon the date of his resignation. 3. COMPENSATION. (a) As compensation for the performance of the Employee of his obligations under this Agreement, the Employer shall pay to the Employee a salary in the amount of One Hundred Fifty Thousand Dollars ($150,000.00) per year during the first six (6) months of the Employment Period of this Agreement through December 31, 2000; One Hundred Sixty Thousand Dollars ($160,000.00) per year during the last twelve (12) months of the Employment Period of this Agreement through December 31, 2001; and One Hundred Seventy Five Thousand Dollars ($175,000.00) per year during the Renewal Period of this Agreement (if extended by the Company) through December 31, 2002. (b) Employee is authorized to incur, in his discretion, reasonable business expenses in connection with the performance of his duties under this Agreement, including travel and entertainment expenses and the Employer shall reimburse Employee for any expenses so incurred, including reasonable transportation expenses incurred by the Employee in the performance or initiation and promotion of the Employer's business. (c) Further, during the Employment Period the Employee may participate in such employee incentives, plans or fringe benefit arrangements as the Employer shall make available to the Employee or others. 4. DISCLOSURE OF INFORMATION. Employee acknowledges that the Employer maintains highly confidential and proprietary information that will be accessible to Employee at all times and that such information constitutes valuable and unique property of the Employer. During the term of this Agreement and for a period of three (3) years following the Employee's termination of employment, Employee will not disclose any confidential information, including without limitation, information regarding the Employer's patents, research and development, manufacturing process or any knowledge or information with respect to confidential or trade secrets of the Employer except that which may be deemed to be in the public domain. Nothing contained herein shall be construed as authorizing Employee to disclose confidential information either during the employment period with Employer or at any time thereafter, or in any way diminish the Employer's complete rights and ownership of its confidential or proprietary information, patents, research and development, manufacturing process or any other proprietary information or trade secrets. 2 3 5. NON-COMPETITION. During the term of this Agreement and for three (3) years thereafter, Employee will not directly or indirectly, whether as principal, agent, trustee or through the agency of any corporation, partnership, association or agent, engage in any business in substantial competition with the Employer's or its affiliates' business of automotive and industrial parts washers, nor shall Employee become an officer, director or employee of any corporation, partnership or any other business in substantial competition with the Employer's or its affiliates' business of automotive and industrial parts washers. Notwithstanding anything herein to the contrary, Employee may serve as an officer, director, employee, consultant and/or participate in any company and/or any other activities during the Term of this Agreement that is not in substantial competition with the Employer's or its affiliates' business of automotive and industrial parts washers, provided that such activities do not interfere with the performance of Employee's responsibilities to the Employer under this Agreement. 6. NOTICE. Except as and to the extent specifically provided herein to the contrary, any notice, approval, consent, demand, application or other communication between the parties hereto required or permitted hereunder shall be in writing and shall be sufficiently given if delivered in person, or mailed by certified mail, with return receipt requested and postage prepaid, or delivered to a bonded air courier service for overnight delivery, addressed as follows or to such other address as any party hereto shall notify the other parties hereto: (a) If to the Employer, to: (b) If to Employee, to: MANSUR INDUSTRIES INC. PIERRE G. MANSUR 8425 S.W. 129th Terrace 7501 SW 114th Street Miami, Florida 33156 Miami, Florida 33156 Notices shall be deemed to have been delivered upon the earlier of actual receipt or five (5) days after deposit in the United States mail or one day after deposit with a bonded air courier service for delivery next day delivery. 7. MODIFICATION. No modification, amendment or waiver of any of the provisions of the Agreement shall be effective unless made in writing specifically referring to this Agreement and signed by all parties. 8. ENTIRE AGREEMENT. This instrument constitutes the entire Agreement of the parties hereto with respect to Employee's employment and the compensation therefor. 9. WAIVER. The failure to enforce at any time any of the provisions of this Agreement or to require at any time performance by any party of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement, or any part hereof, or the right of each party thereafter to enforce each and every provision in accordance with the terms of this Agreement. 3 4 10. SEVERABILITY. The invalidity or unenforceability of any particular provision of this Agreement shall not effect the other provision hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted. 11. SUCCESSORS. This Agreement shall be binding upon and shall inure to the benefit of the Employer and any successor of the Employer. For the purposes of this Agreement, the term "successor" shall mean any person, firm, corporation or other business entity which at any time, whether by merger, purchase or otherwise, shall acquire all or substantially all of the assets or business of the Employer as a whole. This Agreement shall also be binding upon and shall inure to the benefit of the Employee and Employee's legal representatives except that the Employee's obligations to perform such future services and rights to receive payment therefor are hereby expressly declared to be non-assignable and non-transferable. 12. GOVERNING LAW. This Agreement is entered into the State of Florida and shall be construed in accordance with the laws of the State of Florida. The parties hereto consent to the jurisdiction of the state courts of the state of Florida and the appropriate United States District Court for Florida for all purposes in connection with any litigation between or among the parties hereto. Employee hereby irrevocably waives any objection which he now or hereafter may have to the laying of venue of any action or proceeding arising out of or relating to this Agreement brought in the United States District Court for Florida and any objection on the ground that any such action or proceeding in either of such Courts has been brought in an inconvenient forum. 13. PRIOR EMPLOYMENT AGREEMENTS. This Agreement supersedes and replaces in its entirety any prior employment agreements entered into between the Employer and the Employee and any such prior agreements shall be deemed terminated in all respects by mutual agreement. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed as of the date and year first above written. EMPLOYER: EMPLOYEE: By: By: ----------------------------------- ---------------------------------- Paul A. Biddelman, Director Pierre G. Mansur By: ----------------------------------- Kenneth Ch'uan-k'ai Leung, Director By: ----------------------------------- Ronald J. Korn, Director 4 EX-10.15 10 g68025ex10-15.txt EMPLOYMENT AGREEMENT - PAUL MANSUR 1 EXHIBIT 10.15 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (hereinafter "Agreement") is made as of the first day of July, 2000, by and between SYSTEMONE TECHNOLOGIES INC. AND MANSUR INDUSTRIES INC., Florida corporations (hereinafter collectively the "Employer") and PAUL I. MANSUR, an individual (hereinafter "Employee"). RECITALS: A. The Employer desires to assure itself of the services of the Employee and to that end desires to enter into a contract of employment with the Employee upon the terms and conditions herein set forth; and B. The Employee is desirous of entering into such a contract of employment. NOW, THEREFORE, in consideration of the premises, representations, warranties and the mutual covenants herein set forth, the parties hereto agree as follows: 1. EMPLOYMENT DUTIES. (a) Employer hereby hires Employee during the Employment Period (defined below) as Executive Director, to perform such services and duties in accordance with Section 1 of this Agreement. Employee also agrees to assume the responsibilities for the position of interim Chief Executive Officer pending the hiring of a permanent Chief Executive Officer by the Employer. (b) During the Employment Period, the Employee shall faithfully perform the Employee's duties to the best of the Employee's ability and in accordance with the directions of the Employer, at all times exercising the Employee's best business judgement. The Employee shall devote such amount of working time, attention and energies as the Employee deems necessary and required for the proper and complete performance of such duties although Employee shall not be required to maintain specific working hours beyond the period as interim Chief Executive Officer. In addition to the duties assigned to the Employee by the Employer during the Employment period, the Employee shall perform such other duties as are commensurate with the Employee's position and title, including, by way of illustration and not in limitation, overseeing the overall management of the Employer's Company and furnishing to the Employer the Employee's best advice, information, judgement and knowledge with respect to the operations of the Employer's businesses. 2. EMPLOYMENT TERM. (a) "The Employment Period" shall be a period of eighteen (18) months from the date of effectiveness of this Agreement which is first day of July, 2000 and any extensions of such period. (b) At least ninety (90) days prior to the expiration of the initial Employment Period or any Renewal Period as that term is hereinafter defined, the Employer shall notify the Employee of its intention to extend the Employment Period for an additional one (1) year (the "Renewal Period"). If the Employer notifies the Employee of its intention to extend the Employment Period, the Employer shall inform the Employee of any modifications to the salary, employee plans and fringe benefit arrangements for the extended Employment Periods as least sixty (60) days prior to the expiration of the Employment Period and the Employee shall, at least thirty (30) days prior to the expiration of the 2 employment Period, submit in writing notification of his acceptance of the Employer's offer to extend the Employment Period. Failure of the Employer to provide notice in a timely manner as provided in the first section of 2(b) hereof shall result in the automatic extension of this Agreement for one (1) year with all the same terms and provisions hereof, except that the Base Salary (as defined in Section 3(a) below) for the Renewal Period shall be increased pursuant to Section 3(a). (c) In the event of the Employee's death prior to the expiration of the Employment Period, all obligations of the Employer under this Agreement shall terminate except of the Employer's obligations to pay for services rendered by the Employee prior to his death. (d) Employee may terminate this Agreement at anytime upon one hundred twenty (120) days notice to the Company of his intention to resign as the interim Chief Executive Officer and/or Executive Director. All salary earned but unpaid at the date of his resignation shall become due and payable upon the date of his resignation. 3. COMPENSATION. (a) As compensation for the performance of the Employee of his obligations under this Agreement, the Employer shall pay to the Employee a salary in the amount of One Hundred Fifty Thousand Dollars ($150,000.00) per year during the first six (6) months of the Employment Period of this Agreement through December 31, 2000 (subject to a Fifty Thousand Dollar ($50,000.00) per year holdback until the Employer achieves a positive operating cash flow after scheduled debt payments at which time Employer shall retroactively pay Employee all compensation subject to the holdback); One Hundred Sixty Thousand Dollars ($160,000.00) per year during the last twelve (12) months of the Employment Period of this Agreement through December 31, 2001; and One Hundred Seventy Five Thousand Dollars ($175,000.00) per year during the Renewal Period of this Agreement (if extended by the Company) through December 31, 2002. (b) Employee is authorized to incur, in his discretion, reasonable business expenses in connection with the performance of his duties under this Agreement, including travel and entertainment expenses and the Employer shall reimburse Employee for any expenses so incurred, including reasonable transportation expenses incurred by the Employee in the performance or initiation and promotion of the Employer's business. (c) Further, during the Employment Period the Employee may participate in such employee incentives, plans or fringe benefit arrangements as the Employer shall make available to the Employee or others. 4. DISCLOSURE OF INFORMATION. Employee acknowledges that the Employer maintains highly confidential and proprietary information that will be accessible to Employee at all times and that such information constitutes valuable and unique property of the Employer. During the term of this Agreement and for a period of three (3) years following the Employee's termination of employment, Employee will not disclose any confidential information, including without limitation, information regarding the Employer's patents, research and development, manufacturing process or any knowledge or information with respect to confidential or trade secrets of the Employer except that which may be deemed to be in the public domain. Nothing contained herein shall be construed as authorizing Employee to disclose confidential information either during the employment period with Employer or at any time thereafter, or in any way diminish the Employer's complete rights and ownership of its confidential or proprietary information, patents, research and development, manufacturing process or any other proprietary information or trade secrets. 2 3 5. NON-COMPETITION. During the term of this Agreement and for three (3) years thereafter, Employee will not directly or indirectly, whether as principal, agent, trustee or through the agency of any corporation, partnership, association or agent, engage in any business in substantial competition with the Employer's or its affiliates' business of automotive and industrial parts washers, nor shall Employee become an officer, director or employee of any corporation, partnership or any other business in substantial competition with the Employer's or its affiliates' business of automotive and industrial parts washers. Notwithstanding anything herein to the contrary, Employee may serve as an officer, director, employee, consultant and/or participate in any company and/or any other activities during the Term of this Agreement that is not in substantial competition with the Employer's or its affiliates' business of automotive and industrial parts washers, provided that such activities do not interfere with the performance of Employee's responsibilities to the Employer under this Agreement. 6. NOTICE. Except as and to the extent specifically provided herein to the contrary, any notice, approval, consent, demand, application or other communication between the parties hereto required or permitted hereunder shall be in writing and shall be sufficiently given if delivered in person, or mailed by certified mail, with return receipt requested and postage prepaid, or delivered to a bonded air courier service for overnight delivery, addressed as follows or to such other address as any party hereto shall notify the other parties hereto: (a) If to the Employer, to: (b) If to Employee, to: MANSUR INDUSTRIES INC. Paul I. MANSUR 8425 Southwest 129th Terrace 5050 NW 93rd Doral Place Miami, Florida 33156 Miami, Florida 33178 Notices shall be deemed to have been delivered upon the earlier of actual receipt or five (5) days after deposit in the United States mail or one day after deposit with a bonded air courier service for delivery next day delivery. 7. MODIFICATION. No modification, amendment or waiver of any of the provisions of the Agreement shall be effective unless made in writing specifically referring to this Agreement and signed by all parties. 8. ENTIRE AGREEMENT. This instrument constitutes the entire Agreement of the parties hereto with respect to Employee's employment and the compensation therefor. 9. WAIVER. The failure to enforce at any time any of the provisions of this Agreement or to require at any time performance by any party of any of the provisions hereof shall in no way be construed to be a waiver of such provisions or to affect 3 4 either the validity of this Agreement, or any part hereof, or the right of each party thereafter to enforce each and every provision in accordance with the terms of this Agreement. 10. SEVERABILITY. The invalidity or unenforceability of any particular provision of this Agreement shall not effect the other provision hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted. 11. SUCCESSORS. This Agreement shall be binding upon and shall inure to the benefit of the Employer and any successor of the Employer. For the purposes of this Agreement, the term "successor" shall mean any person, firm, corporation or other business entity which at any time, whether by merger, purchase or otherwise, shall acquire all or substantially all of the assets or business of the Employer as a whole. This Agreement shall also be binding upon and shall inure to the benefit of the Employee and Employee's legal representatives except that the Employee's obligations to perform such future services and rights to receive payment therefor are hereby expressly declared to be non-assignable and non-transferable. 12. GOVERNING LAW. This Agreement is entered into the State of Florida and shall be construed in accordance with the laws of the State of Florida. The parties hereto consent to the jurisdiction of the state courts of the state of Florida and the appropriate United States District Court for Florida for all purposes in connection with any litigation between or among the parties hereto. Employee hereby irrevocably waives any objection which he now or hereafter may have to the laying of venue of any action or proceeding arising out of or relating to this Agreement brought in the United States District Court for Florida and any objection on the ground that any such action or proceeding in either of such Courts has been brought in an inconvenient forum. 13. PRIOR EMPLOYMENT AGREEMENTS. This Agreement supersedes and replaces in its entirety any prior employment agreements entered into between the Employer and the Employee and any such prior agreements shall be deemed terminated in all respects by mutual agreement. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed as of the date and year first above written. EMPLOYER: EMPLOYEE: By: By: ----------------------------------- ---------------------------------- Paul A. Biddelman, Director Paul I. Mansur By: ------------------------------------ Kenneth Ch'uan-k'ai Leung, Director By: ------------------------------------ Ronald J. Korn, Director 4 EX-10.16 11 g68025ex10-16.txt 2ND AMENDED MARKETING AGREEMENT 1 EXHIBIT 10.16 CONFORMED SECOND AMENDED AND RESTATED MARKETING AND DISTRIBUTION AGREEMENT THIS SECOND AMENDED AND RESTATED MARKETING AND DISTRIBUTION AGREEMENT (this "Agreement") dated as of March 8, 2001, by and between SAFETY-KLEEN SYSTEMS, INC., a subsidiary of Safety-Kleen Corp., a Wisconsin corporation with offices located at 1301 Gervais Street, Columbia, South Carolina 29201 ("Safety-Kleen"), and SYSTEMONE TECHNOLOGIES INC. ("SystemOne"), a Florida corporation, with offices located at 8305 N.W. 27th Street, Suite 107, Miami, Florida 33122. WHEREAS, SystemOne and Safety-Kleen entered into an Amended and Restated Marketing and Distribution Agreement dated as of December 14, 2000 (the "Prior Agreement") and each of them desires to amend and restate the Prior Agreement in its entirety as set forth herein; WHEREAS, SystemOne possesses all rights to market and/or manufacture various proprietary models of parts washer and industrial washer equipment, and marketed under the trademark SystemOne(R); and WHEREAS, Safety-Kleen desires to purchase and distribute certain models of parts washing equipment as more particularly defined below as the "Equipment" in accordance with the terms of this Agreement, and SystemOne desires to sell the Equipment to Safety-Kleen for such sales and distribution; and WHEREAS, both parties desire that the Equipment be marketed and distributed by Safety-Kleen upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants, agreements and conditions hereinafter set forth and the mutual benefits to be derived therefrom, the sufficiency and adequacy of which are hereby acknowledged, Safety-Kleen and SystemOne hereby amend and restate the Prior Agreement to read in its entirety and agree as follows: 1. APPOINTMENT AS DISTRIBUTOR 1.1 "Equipment" means the parts washing machines set forth on Schedule 1 hereto as such Schedule may be amended from time to time upon the mutual written agreement of the parties hereto. 1.2 SystemOne hereby appoints Safety-Kleen as the exclusive marketer, distributor of, and service provider for, the Equipment within the United States, Canada, Mexico and Puerto Rico (the "Territory") and Safety-Kleen 2 hereby accepts such appointment. SystemOne retains the right to sell, lease, rent and service the Equipment directly, and through other distributors or agents, in its sole discretion, without restriction, outside the Territory. 1.3 Safety-Kleen hereby acknowledges and agrees that Safety-Kleen may not sell, lease or rent any Equipment outside the Territory, or to any Person it has reasonable grounds to believe will export the Equipment or utilize it outside the Territory. SystemOne hereby acknowledges and agrees that SystemOne may not sell, lease or rent any Equipment inside the Territory, or to any Person it has reasonable grounds to believe will import the Equipment or utilize it inside the Territory. 1.4 Safety-Kleen hereby undertakes and agrees with SystemOne that it will use its reasonable best efforts to develop the market for and distribute the Equipment, such efforts to be reasonably equivalent to those used by it in relation to similar goods or services offered by Safety-Kleen in the Territory. Safety-Kleen will to the fullest extent reasonably practicable consult with SystemOne with respect to Safety-Kleen's marketing plans for the Equipment, including, without limitation, with respect to marketing materials such as product literature, marketing programs, paint schemes, labels, packaging and related materials; provided, however, that such marketing plans shall not be subject to SystemOne's approval. 1.5 Except to the extent set forth in Section 7.5 hereof, Safety-Kleen shall assume the sole responsibility for all dealings between it and its customers or prospective customers, including all credit risks and risks regarding collection of receivables with respect to the Equipment sold, leased or rented by it to third parties. 1.6 In the event that SystemOne develops any industrial and commercial washing equipment consistent with equipment currently offered for sale, lease or rent by Safety-Kleen (a "New Model"), SystemOne shall not, directly or through other distributors or agents, market, sell, lease or rent such New Model in the Territory unless it complies with the following procedures: (a) SystemOne shall give written notice to Safety-Kleen of the availability for commercial sale, lease or rent of such New Model (a "New Model Notice") including a summary of the features of such New Model and specifying the price, minimum purchase amounts, warranty coverage and other material terms upon which SystemOne is prepared to include such New Model as Equipment hereunder. (b) Upon receipt of a New Model Notice, Safety-Kleen shall have a 30 day right of first refusal for such new model to be exercised by delivery to SystemOne of a written notice accepting the terms set forth in such New Model Notice (an "Acceptance Notice"). In the event that the Acceptance Notice shall not have been received by SystemOne on or prior to such 30th day, SystemOne shall be free to market, distribute, sell, lease and rent such New Model directly or through other unaffiliated distributors or agents; provided, however, that any such other distributors or agents shall not be offered terms with respect to the New Model that are more favorable from a financial point of view to such distributors or agents than the terms described in the New Model Notice unless SystemOne shall have given Safety-Kleen written notice of such more favorable terms (a "Second Notice") and SystemOne shall not have received from Safety-Kleen an Acceptance Notice with respect to such more favorable terms with 10 days after receipt by Safety-Kleen of the Second Notice. 2 3 2. MINIMUM PURCHASE COMMITMENT 2.1 During each Contract Year (as defined below), Safety-Kleen shall purchase from SystemOne and SystemOne shall sell to Safety-Kleen not less than the number of Series 500 Equivalent Units set forth opposite such Contract Year as follows (the "Minimum Purchase Commitment"): Contract Year Minimum Purchase Commitment ------------- --------------------------- 1 10,000 Series 500 Equivalent Units 2 10,000 Series 500 Equivalent Units 3 12,500 Series 500 Equivalent Units 4 15,000 Series 500 Equivalent Units 5 18,000 Series 500 Equivalent Units 2.2 The Minimum Purchase Commitment for Contract Year 1 shall be inclusive of SystemOne's inventory ("Inventory") as of the Effective Date (as defined below) of Equipment, including Demo Units (as defined below). In addition, at SystemOne's option, exercisable in whole or in part by written notice given within 30 days after the Effective Date (as defined below), Safety-Kleen shall purchase up to all units of Equipment currently rented by SystemOne and set forth on Schedule 3 attached hereto (the "Rental Units") at the respective prices set forth under "Book Bal" on such Schedule 3 less $500.00 per Series 500 Equivalent Unit and SystemOne shall assign and delegate and Safety-Kleen shall receive and assume all benefits and obligations arising under the rental agreements related to such Rental Units. 2.3 "Contract Year" means the period (x) beginning on the last to occur of the Effective Date and the immediately preceding anniversary of the Effective Date and (y) ending on day immediately preceding the next succeeding anniversary of the Effective Date. 2.4 "Series 500 Equivalent Units" means with respect to a Series 500 Unit, one unit, and with respect to a non-Series 500 unit, the number of units of such model, carried out to three decimal places (with the third decimal place rounded up if the fourth decimal place is 5 or more and down if the fourth decimal place is less than 5), equal to the quotient of the Standard Price (as hereinafter defined) of the non-Series 500 Unit divided by the Standard Price of a Series 500 unit. For Contract Year 1, the Series 500 Equivalent Unit value of the Equipment is set forth on Schedule 1 attached hereto. By way of example, if during Contract Year 1 Safety-Kleen orders 5,000 units of Equipment each having a Series 500 Equivalent Unit value of 2, it would satisfy its Minimum Purchase Requirement for such Contract Year. 2.5 "Demo Unit" shall mean a unit that (i) has been returned from a trial at a customer location or (ii) a unit that has been remanufactured; provided, however, that Safety-Kleen may return for refund any Demo Unit which at the time of delivery to Safety-Kleen is not marketable as new. 3 4 3. PURCHASES: PRICES, AND TERMS OF PURCHASES 3.1 The purchase price payable for each unit of Equipment shall consist of the "Standard Price" for such unit plus the "Deferred Price" for such unit (as such terms are defined below). The "Standard Price" payable for Equipment purchased hereunder shall for Contract Year 1 be as set forth on Schedule 1 attached hereto and thereafter be determined in accordance with Schedule 2 attached hereto. 3.2 Safety-Kleen shall pay to SystemOne the Deferred Price in respect of each unit of Equipment (other than Rental Units) sold hereunder in 36 equal monthly payments commencing (i) for units of Equipment sold hereunder during Contract Year 1, on the 90th day and (ii) for units of Equipment sold hereunder thereafter, on the 60th day, after shipment to Safety-Kleen (the "Deferred Price"). The monthly payment for each type of Equipment is set forth on Schedule 1A attached hereto. The Deferred Price for each calendar quarter shall be invoiced by SystemOne on the 3rd day and paid on or before the 20th day immediately following the last day of each calendar quarter. Safety-Kleen's obligation to pay the Deferred Price shall survive any termination of this Agreement. Partial months shall be pro rated based on a 30 day month. 3.3 Safety-Kleen shall purchase not less than 1/12 of each Contract Year's Minimum Purchase Commitment per month (it being understood that Inventory purchased hereunder shall be credited toward the number of months of purchase requirements equal to the number of Series 500 Equivalent Units in Inventory purchased by Safety-Kleen divided by 833.33) provided that units shall be ordered by a written order (an "Order") setting forth the particular models and volumes of the Equipment to be delivered and the required delivery dates therefor (such delivery dates to be not less than 90 days after an Order is submitted to SystemOne (other than Orders with respect to the first 90 days following the Effective Date, it being understood that Safety-Kleen shall submit such Orders as promptly as practicable so as to permit SystemOne adequate time to produce Equipment therefor)). Upon the acceptance of an Order by SystemOne such Order shall be deemed a binding obligation of the parties subject to the benefits and rights of the parties hereunder. Each month during a Contract Year, Safety-Kleen shall provide SystemOne with a 90-day forecast of Safety-Kleen's purchases of Equipment, it being understood that no such forecast shall constitute an Order. All equipment will be sold F.O.B. SystemOne's manufacturing facility or service center facility (in the case of Inventory and Demo Units). SystemOne shall submit invoices to Safety-Kleen twice monthly on the 15th and 30th day of each month with respect to units delivered prior to the date of such invoice and such invoices shall be payable within 30 days of the date thereof by check or, at Safety-Kleen's election, wire transfer; provided, however, that notwithstanding the fact that the Effective Date shall not yet have occurred, Inventory shall be invoiced on the date of the Bankruptcy Court hearing at which this Agreement is approved (currently expected to be December 15, 2000), such invoice to be paid on the later of (x) the Effective Date and (y) the 30th day after the date of such invoice, it being understood that SystemOne shall not be required to make the Inventory available for shipment to Safety-Kleen until available funds from such payment have been received by SystemOne; provided, however, that in the event the Effective Date does not occur, Safety-Kleen shall not be required to pay such invoice. 4 5 3.4 SystemOne shall notify Safety-Kleen by fax when an Order is available for pickup at SystemOne's facility or service center facility, as the case may be (an "Availability Notice"). 3.5 Upon receipt of an Availability Notice, Safety-Kleen shall arrange for shipping and/or transportation of the Equipment from SystemOne's manufacturing facility or service center facility, as the case may be, and pay all shipping, insurance and related costs. Risk of loss and title to the Equipment shall pass to Safety-Kleen upon pickup of the Equipment by, or on behalf of, or for the account of, Safety-Kleen at SystemOne's manufacturing or service center facility. SystemOne shall provide all access reasonably necessary to permit Saftey-Kleen or its carrier to take delivery of the Equipment specified in each Availability Notice. 3.6 Safety-Kleen shall pick up or cause the pick up of the Equipment that is the subject of an Availability Notice within five (5) business days of receipt of the Availability Notice provided that it has been given access to the Equipment as set forth in Section 3.5 above. 3.7 All units of Equipment made available for pickup or shipped to Safety-Kleen shall be new Equipment and contain not more than residual amounts of cleaning solvent remaining from SystemOne's quality control testing procedures (other than Demo Units). 4. TERM/TERMINATION 4.1 Provided that the conditions precedent set forth in Sections 15 and 17 have been fulfilled, this Agreement shall take effect on the date that United States Bankruptcy Court administering Bankruptcy Case No. 00-2303 (the "Bankruptcy Court") shall have entered an order (the "Court Order") pursuant to Sections 363(b) and (m) of the United States Bankruptcy Code, authorizing Safety-Kleen to enter into this Agreement and to perform all transactions contemplated by this Agreement, which Court Order shall (i) have become final and non-appealable and as to which there is no action or proceeding by or before any court (including but not limited to appeals or motions for rehearing or reconsideration) or other governmental body or agency which seeks to restrain, prohibit or invalidate the transactions contemplated by this Agreement, or which materially and adversely affects the obligation of Safety-Kleen to perform all of its obligations under this Agreement, (ii) provide that the stay imposed by Federal Rule of Bankruptcy Procedure 6004(g) is not in effect and does not apply to the Court Order, (iii) include a finding of "good faith" with respect to the negotiation and execution of this Agreement, and (iv) be reasonably satisfactory to SystemOne. Each condition set forth in clauses (ii) through (vi) of this paragraph is intended for the benefit of SystemOne and, as such, SystemOne may waive any of such conditions. The date of satisfaction or waiver of the conditions precedent set forth in the first sentence of this Section 4.1 is referred to herein as the "Effective Date"). Commencing on the Effective Date, this Agreement shall continue in full force and effect until the Termination Date which shall be the day immediately preceding the fifth year anniversary of the Effective Date (the "Initial Term") unless terminated earlier pursuant to Section 4.2 below. This Agreement shall be automatically extended for two additional five (5) year terms following the Initial Term (each a "Renewal Term" 5 6 and together with the Initial Term, the "Term") unless (a) either party hereto gives written notice to the other of an intent to terminate the Agreement not less than one hundred eighty (180) days prior to the end of the Initial Term or during the then current Renewal Term, as the case may be, (b) the Agreement is otherwise terminated in accordance with the provisions hereof, or (c) the parties fail to reach an agreement in writing as to Safety-Kleen's Minimum Purchase Commitments for each Contract Year during such Renewal Term prior to one hundred eighty (180) days before the date such Renewal Term would otherwise commence. Unless otherwise set forth herein, during any Renewal Term all terms of this Agreement shall remain in full force and effect. 4.2 (a) Notwithstanding anything in this Agreement to the contrary, Safety-Kleen may terminate the Initial Term effective on the second anniversary of the Effective Date by providing irrevocable written notice to SystemOne of such termination at any time prior to the 180th day before the second anniversary of the Effective Date. (b) Either party hereto shall, in addition to all other rights and remedies it may have at law or equity, have the right to terminate this Agreement: (i) Upon SystemOne's failure to supply Equipment (including all proprietary parts necessary to service the Equipment) for a 90 day period; (ii) upon written notice given seven days after written notice of any default in payment by the other party; (iii) at any time by giving thirty (30) days prior written notice to the other party if the other party has breached any of its material duties or obligations under this Agreement not covered in clause (i) or (ii) above, provided that the non-defaulting party has previously requested the other in writing to immediately commence curing the breach and to either complete curing the same within twenty (20) business days or to pursue with due diligence the prompt curing of same if it cannot be cured within twenty (20) days, and, if the same is not then cured, then the non-defaulting party may, without prejudice to any other rights or remedies it may have, terminate this Agreement; or (iv) immediately by either party if the other party, pursuant to or within the meaning of Title 11, U.S. Code, or any similar federal or state law for the relief of debtors ("Bankruptcy Law"): (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, (E) generally is not paying its debts as they become due; or (F) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (1) is for relief against the other party in an involuntary case; (2) appoints a custodian of the other party for all or substantially all of the property of the other party; or 6 7 (3) orders the liquidation of the other party, and the order or decree remains unstayed and in effect for 60 consecutive days (each of the foregoing, a "Bankruptcy Event"); provided, however, that SystemOne's right to terminate this Agreement pursuant to this clause (iii) shall only apply to a Bankruptcy Event involving Safety-Kleen subsequent to Safety-Kleen's receipt of a discharge in Bankruptcy Case No. 00-2362. (c) SystemOne shall have the right to terminate this Agreement at any time after December 15, 2000 if the Bankruptcy Court shall not have approved this Agreement and at any time after January 5, 2001 if the Effective Date shall not have occurred. 4.3 Upon termination of this Agreement, Safety-Kleen shall have the continuing right, on a non-exclusive basis, to sell, lease, rent and service any of its remaining inventory of the Equipment within the Territory. 5. REPRESENTATIONS, WARRANTIES AND COVENANTS 5.1 SystemOne represents, warrants and covenants to Safety-Kleen, effective as of the Effective Date and again as of the date of each shipment of Equipment purchased by Safety-Kleen as follows: (a) SystemOne owns or has valid rights to use all valid and current patents for and other intellectual property related to the Equipment and its manufacture (the "Intellectual Property") and such property rights do not infringe on the intellectual property rights of any third party nor has SystemOne received any notice of any such infringement; (b) SystemOne is entitled to enforcement of its patents against infringements thereon, including, but not limited to, enforcement against any third party manufacturing identical or other infringing equipment; (c) that the Equipment purchased by Safety-Kleen will conform to SystemOne's performance criteria as set forth in SystemOne's User Manual attached as EXHIBIT A; (d) that, SystemOne has the requisite skills and facilities to fill the Minimum Purchase Commitment for each of Contract Year 1 through Contract Year 5 in accordance with the terms of this Agreement; (e) that SystemOne is duly organized and validly existing under the laws of the State of Florida, has all requisite power and authority to conduct its business as now and proposed to be conducted and to execute, deliver and perform it obligations under this Agreement; and that this Agreement has been duly authorized, executed and delivered and represents a valid and binding obligation enforceable against SystemOne in accordance with its terms; (f) that SystemOne shall notify Safety-Kleen promptly upon becoming aware of any adverse information relating to the safety or effectiveness of the Equipment and make such changes to the design or manufacture of the Equipment necessary to ensure the safety and effectiveness of the Equipment; and 7 8 (g) that upon delivery of the Equipment sold hereunder, Safety-Kleen shall acquire good and marketable title thereto free of any liens, encumbrances or other security interests other than those which may apply to Safety-Kleen's assets. 5.2 Safety-Kleen represents, warrants and covenants to SystemOne, effective as of the Effective Date and again as of the date of each purchase of Equipment from SystemOne as follows: (a) that Safety-Kleen has the requisite skills, facilities and personnel to market, promote and sell the Equipment in accordance with the terms and requirements of this Agreement; (b) that Safety-Kleen is duly organized and validly existing under the laws of the State of Wisconsin, has all requisite power and authority to conduct its business as now and proposed to be conducted and to execute, deliver and perform it obligations under this Agreement; and that this Agreement has been duly authorized, executed and delivered and represents a valid and binding obligation enforceable against Safety-Kleen in accordance with its terms; (c) that Safety-Kleen shall notify SystemOne promptly upon becoming aware of any adverse information relating to the safety or effectiveness of the Equipment; and (d) other than as set forth in Section 8.3 hereof, that during the Term and for 18 months thereafter, Safety-Kleen shall not directly and personally solicit for employment any non-clerical employee of SystemOne or seek to induce any such employee to terminate such employee's employment with SystemOne, it being understood that the publication of employee wanted advertisements not directed to a particular person in media of general circulation shall not be considered a violation of this provision. Nothing in this provision shall prohibit Safety-Kleen from hiring any employee of SystemOne provided that the terms of this provision have been complied with. 5.3 Safety-Kleen agrees that each delivery of an Order to SystemOne shall constitute a representation and warranty as of the date of such Order that Safety-Kleen has the financial resources to pay for such Order. SystemOne agrees that upon receipt of an Order, unless written notice of an inability to supply the Equipment is provided to Safety-Kleen within three (3) business days after receipt such Order, such receipt shall constitute a representation and warranty as of the date of such receipt that SystemOne has the ability and resources to produce and supply the Equipment specified in such Order. 6. INTELLECTUAL PROPERTY 6.1 SystemOne shall defend, indemnify and hold harmless Safety-Kleen, its parent, subsidiaries and affiliate corporations, and its and their officers, directors, employees and agents, from and against any and all claims, liabilities, suits, proceedings, judgments, order, fines, penalties, damages, losses, costs and expenses, including reasonable fees of one counsel (for any particular claim or series of related claims) which it or they may hereafter incur, become responsible for or pay out as a result of a claim that 8 9 the Equipment infringes any existing United States, Canada or Mexico patent or other Intellectual Property of a third party. Safety-Kleen shall give SystemOne prompt written notice of any such claim made against it whereupon SystemOne shall have the right to assume the defense of such claim with counsel reasonably satisfactory to Safety-Kleen and upon such assumption, SystemOne shall have no further obligation to indemnify Safety-Kleen for attorneys' fees in respect of such claim except to the extent that a conflict of interest between Safety-Kleen and SystemOne make it impractical for such counsel to defend both Safety-Kleen and SystemOne with respect to such claim. This provision shall survive termination of this Agreement. 6.2 Subject to the terms hereof and solely in connection with the performance of Safety-Kleen's obligations under this Agreement, SystemOne grants to Safety-Kleen, a revocable (upon termination of this Agreement), non-transferable (except by permitted assignment of this Agreement), non-sublicenseable, non-exclusive license ("Revocable License") to use the trademarks, trade names, trade dress and other designations of source or quality of SystemOne as identified on EXHIBIT B attached hereto. Safety-Kleen shall have no right to use any other trademarks, trade names or other intellectual property of SystemOne. Safety-Kleen acknowledges that SystemOne is the owner of all right title and interest in and to the Intellectual Property licensed hereunder and Safety-Kleen agrees not to adopt or use any of the Intellectual Property except as expressly provided in this Agreement. No use at any time shall be made by Safety-Kleen of any other marks or trade dress which infringes upon or copies in any part the Intellectual Property licensed hereunder. This provision shall survive termination of this Agreement. The Revocable License granted hereby shall be strictly limited to Safety-Kleen's activities in marketing, distributing and servicing the Equipment, either by sale, lease or rent to its customers, and shall survive termination or expiration of this Agreement to the extent that Safety-Kleen is continuing to sell, lease or service Equipment purchased hereunder. Safety-Kleen acknowledges that nothing in this Agreement gives it any right, title or interest in the technology, copyrights, trade secrets, patents, trademarks, trade names, trade dress and other property rights related to the Equipment and designations of source of quality, other than the Revocable License set forth in this Section 6.2 and the Termination License set forth in Section 6.5 below. All marketing or other material prepared by or for use by Safety-Kleen utilizing the name "SystemOne" shall bear a legend that: "SystemOne is a registered trademark of SystemOne Technologies Inc." or other such legend reasonably requested by SystemOne. Except as set forth in this Agreement, upon expiration or termination of this Agreement, Safety-Kleen shall (i) take all action necessary to transfer and assign to SystemOne, or its nominee, any right, title or interest in or to any of the Intellectual Property, and the goodwill related thereto, which Safety-Kleen may have acquired in any manner as a result of the marketing and distribution of Equipment under this Agreement and (ii) cease to use any Intellectual Property of SystemOne. Safety-Kleen and SystemOne each hereby agrees to notify the other promply upon having knowledge of any infringement or potential infringement of any Intellectual Property. Safety-Kleen shall not apply to register any of the Intellectual Property or any Intellectual Property confusingly similar thereto. Except as permitted by this Agreement, Safety-Kleen shall not use or contest, or assist others to use or contest, during or after the Term, any trademark, name, mark or designation owned by SystemOne anywhere in the world (or any name, mark or designation similar thereto) and shall cooperate with SystemOne in its efforts to register the Intellectual Property. Except as provided in Section 6.5 hereof, Safety-Kleen acknowledges and agrees its use of the Intellectual Property shall not create in it any equitable or other interest in the Intellectual Property. 9 10 6.3 SystemOne shall affix to Equipment such logos, instructional, safety and warning labels and other information as Safety-Kleen may request and, without Safety-Kleen's consent, shall not affix SystemOne's logos or other labels. Safety-Kleen shall have the right to specify a paint scheme for units of Equipment, not to exceed two colors and subject to appropriate price adjustments if the paint colors or quality shall exceed the cost of SystemOne's current paint scheme. 6.4 During the Term, Safety-Kleen, including its affiliates, employees, officers, contractors, or agents, agrees: (i) not to decompile and/or reverse engineer the Equipment or any component thereof; (ii) not to directly or indirectly apply for or attempt to acquire any rights, patents or copyrights relating to the Equipment or any component thereof; and (iii) that none of them has any rights or interest with respect to the technology, copyrights, trade secrets and patents and other property rights relating to the Equipment, including all materials, combinations, processes, equipment design concepts, documents, data and information incorporating, based upon, or derived from the foregoing. Safety-Kleen shall not make any improvements, enhancements or modifications to the Equipment without SystemOne's prior written approval. 6.5 SystemOne hereby grants to Safety-Kleen a non-exclusive license for use of and access to all Intellectual Property and other know-how necessary for the manufacture, use, sale, lease, rent and service of the Equipment and any proprietary parts necessary to service the Equipment within the Territory; provided, however, that Safety-Kleen shall not exercise any rights under such license unless (i) Safety-Kleen shall have paid all amounts due and owing to SystemOne and is not in breach of any of its other obligations under this Agreement, (ii) Safety-Kleen shall have terminated this Agreement pursuant to Section 4.2(b)(i), (iii) or (iv) hereof, (iii) SystemOne is then unable or unwilling to manufacture or otherwise provide the Equipment or any proprietary parts necessary to service the Equipment for or to Safety-Kleen and (iv) Safety-Kleen provides to SystemOne a written notice (the "Commencement Notice") of its determination to exercise such rights (such license being referred to herein as the "Termination License"). The Termination License shall continue until the later of (x) the first anniversary of the date that the Commencement Notice is received by SystemOne and (y) the next succeeding Termination Date that would have occurred had this Agreement not been so terminated and shall be renewable for Renewal Terms subject to notice of non-renewal as set forth in Section 4.1 hereof, MUTATIS mutandis. In consideration of the Termination License, Safety-Kleen shall, commencing 45 days after manufacture of Equipment commences pursuant to the Termination License, pay to SystemOne a license fee upon each unit of Equipment manufactured by or on behalf of Safety-Kleen under the Termination License in an amount (to be determined by good faith negotiation not later than 30 days after such commencement of manufacturing) which when added to the costs of substituted manufacture will not cause a reduction in the average gross selling margins obtained by Safety-Kleen from sales of the Equipment during the six months prior to such termination. The Termination License shall be assignable to an extent necessary for a third party manufacturer to produce the Equipment and any proprietary parts necessary to service the Equipment exclusively for Safety-Kleen. SystemOne covenants that it will use its reasonable best efforts to obtain any required court approval of such license. This Section 6.5 shall survive any termination of this Agreement. 10 11 7. WARRANTY AND SERVICE MATTERS 7.1 All units of the Equipment sold hereunder (including Demo Units but excluding Rental Units) are warranted by SystemOne to be materially free of defects (the "Parts Warranty") in parts for three (3) years commencing on the date of shipment to Safety-Kleen ("Warranty Period"). During the Warranty Period, SystemOne will replace any defective part free of charge. 7.2 Except as set forth in Section 7.1, Safety-Kleen shall be responsible for all labor and other costs necessary to service or repair any unit of Equipment sold hereunder. For each warranty replacement part supplied by SystemOne, Safety-Kleen shall return to SystemOne the defective part replaced. The cost of such warranty replacement parts, including the associated delivery charges, shall be borne by SystemOne unless such parts require replacement as a result of loss, theft, damage or misuse of the Equipment or in the event that Safety-Kleen fails to return the part replaced. 7.3 Limited Warranty: SystemOne shall not be responsible under this limited Parts Warranty for damages resulting from (i) failure to follow SystemOne's installation, operation, or maintenance instructions set forth in the User Manual; (ii) unauthorized system modification or alteration; (iii) accident, abuse, misuse or negligent acts or omissions of the customer or persons under the customer's control; or (iv) acts of third parties and acts of God. THERE ARE NO EXPRESS WARRANTIES, WHETHER WRITTEN OR ORAL, OTHER THAN THE WARRANTY SET FORTH IN SECTION 7.1 ABOVE. ALL IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY DISCLAIMED. Subject to SystemOne's obligations set forth in Sections 6.1 and 10 hereof: (a) the liability of SystemOne and its affiliates and suppliers for any claims, losses, damages or expenses from any cause whatsoever (including acts or omissions of third parties), regardless of the form of action, whether in contract, tort or otherwise, shall not exceed the lesser of (i) the direct damages proven and (ii) the repair or replacement cost, lease payoff or purchase price, as the case may be, of the Equipment that directly gives rise to the claim; (b) SystemOne shall not be responsible for any incidental, special, punitive, exemplary, reliance, consequential (including, but not limited to, lost profits or lost revenues) or indirect loss or damage incurred in connection with the Equipment to the full extent those damages as permitted by law to be disclaimed; (c) for personal injury caused by SystemOne's negligence, SystemOne's negligence shall be limited to proven damages to the person; and (d) no action or proceeding against SystemOne or its affiliates or suppliers may be commenced more than twelve (12) months after the cause of action accrues. 7.4 Safety-Kleen shall be responsible, at its sole cost and expense, for providing all repairs (excluding the cost of replacement parts covered under the Parts Warranty as described in Section 7.1 hereof), service and maintenance for the Equipment as well as the supply and composition of cleaning solvents utilized within the Equipment. All replacement parts not covered by the Parts Warranty shall be supplied to Safety-Kleen at a price equal to 135% of the Manufacturing Cost (as defined in Schedule 2) thereof. 7.5 (a) With respect to each unit of Equipment sold by SystemOne prior to the Effective Date but still covered by SystemOne's original manufacturer's warranty (the "Original Warranty") (a "Prior Unit"), Safety-Kleen shall use its commercially reasonable efforts to sell to the owners of such 11 12 Prior Unit a service contract with Safety-Kleen covering the repair and service of such Prior Unit (a "COM Agreement"). Safety-Kleen shall be solely responsible for providing any repair or service in respect of any Prior Unit covered by a COM Agreement; provided, however, that so long as a Prior Unit is covered by the Original Warranty, SystemOne shall, at its own cost, provide to Safety-Kleen a replacement, for, any defective part covered by such warranty. Safety-Kleen shall provide SystemOne with a monthly report of all Prior Units as to which a COM Agreement has been entered into, including the name of the owner thereof and the serial numbers of the Prior Units covered thereby. In the event that SystemOne receives requests for service with respect to a Prior Unit, SystemOne shall inform the owner of the availability of a COM Agreement and refer the owner of such Prior Unit to Safety-Kleen. (b) To the extent a Prior Unit is not covered by a COM Agreement as contemplated above or is a Rental Unit that has not been purchased by Safety-Kleen (each, an "Uncovered Prior Unit"), Safety-Kleen shall refer all requests for repairs to SystemOne. Upon SystemOne's request, Safety-Kleen shall provide all resources necessary to repair Uncovered Prior Units at a cost to SystemOne of $50.00 per Repair Call (as defined below); provided, however, that SystemOne shall not be required to pay for any Repair Call not requested or authorized in advance by a service representative of SystemOne designated to Safety-Kleen (a "Service Representative"). If a Prior Unit is covered by the Original Warranty or is such a Rental Unit, SystemOne shall, at its own cost, repair or, at its option, provide to Safety-Kleen a replacement, for, any defective part covered by such warranty. For purposes hereof, a "Repair Call" shall mean the number of visits to a Prior Unit or a Rental Unit necessary to repair the malfunction of such unit. 7.6 With respect to Rental Units purchased by Safety-Kleen, Safety-Kleen shall, at its expense, so long as such Rental Unit remains in service, provide all repair and normal service as provided in the related rental contracts. 7.7 All fees for Repair Calls shall be invoiced monthly by Safety-Kleen and shall be payable within 30 days thereafter. 7.8 In effecting repairs and service, Safety-Kleen shall comply with SystemOne's training and repair procedures set forth in its Service Manual attached as Exhibit A hereto. 7.9 Safety-Kleen shall be responsible for all on-going training for sales and service of the Equipment provided that SystemOne shall provide technical support as may be reasonably requested by Safety-Kleen so long as the cost of such technical support is included in Allocable General and Administrative Cost (as defined in Schedule 2), it being understood that SystemOne shall not be required to maintain more than six full time equivalent employees for such purpose. 7.10 In the event that Safety-Kleen desires to provide a cleaning solvent other than "Safety-Kleen Recycled 150 Flash Solvent" or one set forth in the User Manual, Safety-Kleen shall submit such solvent to SystemOne for appropriate testing and its approval. SystemOne shall test and reject or approve such solvent as soon as practicable but in any event not more than six months after submission by Safety-Kleen. 12 13 8. TRANSITION MATTERS 8.1 SystemOne shall provide necessary initial training to Safety-Kleen personnel for sales and service of the Equipment to consist of 30 full-time equivalent field service representatives designated by Safety-Kleen and all necessary transportation for a period of not more than 75 days. Safety-Kleen shall have the option to extend such personnel for an additional 30 days provided that the full cost of such personnel, including without limitation, the salaries, benefits and reasonable travel expenses thereof shall be paid by Safety-Kleen upon submission by SystemOne of invoices therefor. 8.2 SystemOne, at its sole expense, will close all of its existing sales and service centers. 8.3 Safety-Kleen will agree to supply SystemOne with a list of open personnel positions and shall use its commercially reasonable efforts to interview terminated SystemOne employees for possible employment with Safety-Kleen or affiliates thereof. 9. INSURANCE Without limiting, negating or reducing SystemOne's undertaking to indemnify, defend and hold harmless Safety-Kleen as set forth in Section 10 of this Agreement, during the Term, SystemOne shall obtain and continue in full force and effect throughout the term of this Agreement general liability insurance, including products liability, in an amount of $5.0 million per occurrence. The required insurance coverage shall be maintained with an insurance company qualified to provide coverage where business is conducted pursuant to this Agreement. SystemOne shall provide Safety-Kleen with thirty (30) days prior written notice of any change, modification or termination in or of such insurance coverage. On or prior to the Effective Date, SystemOne shall provide Safety-Kleen with an insurance certificate evidencing the required coverage and naming Safety-Kleen as an additional insured. 10. INDEMNITY 10.1 SystemOne shall indemnify, defend and hold harmless Safety-Kleen, its parent, subsidiaries and affiliates, and its and their officers, directors, shareholders, employees, representatives and agents, from and against any and all claims, liabilities, suits, proceedings, judgments, orders, fines, penalties, damages, costs, and expenses, including but not limited to reasonable attorney fees and other expenses of litigation, which it or they may hereafter incur, become responsible for or pay out as a result of death or bodily injuries to any person, destruction or damage to any property or contamination of or adverse effects on the environment, arising out of or resulting from any defect in the design and manufacture of the Equipment or replacement parts provided hereunder, or any material breach of this Agreement by SystemOne except to the extent that such claims, liabilities, suits, proceedings, judgments, orders, fines, penalties, damages, costs and expenses are caused by or result from the fault or negligent act or failure to act of Safety-Kleen. 10.2 Safety-Kleen shall indemnify, defend and hold harmless SystemOne, its parent, subsidiaries and affiliates, and its and their officers, directors, shareholders, employees, representatives and agents, from and against any and all claims, liabilities, suits, proceedings, judgments, orders, fines, 13 14 penalties, damages, costs, and expenses, including but not limited to reasonable attorney fees and other expenses of litigation, which it or they may hereafter incur, become responsible for or pay out as a result of death or bodily injuries to any person, destruction or any damage to any property or contamination of or adverse effect on the environment, arising out of or resulting from any fault or negligent act or omission of Safety-Kleen, including, without limitation, any sale or distribution of solvents by Safety-Kleen for use in the Equipment not approved for use in the Equipment by SystemOne, or any material breach of this Agreement by Safety-Kleen, except to the extent that such claims, liabilities, suits, proceedings, judgments, orders, fines, penalties, damages, costs and expenses are caused by or result from the fault or negligent act or failure to act of SystemOne. 11. INDEPENDENT CONTRACTOR The parties acknowledge and agree that the relationship hereby established between SystemOne and Safety-Kleen is solely that of independent contractors, each engaged in the operation of its own respective business and in the performance of its obligations under this Agreement. The provisions of this Agreement shall not be construed as authorizing or reserving to either party any right to exercise any control or direction over the operations, activities, employees and agents of the other in connection with this Agreement, it being understood and agreed that the entire control and direction of such operations, activities, employees and agents shall remain with such party. Neither party to this Agreement shall have the authority to employ any person as agent or employee for or on behalf of the other party to this Agreement for any purpose, and neither party to this Agreement, nor any person performing any duties under or engaging in any work at the request of such party, shall be deemed to be an employee or agent of the other party to this Agreement. Neither party has any authority to enter into any contract, assume any obligations, or make any warranties or representations on behalf of the other party. Nothing in this Agreement shall be construed to establish a partnership or joint venture relationship between the parties. 12. ASSIGNMENT This Agreement shall not be assigned nor can the performance of any duties be delegated by any party without the prior written consent of the other party, except that either party may effect an assignment of this Agreement to a direct or indirect parent or a direct or indirect wholly-owned subsidiary of it or such parent upon prior written notice to the other party, or to a successor to the Safety-Kleen parts washer business as part of such successor's acquisition of all or substantially all of the assets of such business whether by merger or other business combination transaction, provided that (i) the assignee's or successor's financial strength is not materially less than that of the assignor and the other party approves of the assignment, such approval not to be unreasonably withheld or (ii) such merger or other business combination transaction is consummated pursuant to a plan of reorganization for Safety-Kleen in its case pending on the date hereof under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Case"). 14 15 13. MISCELLANEOUS 13.1 This Agreement, the letter agreement dated December 1, 2000, and the other agreements contemplated hereby constitute the full understanding of the parties, a complete allocation of risks between them and a complete and exclusive statement of the terms and conditions of their agreement; and all prior agreements, negotiations, dealings and understandings, whether written or oral, regarding the subject matter hereof, to the extent any portion thereof survives, are superseded by this Agreement and such contemplated agreements. Additionally, any terms and/or conditions contained in any purchase order, oral or written, or in SystemOne's standard warranty policy, inconsistent with any terms and/or conditions set forth herein shall be of no force and effect unless consented to in writing by the party to be charged. 13.2 No conditions, usage of trade, course of dealing or performance, understanding or agreement purporting to modify, vary, explain or supplement the terms or conditions of this Agreement shall be binding unless hereafter made in writing and signed by the party to be bound, and no modification shall be effected by the acknowledgment or acceptance of any forms containing terms or conditions at variances with or in addition to those set forth in this Agreement. This Agreement may be amended only by a written agreement executed by the parties hereto. 13.3 No waiver by either party with respect to any breach or default or of any right or remedy and no course of dealing or performance shall be deemed to constitute a continuing waiver of any other breach or default or of any other right or remedy, unless such waiver be expressed in writing signed by the party to be bound. 13.4 Section headings as to the contents of particular sections are for convenience only and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular sections to which they refer. 13.5 In the event any term or provision of this Agreement, or any portion thereof, or any application of any term or provision shall be invalid or unenforceable, the remainder of this Agreement or any other application of such term or provision shall not be affected thereby. 13.6 All rights conferred by this Agreement shall be binding upon, inure to the benefit of, and be enforceable against the respective permitted successors and assigns of the parties hereto including, but not limited to, any trustee or other responsible officer or estate representative appointed for a party in a case under any chapter of the United States Bankruptcy Code. 13.7 All notices, requests, approvals and other communications required or permitted under this Agreement shall be in writing and shall be given by: (i) facsimile transmission (to be confirmed by the means set forth in the following clause (ii)); or (ii) nationally recognized overnight courier (with confirmation of delivery) to the appropriate party to the following addresses or to such other addresses as the respective party hereto may hereafter designate to such effect by notice to the other party: 15 16 SYSTEMONE: SystemOne Technologies Inc. --------- 8305 N.W. 27th Street, Suite 107, Miami, Florida 33122 Attn: Paul I. Mansur, Chief Executive Officer Fax No.: (305) 593-8018 SAFETY-KLEEN: Safety-Kleen Corp. ------------ 1301 Gervais Street, Suite 300 Columbia, South Carolina 29201 Attn: David E. Thomas, Jr., Chief Executive Officer Fax No.: (803) 933-4292 Copy to: General Counsel Fax No.: (803) 933-4303 Such notices and communications shall be effective: (i) if given by facsimile transmission, when sent addressed as set forth above and transmission is confirmed; or (ii) if by overnight courier, two business days after deposit therewith. 13.8 This Agreement may be executed in identical duplicate copies. The parties agree to execute at least two identical original copies of this Agreement. Each identical counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. 13.9 (a) Except as required by law or judicial process, any Confidential Information (as defined below), whether oral or written, disclosed or given to or discussed with SystemOne by Safety-Kleen will not be disclosed to any person or entity, in any way or form, unless approved by Safety-Kleen prior to such disclosure by SystemOne; provided, however, that SystemOne shall be entitled to disclose such Confidential Information to its directors, employees, agents, counsel, accountants, sources of financing or other representatives (collectively, "Representatives") with a need to know such Confidential Information in connection with the performance or administration of this Agreement provided that such Representatives agree to the requirements to maintain the confidentiality of such Confidential Information in accordance with this Section 13.9. (b) Except as required by law or judicial process, any Confidential Information, whether oral or written, disclosed or given to or discussed with Safety-Kleen by SystemOne will not be disclosed to any person or entity, in any way or form, unless approved by SystemOne prior to such disclosure by Safety-Kleen; provided, however, that Safety-Kleen shall be entitled to disclose such Confidential Information to its Representatives with a need to know such Confidential Information in connection with the performance or administration of this Agreement provided that such Representatives are advised of the requirements to maintain the confidentiality of such Confidential Information in accordance with this Section 13.9. (c) For purposes of this Section 13.9, Confidential Information of a party means information of that party which is marked or otherwise identified as being confidential; provided, however, that Confidential Information shall not include (i) information that is publicly available without a breach hereof; (ii) information which was already in the receiving party's possession prior to the date hereof other than such information which is subject 16 17 to a prior confidentiality agreement; (iii) information received from a third party on a non-confidential basis provided that such third party is not in breach of any obligation of confidentiality; and (iv) information independently developed by such party not having had access to such Confidential Information. Each party shall be responsible for any breach by its Representatives of this Section 13.9. (d) In the event that a party is requested pursuant to, or required by, applicable law, rule or regulation or by legal process to disclose any Confidential Information of the other party, such party agrees to immediately provide the other party with notice of such request to enable the other party to seek an appropriate protective order. In the event such protective order or other remedy is not obtained, the parties agree to furnish only that portion of the Confidential Information which in the opinion of counsel is legally compelled to be disclosed and to use their reasonable best efforts to obtain assurance that if possible, confidential treatment will be accorded such Confidential Information. Nothing contained herein shall prohibit a party from disclosing this Agreement as may be required by law or regulation or as may be necessary to obtain any consent orapproval required for the performance of this Agreement by such party. Prior to issuing any press release with respect to this Agreement, a party desiring to make such press release shall to the extent reasonably practicable, consult with the other party regarding the contents of such press release. Notwithstanding Section 16 hereof, each party may enforce this Section 13.9 against the other through appropriate court proceedings seeking injunctive or other equitable relief. 14. FORCE MAJEURE Notwithstanding anything contained herein to the contrary, neither party will be liable in any way as a result of its failure to fulfill any term of this Agreement, when such failure is due to an act of God, act or request of governmental authority, war, riot, any voluntary or involuntary shutdown or curtailment of or interference with, its facilities, incident to any labor controversy or failure of any customary source of supplies which may directly or indirectly affect the obligations arising hereunder for such party or to any cause beyond its control, nor shall any such failure constitute a basis to terminate this Agreement. This clause shall not apply to payment obligations. 15. WARRANTS As a condition precedent to the effectiveness of this Agreement, not later than the Effective Date, SystemOne shall execute and deliver to Safety-Kleen a warrant in the form of Exhibit C attached hereto. 16. DISPUTE RESOLUTION Except as set forth in Schedule 2 attached hereto, if the parties should have a material dispute arising out of or relating to this Agreement or the parties' respective rights and duties hereunder, then the parties will resolve such dispute in the following manner: (i) any party may at any time deliver to the others a written dispute notice setting forth a brief description of the issue for which such notice initiates the dispute resolution mechanism contemplated by this Section 16; (ii) during the twenty (20) day period following the delivery of the notice described in Section 16(i) above, appropriate representatives of the various parties will meet and seek to resolve the disputed issue through negotiation, (iii) if representatives of the parties are unable to resolve the disputed issue through negotiation, then within ten 17 18 (10) days after the period described in Section 16(ii) above, the parties will refer the issue (to the exclusion of a court of law) to final and binding arbitration in Miami, Florida in accordance with the then existing rules for expedited arbitration (the "Rules") of the American Arbitration Association ("AAA"), and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof; provided, however, that the law applicable to any controversy shall be the law of the State of New York, regardless of principles of conflicts of laws. In any arbitration pursuant to this Agreement, the award or decision shall be rendered by a majority of the members of a Board of Arbitration consisting of three (3) members, one of whom shall be appointed by each of the respective parties and the third of whom shall be the chairman of the panel and be appointed by mutual agreement of said two party-appointed arbitrators. In the event of failure of said two arbitrators to agree within twenty (20) days after the commencement of the arbitration proceeding upon the appointment of the third arbitrator, the third arbitrator shall be appointed by the AAA in accordance with the Rules. In the event that either party shall fail to appoint an arbitrator within ten (10) days after the commencement of the arbitration proceedings, such arbitrator and the third arbitrator shall be appointed by the AAA in accordance with the Rules. Nothing set forth above shall be interpreted to prevent the parties from agreeing in writing to submit any dispute to a single arbitrator in lieu of a three (3) member Board of Arbitration. Upon the completion of the selection of the Board of Arbitration (or if the parties agree otherwise in writing, a single arbitrator), an award or decision shall be rendered within no more than thirty (30) days. Notwithstanding the foregoing, the request by either party for preliminary or permanent injunctive relief, whether prohibitive or mandatory, shall not be subject to arbitration and may be adjudicated only by the courts of the State of Florida or the U.S. District Court for the Southern District of Florida or the courts of the State of South Carolina or the U.S. District Court for the District of South Carolina, the forum to be selected by the party seeking such relief. So long as the Bankruptcy Case is pending, counsel for the Steering Committee of Safety-Kleen's Pre-petition Lenders and counsel for the Official Committee of Unsecured Creditors appointed in the Bankruptcy Case shall be entitled to receive notice of, be present at and participate in any arbitration or judicial proceeding brought pursuant to this Section 16. Subject to the rights of termination set forth herein, neither party shall fail to perform its obligations hereunder by reason of the fact that any such dispute shall be pending. 17. NON COMPETITION AGREEMENTS As a condition precedent to the effectiveness of this Agreement, not later than the Effective Date, each of Paul Mansur and Pierre Mansur shall execute and deliver to Safety-Kleen a Noncompetition Agreement in the form of Exhibit D attached hereto. 18. APPLICABLE LAW AND JURISDICTION This Agreement, all questions relating to its validity, interpretation, performance and enforcement and all sales hereunder shall be governed by and construed in accordance with the laws of the State of New York, notwithstanding any conflict-of-laws doctrines of such state or other jurisdiction to the contrary, and without the aid of any canon, custom or rule of law requiring construction against the draftsman. 18 19 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SYSTEMONE TECHNOLOGIES INC. By: /s/ PAUL I. MANSUR -------------------------------- Name: Paul I. Mansur Title: Chief Executive Officer SAFETY-KLEEN SYSTEMS, INC. By: /s/ LARRY W. SINGLETON -------------------------------- Name: Larry W. Singleton Title: C.F.O. 19 EX-10.17 12 g68025ex10-17.txt REVOLVING CREDIT LOAN AGREEMENT 1 EXHIBIT 10.17 REVOLVING CREDIT LOAN AGREEMENT By and Between SYSTEMONE TECHNOLOGIES INC., as Borrower and HANSA FINANCE LIMITED LIABILITY COMPANY, as Lender Dated: As of November 30, 2000 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS......................................................................................... 1 Section 1.1 Definitions....................................................................... 1 ARTICLE II LOAN............................................................................................... 11 Section 2.1 Revolving Credit Loan........................................................... 11 Section 2.2 Borrowing Procedures..............................................................11 Section 2.3 Note............................................................................ 11 Section 2.4 Interest........................................................................ 12 Section 2.5 Repayment of Principal.......................................................... 12 Section 2.6 Late Charges.................................................................... 12 Section 2.7 Optional and Mandatory Prepayment................................................ 12 Section 2.8 Security........................................................................ 13 Section 2.9 Replacement of Any Notes........................................................ 13 Section 2.10 Payments and Computations....................................................... 13 Section 2.11 Facility Fee.................................................................... 14 ARTICLE III CONDITIONS PRECEDENT OF LENDING..................................................................... 14 Section 3.1 Initial Revolving Credit Borrowing......................................................................... 14 Section 3.2 All Revolving Credit Borrowing.................................................... 15 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BORROWER............................................................................. 16 Section 4.1 Incorporation.................................................................... 16 Section 4.2 Authorization.................................................................... 17 Section 4.3 Conflicts........................................................................ 17 Section 4.4 Capitalization................................................................... 17 Section 4.5 Subsidiaries..................................................................... 18 Section 4.6 SEC Documents; Financial Statements.............................................. 18 Section 4.7 Taxes............................................................................ 19 Section 4.8 Title; Credit Arrangements; Defaults............................................. 19 Section 4.9 Employee Benefit Plans........................................................... 20 Section 4.10 Disputes and Litigation.......................................................... 21 Section 4.11 Compliance With Law; Licenses; Franchises; Environmental Laws................................................... 21 Section 4.12 Use of Proceeds.................................................................. 22 Section 4.13 Principal Exchange/Market........................................................ 22 Section 4.14 No Material Adverse Change....................................................... 22 Section 4.15 No Undisclosed Liabilities....................................................... 22 Section 4.16 No Undisclosed Events or Circumstances.................................................................... 23 Section 4.17 Brokers.......................................................................... 23 Section 4.18 Disclosure....................................................................... 23 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE LENDER ................................................................................ 23 Section 5.1 Formation........................................................................ 23 Section 5.2 Authorization.................................................................... 23 Section 5.3 Conflicts........................................................................ 24
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Page ---- ARTICLE VI AFFIRMATIVE COVENANTS............................................................................... 24 Section 6.1 General Covenants................................................................. 24 Section 6.2 Financial and Other Information................................................... 26 Section 6.3 Budgets............................................................................27 ARTICLE VII NEGATIVE COVENANTS.................................................................................. 28 Section 7.1 General Covenants................................................................. 28 ARTICLE VIII EVENTS OF DEFAULT.................................................................................. 29 Section 8.1 Events of Default................................................................. 29 Section 8.2 Enforcement....................................................................... 31 Section 8.3 Waiver Of Jury Trial.............................................................. 31 ARTICLE IX MISCELLANEOUS....................................................................................... 32 Section 9.1 Modification of Agreement........................................................ 32 Section 9.2 Remedies Cumulative, etc......................................................... 32 Section 9.3 No Waiver, etc................................................................... 32 Section 9.4 Notices.......................................................................... 32 Section 9.5 Survival of Representations...................................................... 33 Section 9.6 Entire Agreement................................................................. 33 Section 9.7 Expenses......................................................................... 34 Section 9.8 Benefit of Agreement............................................................. 34 Section 9.9 Governing Law.................................................................... 34 Section 9.10 Captions......................................................................... 34 Section 9.11 Severability..................................................................... 34 Section 9.12 Counterparts..................................................................... 35 Schedule A - Form of Borrowing Base Certificate Exhibit A - Form of Revolving Credit Note Exhibit B - Form of Security Agreement Exhibit C - Form of Subordination Agreement Exhibit D - Form of Legal Opinion Schedule 4.3 - Consents Schedule 4.7 - Taxes Schedule 4.8 - Credit Arrangements
-ii- 4 REVOLVING CREDIT LOAN AGREEMENT REVOLVING CREDIT LOAN AGREEMENT dated as of the 30th day of November, 2000 by and between SYSTEMONE TECHNOLOGIES INC., a corporation duly organized and validly existing under the laws of the State of Florida (hereinafter referred to as the "Borrower"), and HANSA FINANCE LIMITED LIABILITY COMPANY, a limited liability company duly organized and validly existing under the laws of the State of Delaware(hereinafter referred to as the "Lender" ). W I T N E S S E T H: WHEREAS, the Borrower is primarily engaged in the business of manufacturing industrial parts washers that incorporate the Borrower's proprietary waste minimization technologies (such activities being hereinafter referred to, collectively, as the "Business"); and WHEREAS, in order to provide funds for the operation and expansion of the Business, the Borrower has requested that the Lender establish a revolving credit facility in an amount not to exceed the aggregate principal amount of up to $5,000,000 (hereinafter referred to as the "Revolving Credit Loan"); and WHEREAS, the Lender has agreed to make the Revolving Credit Loan to the Borrower, subject to the terms and conditions hereinafter set forth; and NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1 DEFINITIONS. As used in this Agreement, the following additional terms shall have the following meanings, unless the context indicates otherwise: (i) The term "ACCOUNTS" shall mean any "account", as such term is defined in Section 9-106 of the Uniform Commercial Code, whether now owned or hereafter acquired, and in any event includes, without limitation, any now existing and future accounts receivable, and any and all documents, book debts, acceptances, payments under either leases of inventory or equipment, or sales of inventory or equipment, or payments to be made under or pursuant to contract rights, general intangibles and other forms of obligations now or hereafter received by or belonging or owing to the Person referenced with respect to the sale of goods and performance of services (other than forms of obligations evidenced by chattel paper or instruments), including, without limitation, all accounts created by or arising from all sales or leases of goods or rendition of services by the Person referenced to its customers, and all accounts arising 5 from sales or rendition of services made under any of the trade names or styles of the Person referenced, including, without limitation, the right to receive the proceeds of purchase orders and contracts. (ii) The term "ADVANCE LIMIT" shall mean the amount of the Revolving Credit Loan which the Lender may from time to time advance to the Borrower, and which shall not in the aggregate at any time outstanding exceed the lesser of (A) $5,000,000 or (B) the sum of: (v) the Advance Supplement, plus (w) the Qualified Accounts Receivable, plus (x) 90% of the Value of the Qualified Finished Goods Inventory of the Borrower, plus (y) 50% of the Value of the Qualified Raw Materials/Work-in-Process Inventory of the Borrower, plus (z) the Qualified Discounted Royalty. (iii) The term "ADVANCE SUPPLEMENT" shall mean: (x) for the period from the Closing Date until April 1, 2001, $3,000,000, and (y) for the period from April 1, 2001 until the Maturity Date, $2,500,000. (iv) The term "AFFILIATE" shall mean any person who is a director or officer of the subject referenced or is a Person which, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with such Person; and, for purposes of this Agreement, the term "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. (v) The term "APPROVED BUDGET" shall have the meaning ascribed and assigned to such term as set forth under Section 6.3 hereof. (vi) The term "BENEFIT PLANS" shall mean all pension, profit-sharing, bonus, incentive, welfare or other employee benefit plans within the meaning of Section 3(3) of ERISA, and related trusts, insurance and annuity contracts, funding media and related agreements and arrangements, other than Multiemployer Plans. (vii) The term "BORROWER" shall have the meaning ascribed and assigned to such term as set forth in the preamble of this Agreement. (viii) The term "BORROWING BASE CERTIFICATE" shall mean a certificate duly executed by any authorized officer of the Borrower in the form attached hereto as Schedule A. (vix) The term "BORROWING DATE" shall mean, with respect to a Revolving Credit Borrowing, the Business Day on which such Revolving Credit Borrowing is funded by the Lender in accordance with Section 2.2 hereof. (x) The term "BORROWING REQUEST" shall mean a request by the Borrower for a Revolving Credit Borrowing as provided in Section 2.2 of this Agreement. 2 6 (xi) The term "BUSINESS" shall have the meaning ascribed and assigned to such term in the preamble of this Agreement. (xii) The term "BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or any other day on which commercial banks in New York, New York are required or permitted by law to close. (xiii) The term "CLOSING DATE" shall mean the date upon which the conditions set forth in Section 3.1 of this Agreement shall have been completed and fulfilled to the satisfaction of the Lender. (xiv) The term "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. (xv) The term "COMMISSION" shall mean the United States Securities and Exchange Commission. (xvi) The term "COMMON STOCK" shall mean the Borrower's common stock, par value $.001. (xvii) The term "DEBT" of any Person shall mean, at any date, all indebtedness of such Person which would, in accordance with Generally Accepted Accounting Principles, be classified as indebtedness, whether funded or current, but in any event including: (A) all indebtedness of such Person with respect to money borrowed (including, without limitation, all notes payable and drafts accepted representing extensions of credit, all obligations evidenced by bonds, debentures, notes or other similar instruments and all obligations under which interest charges are customarily paid); (B) all indebtedness guaranteed, directly or indirectly, in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement, contingent or otherwise, to supply funds to or in any other manner invest in the debtor, to purchase indebtedness, or to purchase goods, supplies or services for the purpose of enabling the debtor to make payment of the indebtedness or to assure the owner of the indebtedness against loss, or otherwise; (C) all indebtedness secured by any mortgage, lien, pledge, charge or encumbrance of any kind upon property owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness; (D) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, even though the 3 7 rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession of such property; and (E) all obligations under leases that are or should be, in accordance with Generally Accepted Accounting Principles, recorded as capital leases. (xviii) The term "DEFAULT" shall mean any fact, circumstance or event which, with notice or passage of time or both, or the happening of any other condition, event or act, would constitute an Event of Default. (xix) The term "DEFINED BENEFIT PLAN" shall mean any Benefit Plan which is a "defined benefit plan" within the meaning of Section 3(35) of ERISA. (xx) The term "DISCOUNTED ROYALTY" shall mean, as of any date (each herein referred to as the "date of reference"), the amount obtained by discounting, from its scheduled due date to such reference date (in accordance with accepted financial practice and at a discount factor, applied on the same periodic basis as that on which interest on the Revolving Credit Loan is payable, equal to 16% per annum), each component of the Royalty payable at the date of reference under the Safety-Kleen Agreement with respect to covered Equipment (as defined thereunder) theretofore sold thereunder. (xxi) The term "ENVIRONMENTAL LAWS" shall mean any and all federal, national, state or local laws, statutes, ordinances, rules, regulations, orders or determinations of any federal, national, state or local governmental authority pertaining to health or the environment. (xxii) The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute of similar import, together with the regulations promulgated thereunder by the United States Treasury Department, the United States Department of Labor and/or the PBGC. (xxiii) The term "EVENT OF DEFAULT" or "Events of Default" shall have the meaning set forth in Section 8.1 of this Agreement. (xxiv) The term "EXCHANGE ACT" shall mean the U.S. Securities Exchange Act of 1934, as amended from time to time, and any successor statute of similar import, together with the regulations promulgated thereunder by the Commission. (xxv) The term "FINANCING STATEMENTS" shall mean the Uniform Commercial Code UCC-1 financing statements to be filed with the applicable Governmental Authorities of each relevant jurisdiction pursuant to which the Lender shall perfect its security interest under the Security Agreement. (xvi) The term "GBCC INDEBTEDNESS" shall mean indebtedness of the Borrower with respect to money borrowed pursuant to the GBCC Loan Documents. 4 8 (xvii) The term "GBCC LOAN DOCUMENTS" shall mean the Loan and Security Agreement dated May 17, 1999 (as amended December 21, 1999 and November 2, 2000) between the Borrower and Guaranty Business Credit Corporation (as assignee of Capital Business Credit, a division of Capital Factors, Inc.), together with all documents executed in connection therewith. (xxviii) The term "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall mean generally accepted principles and practices as developed and modified by the American Institute of Certified Public Accountants, the Financial Accounting Standards Board and industry practices and custom, applied on a consistent basis. (xxix) The term "GOVERNMENTAL AUTHORITY" shall mean any federal, state, county or municipal, or foreign, governmental agency, board, commission, officer, official or entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government whose consent or approval is required as a prerequisite to (i) the continued uninterrupted operation of the Business, or (ii) the performance of any act or obligation or the observance of any agreement or condition of the Borrower under this Agreement or the other Revolving Credit Loan Documents. (xxx) The term "INVENTORY" shall mean all inventory in all of its forms of the Borrower, wherever located, including, without limitation: (a) all merchandise, goods and other personal property which are held for sale or lease, all raw materials and work in process therefor, finished goods thereof, and materials used or consumed in the manufacture or production thereof; (b) all goods in which the Borrower has an interest in mass or a joint or other interest or right of any kind (including goods in which the Borrower has an interest or right as consignee); and (c) all goods which are returned to or repossessed by the Borrower; and all accessions thereto, products thereof and documents therefor. (xxxi) The term "INVENTORY QUALIFICATION CRITERIA" shall mean Inventory that: (a) does not consist of packaging, materials, labels or supplies; (b) at all times strictly complies with all of Borrower's warranties and representations to the Lender (which, by the Borrower's acceptance of Revolving Credit Borrowings thereon, shall be deemed to include the Borrower representation that such Inventory meets the criteria set forth in this Agreement); (c) is in good, new and saleable condition; (d) is not obsolete or unmerchantable; (e) meets all standards imposed by any Governmental Authority; (f) is at all times subject to the Lender's duly perfected, first priority security interest and there exists no other Lien thereon; (g) is in the Borrower's possession and control situated at a location in compliance with this 5 9 Agreement and the Security Agreement and is not in transit or outside the continental United States; (h) is not in the hands of any third party, including a warehouseman, finisher, consignee, lessee, or like party; (i) is not subject to any license or other agreement that limits, conditions or restricts the Borrower's or the Lender's right to sell or otherwise dispose of such Inventory; and (j) with respect to which the Lender has received an executed landlord's waiver, in form and substance acceptable to the Lender, for the location at which the Inventory is stored. (xxxii) The term "LENDER" shall have the meaning ascribed and assigned to such term as set forth in the preamble of this Agreement. (xxxiii) The term "LIEN" shall mean any mortgage, deed of trust, security interest, pledge, lien, or other charge or encumbrance of any nature. (xxxiv) The term "LOAN DOCUMENTS" shall mean any and all agreements, documents, certificates and instruments executed by the Borrower, and/or any other Person and delivered by the Borrower, and/or any other Person to the Lender pursuant to and in connection with the Revolving Credit Loan and this Agreement, including, without limitation, the Note, the Security Agreement, and the Financing Statements, in each case as amended, supplemented, restated or otherwise modified from time to time in accordance with the provisions thereof. (xxxv) The term "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on: (x) the business, properties, operations, income, assets or condition, financial or otherwise, of the Borrower, or (y) the ability of the Borrower to perform, or the Lender to enforce, any obligation or liability under the Loan Documents, or any of them. (xxxvi) The term "MATURITY DATE" shall mean the earlier of (i) the date the Lender demands payment of the Revolving Credit Loan in accordance with the Loan Documents after the occurrence of an Event of Default, or (ii)May 30, 2003, unless extended in writing by the Lender in its sole and absolute discretion. (xxxvii) The term "MULTIEMPLOYER PLAN" shall mean any "multiemployer plan" within the meaning of Section 3(37) of ERISA. (xxxviii) The term "MIAMI LEASE" shall mean the lease agreement dated February 5, 1997 between the Borrower and United Capital Holdings Corporation. (xxxix) The term "NOTE" shall mean that revolving credit note dated the Closing Date, executed by the Borrower, as the maker, and delivered to the Lender, as payee, in the aggregate principal amount of up to Five Million Dollars ($5,000,000), which Note evidences the Revolving Credit Borrowings under the Revolving Credit Loan. (xl) The term "OBLIGATIONS" shall mean all obligations and liabilities of the Borrower, or any successor(s) thereof, owed to the Lender in connection 6 10 with the Revolving Credit Loan, whether direct or indirect, absolute or contingent, joint or several, now or hereafter existing, due or to become due to or held by the Lender. (xli) The term "PBGC" shall mean the Pension Benefit Guaranty Corporation and any Person succeeding to any or all of its functions and duties under ERISA. (xlii) The term "PERMITTED ENCUMBRANCES" shall mean (a) Liens in favor of the Lender; (b) Liens for taxes, assessments or other governmental charges not delinquent or being contested in good faith and by appropriate proceedings and with respect to which proper reserves have been taken by the Borrower; (c) Liens disclosed in the financial statements referred to in Section 4.6 of this Agreement (including, without limitation, the Lien securing the Subordinated Secured Loan); (d) deposits or pledges of cash to secure obligations under worker's compensation, social security or similar laws, or under unemployment insurance; (e) deposits or pledges of cash to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds, utility deposits and other obligations of like nature arising in the ordinary course of such Borrower's business; (f) judgment Liens that have been stayed or bonded and, subject to the provisions of this Agreement elsewhere contained, mechanics, workers', landlord's, materialmen's or other like Liens arising in the ordinary course of the Borrower's business with respect to obligations which are not due or which are being contested in good faith by the Borrower; and (g) Liens placed upon fixed assets hereafter acquired to secure a portion of the purchase price thereof, provided that (x) any such lien shall not encumber any other property of the Borrower and (y) the aggregate amount of Debt secured by such Liens incurred as a result of such purchases during any fiscal year shall not exceed $500,000. (xliii) The term "PERSON" shall mean an individual, a partnership, a corporation, a trust, an unincorporated association, and a government or any department, agency or political subdivision thereof. (xliv) The term "QUALIFIED ACCOUNTS RECEIVABLE" shall mean an Account which has been identified and described to the Lender's satisfaction, is represented by the Borrower (by its acceptance of Revolving Credit Borrowings thereon) as meeting all of the following criteria on its origination date and thereafter until collected, and is in all other respects acceptable to the Lender, in its sole and absolute discretion: (A) the Borrower is the sole owner of the Account and has not sold, assigned or otherwise transferred it, and the Account is not subject to any Lien (other than any Lien granted to the Lender in connection with the Revolving Credit Loan or any junior Lien securing the Subordinated Secured Loan); 7 11 (B) the Account is bona fide, legally enforceable and owing to the Borrower for the sale of goods or performance of services in the ordinary course of business and the Account does not require any further act on the part of the Borrower to make it owing by the account debtor, and the Borrower shall, promptly upon each request of the Lender, deliver to the Lender (or, at the time of origination of the Account, if required by the Lender, deliver to the Lender) copies of invoices, billings, shipping documents and other documents evidencing the obligation to pay the Account; (C) the Account does not represent a conditional sale, consignment or other sale on a basis other than that of absolute sale, is not evidenced by any note, instrument, chattel paper or like document; (D) the invoice for the Account has not been outstanding for more than 60 days from the date thereof; (E) the Account is not subject to any defense, offset, counterclaim, credit, allowance or adjustment except usual and customary prompt payment discounts, nor has the account debtor indicated any dispute or complaint concerning them; (F) no other Account of the account debtor is 60 days or more overdue in payment, and the Borrower has not received any notice, nor has any knowledge, of any facts which otherwise adversely affect the credit of any account debtor; (G) the account debtor is not an Affiliate of the Borrower nor a director or officer of the Borrower or an Affiliate of any director or officer (except for an Account pursuant to the Safety-Kleen Agreement); (H) the Account does not represent a contra account; (I) the Account is not an Account with respect to which any representation or warranty contained in the Loan Documents is untrue, or which violates any of the covenants contained in the Loan Documents and, without limiting the generality of the foregoing, the Account by its terms does not prohibit or restrict the pledge or assignment thereof pursuant to the Loan Documents; (J) the Account does not represent the Royalty, or any part thereof; and (K) the Account otherwise satisfies the requirements of the Lender. (xlv) The term "QUALIFIED DISCOUNTED ROYALTY" shall mean the Discounted Royalty, or portion thereof, which the Lender in its sole and absolute discretion, deems to be acceptable. Without limiting the generality of the 8 12 foregoing, the Qualified Discounted Royalty shall not include reference to any Royalty (or Discounted Royalty) if: (A) the Borrower has sold, assigned or otherwise transferred it, or the right to receive it or the proceeds thereof, or subjected it to Lien (other than any Lien granted to the Lender in connection with the Revolving Credit Loan or any junior lien securing the Subordinated Secured Loan); (B) the Royalty is not bona fide, legally enforceable and payable to the Borrower under the Safety-Kleen Agreement; or (C) the Safety-Kleen Agreement is not in full force and effect without default thereunder. For purposes hereof (including, without limitation, the determination of the Advance Limit) there shall be no duplication of amounts entering into calculation of the Qualified Discounted Royalty and the Qualified Accounts Receivable. (xlvi) The term "QUALIFIED FINISHED GOODS INVENTORY" shall mean and include that Inventory of the Borrower which the Lender, in its sole and absolute discretion, deems to be Qualified Finished Goods Inventory. Without limiting the generality of the foregoing, no Inventory shall be Qualified Finished Goods Inventory unless: (a) it is finished goods and (b) it meets the Inventory Qualification Criteria. (xlvii) The term "QUALIFIED RAW MATERIALS/WORK-IN-PROCESS INVENTORY" shall mean and include that Inventory of the Borrower which the Lender, in its sole and absolute discretion, deems to be Qualified Raw Materials/Work-in-Process Inventory. Without limiting the generality of the foregoing, no Inventory shall be Qualified Raw Materials/Work-in-Process Inventory unless: (a) it is work-in-process or raw materials, or consists of component parts to be incorporated into finished goods; and (b) it meets the Inventory Qualification Criteria. (xlviii) The term "REVOLVING CREDIT BORROWING" shall mean any advance(s) that are Revolving Credit Loan proceeds, pursuant to and in accordance with the terms and conditions of this Agreement. (xlix) The term "REVOLVING CREDIT LOAN" shall have the meaning ascribed and assigned to such term as set forth in the second recital of this Agreement. (l) The term "ROYALTY" shall have the meaning assigned and ascribed to such term under the Safety-Kleen Agreement. (li) The term "SAFETY-KLEEN AGREEMENT" shall mean the Marketing and Distribution Agreement dated as of November 13, 2000 between the Borrower and 9 13 Safety-Kleen Systems, Inc. in the form executed on such date, together with such amendments thereto permitted under this Agreement. (lii) The term "SEC DOCUMENTS" shall have the meaning ascribed and assigned to such term under Section 4.6 of this Agreement. (liii) The term "SECURITY AGREEMENT" shall mean that certain Security Agreement in the form attached hereto as Exhibit B, dated the Closing Date, whereby the Borrower has pledged, assigned, hypothecated, conveyed, transferred, given and granted to the Lender a continuing pledge, of and security interest in all of the security described therein. (liv) The term "SECURITIES ACT" shall mean the U.S. Securities Act of 1933, as amended from time to time, and any successor statute of similar import, together with the regulations promulgated thereunder by the Commission. (lv) The term "SHAREHOLDERS AGREEMENT" shall mean the Shareholders Agreement dated May 2, 2000 of the Borrower, as in effect on the date hereof. (lvi) The term "SUBORDINATED NOTES" shall mean the Borrower's 8.25% Subordinated Convertible Notes due February 23, 2003 in the aggregate original principal amount of $17,000,000. (lvii) The term "SUBORDINATED SECURED LOAN" shall mean the Loan Agreement dated August 7, 2000(as amended November 10, 2000) among the Borrower, Hanseatic Americas LDC, Environmental Opportunities Fund II, LP and Environmental Opportunities Fund II (Institutional, LP, together with all documents executed in connection therewith. (lviii) The term "SUBORDINATION AGREEMENT" shall mean the Subordination Agreement, dated the date hereof, executed to the Lender with respect to the Subordinated Secured Loan, in the form attached hereto as Exhibit C. (lix) The term "SUBSIDIARY" shall mean (i) any present or future corporation at least a majority of the outstanding voting stock, of which shall, at the time, be owned by the Borrower, by the Borrower and one or more Subsidiaries of the Borrower or by one or more Subsidiaries of the Borrower, or (ii) any other Person which is otherwise controlled by the Borrower and one or more Subsidiaries of the Borrower, directly or indirectly. For purposes hereof, outstanding voting stock shall be deemed to be capital stock of any class or classes, however designated, having ordinary voting power for the election of the members of the board of directors or other governing body of such corporation. (lx) The term "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code, as enacted in any jurisdiction in which perfection of the security interest granted to the Lender hereunder is required. 10 14 (lxi) The term "VALUE" shall mean, with reference to Qualified Finished Goods Inventory or Qualified Raw Materials/Work-in-Process Inventory, value determined on the basis of the lower of cost or market value of such Inventory, with the cost thereof calculated on a first-in, first-out basis. ARTICLE II LOAN Section 2.1 REVOLVING CREDIT LOAN. Until the Maturity Date, and provided that no Default or Event of Default shall have occurred and be continuing, the Lender agrees, subject to the terms and conditions hereinafter set forth, to make Revolving Credit Borrowings from time to time to the Borrower in such amounts as the Borrower may from time to time request; except that, the aggregate principal amount outstanding of all such Revolving Credit Borrowings made by the Lender to the Borrower at the time of any Borrowing Request shall not exceed the Advance Limit. Within the constraints of the Advance Limit, the Borrower may borrow, repay and reborrow amounts under this Section 2.1. Section 2.2 BORROWING PROCEDURES. The Borrower shall request Revolving Credit Borrowings from the Lender and shall confirm the proposed request for a Revolving Credit Borrowing by furnishing a Borrowing Request to the Lender by telecopy or otherwise no later than 9:00 a.m., New York time, three Business Days prior to the date of the funding of the Revolving Credit Borrowing; provided no more than two Borrowing Requests may be delivered during any calendar month. The Borrowing Request shall include the principal amount of the Revolving Credit Borrowing (which must be in increments of $50,000) and the requested Borrowing Date. Provided that all of the terms, conditions and provisions of this Agreement and the other Loan Documents shall theretofore have been satisfied by the Borrower on the Borrowing Date, the Lender shall make the requested Revolving Credit Borrowing to the Borrower, by depositing said funds in a demand deposit account which the Borrower shall designate in writing to the Lender no later than the time of the request for such Revolving Credit Borrowing. The Borrower hereby authorizes the Lender, or its duly authorized agent, to endorse on the grid attached as Schedule A to the Note, an appropriate notation evidencing the amount of each such Revolving Credit Borrowing, which, in the absence of manifest error, shall be conclusive as to the outstanding principal amount of all Revolving Credit Borrowings hereunder and thereunder; provided, however, that the failure to make such notation with respect to any Revolving Credit Borrowing shall not limit or otherwise affect the obligation of the Borrower to the Lender under this Agreement or the Note. Section 2.3 NOTE. The obligation of the Borrower to repay all monies advanced by the Lender to the Borrower in connection with the Revolving Credit Loan shall be evidenced by the Note, in the form of Exhibit A annexed hereto, which the Borrower shall have duly executed and delivered to the Lender on or 11 15 prior to the Closing Date. The Note shall (i) be dated the Closing Date, (ii) have a principal sum, which shall be payable in the amounts and on the dates as provided for in Section 2.5 hereof and (iii) bear interest at such rates payable on the dates and in the manner provided for in Section 2.4 hereof. Section 2.4 INTEREST. All Revolving Credit Borrowings shall bear interest computed daily on the advanced and unpaid principal amount of said Revolving Credit Borrowings from the respective Borrowing Dates until final repayment in full of said Revolving Credit Borrowings in accordance with Section 2.5 of this Agreement, at an interest rate of fourteen percent per annum (14%). Interest on the outstanding principal balance of the Revolving Credit Loan shall be paid monthly in arrears commencing on December 31, 2000 and continuing thereafter on the last calendar day of each succeeding month, with the final payment of interest due on the date the Revolving Credit Loan is repaid in full in accordance with Section 2.5 of this Agreement. Section 2.5 REPAYMENT OF PRINCIPAL. Unless the Lender has previously demanded payment therefor after the occurrence of an Event of Default in accordance with this Agreement and the Note, the Revolving Credit Loan shall be due and payable in full to the Lender on the Maturity Date; provided, however, that, if the outstanding Revolving Credit Borrowings shall exceed the Advance Limit, at any time, such excess shall be immediately payable to the Lender. Each payment of principal shall be accompanied by payment of all unpaid accrued interest, fees and expenses, if any, with respect to such excess. Section 2.6 LATE CHARGES. In the event that any payment, including, without limitation, interest and/or principal, required to be made by the Borrower under this Agreement or the Note shall not be received by any Lender within ten days after the same shall become due and payable, such Lender may charge, and if so charged, the Borrower shall pay, a late charge equal to five cents for each dollar of such delinquent payment for the purpose of defraying the expense incident to the handling of such delinquent payment. Section 2.7 OPTIONAL AND MANDATORY PREPAYMENT. (a) The Borrower shall have the right at any time to prepay the whole, or any part, of the unpaid principal amount of the Revolving Credit Loan, without premium or penalty, upon the terms hereinafter set forth under Paragraph (c) of this Section 2.7, and provided that interest on the principal amount thereof to be so prepaid accrued to the date of such prepayment shall be paid concurrently therewith. (b) Upon the consummation from time to time by the Borrower of any sale for cash of any debt or equity securities, or of any other financing transaction for borrowed money (other than capital leasing transactions or purchase money financings), the net proceeds thereof shall in each case 12 16 forthwith be applied by the Borrower to the prepayment of the Revolving Credit Loan, without premium or penalty, but together with all interest on the principal amount thereof to be so prepaid accrued to the date of such prepayment. (c) Notices of prepayment shall be given by the Borrower to the Lender not less than five days prior to the date specified therein for prepayment. Upon giving of notice of prepayment as aforesaid, the Revolving Credit Loan or portion thereof so specified for prepayment shall on the prepayment date specified in such notice become due and payable, and from and after the prepayment date so specified (unless the Borrower shall default in making such prepayment) interest on the principal of the Revolving Credit Loan or portion thereof so specified for prepayment shall cease to accrue, and the principal of the Revolving Credit Loan or portion thereof so specified for prepayment shall be paid by the Borrower as aforesaid. Section 2.8 SECURITY. As security for the due and punctual payment and performance of the obligations of the Borrower under the Note, this Agreement and the other Loan Documents, the Borrower shall have duly executed and delivered to the Lender a Security Agreement, in the form of Exhibit C annexed hereto, dated the Closing Date, and such other customary security related documents. Section 2.9 REPLACEMENT OF ANY NOTE. Upon receipt by the Borrower of evidence satisfactory to it of the loss, theft, destruction or mutilation of the Note, and (in case of loss, theft or destruction) of indemnity reasonably satisfactory to it, and upon surrender and cancellation of the Note, if mutilated, the Borrower, upon reimbursement to it of all reasonable expenses incidental thereto, shall make and deliver to any Lender a new Note, of like tenor, in lieu of such Note. Any Note made and delivered in accordance with the provisions of this Section 2.9 shall be dated as of the date to which interest has been paid on the Note so replaced . Section 2.10 PAYMENTS AND COMPUTATIONS. All computations of interest under this Agreement and the Note shall be made on the basis of a year of 360 days consisting of twelve months of 30 days each, in each case for the actual number of days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable. Whenever any payment under the Note shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest. All payments received by the Lender shall be applied, first, to the payment of interest, fees and expenses, with any balance to the payment and reduction of principal. All payments made by the Borrower under the Note shall be made irrespective of, and without any reduction for, any set-off or counterclaims. 13 17 2.11 FACILITY FEE. In consideration of the covenants and agreements of the Lender set forth herein, on the Closing Date the Borrower shall pay to the Lender the amount of $125,000. ARTICLE III CONDITIONS PRECEDENT OF LENDING Section 3.1 INITIAL REVOLVING CREDIT BORROWING. The obligation of the Lender to make the Revolving Credit Loan available to the Borrower on the Closing Date and to make the initial Revolving Credit Borrowing shall be subject to the following conditions precedent, any and all of which may be waived by the Lender, in its sole discretion, and each of which the Borrower hereby agrees to use its best efforts to satisfy: (i) the Note, dated the Closing Date, shall have been duly executed and delivered by the Borrower to the Lender; (ii) the Security Agreement, dated the Closing Date, and a sufficient number of the related Financing Statements, shall have been duly executed and delivered by the Borrower to the Lender, and the Borrower shall have executed and delivered to the Lender for filing with the United States Patent and Trademark Office and the United States Copyright Office such documents as shall be sufficient to perfect the Lender's interest under the Security Agreement; (iii) a Subordination Agreement, dated the Closing Date, shall have been duly executed and delivered to the Lender by each of the creditors under the Subordinated Secured Loan, and each such creditor shall have delivered to the Lender evidence satisfactory to the Lender of compliance therewith (including, without limitation, sufficient amendments to filings under the Uniform Commercial Code with respect to the Subordinated Secured Loan indicating the senior interest of the Lender); and the Subordinated Secured Loan shall otherwise have been amended as requested by the Lender prior to the Closing Date. (iv) the Lender shall have received a certificate of the Secretary or an Assistant Secretary of the Borrower stating: (a) that attached thereto is a true and complete copy of the certificate of incorporation and by-laws of the Borrower, as well as the text of the corporate resolutions adopted by the Board of Directors of the Borrower authorizing the transactions contemplated by this Agreement and designating the officers who are authorized to execute this Agreement and the Note and request Revolving Credit Borrowings under this Agreement ; (b) that none of the same has been modified and all are in full force and effect; (c) that the individual signing this Agreement is a duly elected officer of the Borrower; and (d) that set forth thereon is a true 14 18 specimen of the signature of the officer of the Borrower who is authorized to execute the Note; and containing a certification by another officer of the Borrower as to the incumbency and signature of the Secretary or Assistant Secretary executing such certificate; (v) the representations and warranties of the Borrower contained under Article IV hereof shall be true and correct in all material respects at and as of the Closing Date with the same effect as though all such representations and warranties were made at and as of the time of the Closing Date (except for representations and warranties which are of a specific date or which relate to a specific period other than or not including the time of the Closing Date, as the case may be, and except for changes therein contemplated or permitted by this Agreement) and the Borrower shall have complied with all of its covenants contained in this Agreement; and there shall not exist any fact,circumstance or event which constitutes a Default or an Event of Default; (vi) the Lender shall have received an opinion of Greenberg Traurig, P.A., counsel to the Borrower, dated the Closing Date, in form satisfactory to the Lender and to Krugman & Kailes LLP, counsel to the Lender, in the form of Exhibit D annexed hereto; (vii) all consents, acknowledgements, approvals, permits and orders with respect to the transactions contemplated by the Loan Documents shall have been obtained, including without limitation, the execution and delivery to the Lender, in recordable form (and otherwise in form and substance satisfactory to the Lender), of a landlord waiver with respect to the premises subject to the Miami Lease; (viii) the Lender shall have received evidence satisfactory to it of the absence of any fee to Sanders Morris Harris or any other person in connection with the execution and delivery of this Agreement or any advance hereunder; (ix) the Borrower shall have satisfied the entire amount of the GBCC Indebtedness, and the GBCC Loan Documents shall have in all respects been terminated and released and shall be of no further force or effect; and, without limitation, all collateral thereunder shall have been released ; and (x) the Lender shall have received such additional documents, instruments, certificates and searches, in form and substance satisfactory to the Lender and counsel to the Lender, as the Lender may reasonably request. SECTION 3.2 ALL REVOLVING CREDIT BORROWINGS. The obligation of the Lender to make each Revolving Credit Borrowing under this Agreement, including the initial Revolving Credit Borrowing hereunder, shall be subject to the following conditions precedent, any or all of which may be waived by the Lender in its sole discretion, and each of which the Borrower hereby agrees to use its best efforts to satisfy: 15 19 (i) the representations and warranties of the Borrower contained under Article IV hereof, and under the Security Agreement, shall be true and correct in all material respects at and as of the time of such Revolving Credit Borrowing with the same effect as though all such representations and warranties were made at and as of the time of such Revolving Credit Borrowing (except for representations and warranties which are as of a specific date or which relate to a specific period other than or not including the time of such Revolving Credit Borrowing, as the case may be, and except for changes therein contemplated or permitted by this Agreement) and the Borrower shall have complied with all of its covenants contained in this Agreement and the Security Agreement; and there shall not exist any fact, circumstance or event which constitutes a Default or an Event of Default; (ii) at the time of such Revolving Credit Borrowing, the Borrower shall have delivered to the Lender a Borrowing Base Certificate, dated the date of such Revolving Credit Borrowing; (iii) all dividends on the Series C Convertible Preferred Stock and Series D Convertible Preferred Stock of the Borrower accrued through and including the date of such Revolving Credit Borrowing shall have been paid in full; and any and all adjustments to the Series C Convertible Preferred Stock, Series D Convertible Preferred Stock and the Borrower's warrants issued to any Affiliate of the Lender, arising from events and circumstances through and including the date of such Revolving Credit Borrowing, shall have been effectuated and noticed to the holders of such securities; and (iv) the Lender shall have received such additional documents, instruments and certificates, in form and substance satisfactory to the Lender and counsel to the Lender, as the Lender may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BORROWER The Borrower hereby represents, warrants and covenants to the Lender that: Section 4.1 INCORPORATION. The Borrower is duly organized, validly existing and in good standing under the laws of the State of Florida and has full corporate power and authority to own or hold under lease the assets and properties material to the operation of the Business which it owns or holds under lease and to perform all of its obligations under the agreements material to the operation of the Business to which it is a party, including, without limitation, this Agreement, the Note and the Security Agreement. The Borrower is in good standing in each other jurisdiction wherein the failure so to qualify 16 20 would have a Material Adverse Effect. The copies of the certificate of incorporation and by-laws of the Borrower which have been delivered to the Lender by the Borrower are complete and correct. Section 4.2 AUTHORIZATION. The execution and delivery by the Borrower of the Loan Documents to which it is a party, and each of them, the performance by the Borrower of its covenants and agreements under the Loan Documents to which it is a party, and each of them, and the consummation by the Borrower of the transactions contemplated by the Loan Documents to which it is a party, and each of them, have been duly authorized by all necessary corporate action. When executed and delivered by the Borrower, the Loan Documents, and each of them, shall constitute the valid and legally binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as may be limited by bankruptcy, insolvency or other laws affecting generally the enforceability of creditors' rights and by limitations on the availability of equitable remedies. Section 4.3 CONFLICTS. Neither the execution and delivery of the Loan Documents, nor any of them, nor the consummation by the Borrower of the transactions contemplated in the Loan Documents, nor any of them, will violate any provision of the certificate of incorporation or by-laws of the Borrower or any law, rule, regulation, writ, judgment, injunction, decree, determination, award or other order of any court, government, or governmental agency or instrumentality, domestic or foreign, binding upon the Borrower, or except as set forth under Schedule 4.3 annexed hereto, conflict with or result in any breach of or event of termination under any of the terms of, or the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature pursuant to, the terms of any contract (except for the liens created by the Security Agreement) or agreement to which the Borrower is a party or by which the Borrower or any of its properties or assets is bound which in any case would cause a Material Adverse Effect. Without limiting the generality of the foregoing, the consummation by the Borrower of the transactions contemplated by this Agreement will not result in violation by the Borrower of any covenant contained in the Subordinated Notes, and the Subordinated Notes and the amounts payable thereunder, including principal, premium, if any, and accrued interest shall be subordinate and junior to the Loan, and all interest thereon, and all other amounts due under this Agreement. None of the transactions contemplated in this Agreement (including, without limitation, the use of the proceeds of the Loan) violates, shall violate or shall result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including, without limitation, Regulations T, U and X of the Board of Governors of the Federal Reserve System. Section 4.4 CAPITALIZATION. The authorized capital stock of the Borrower consists of (i) 25,000,000 shares of Common Stock and (ii) 1,500,000 shares of preferred stock, of which (A) 150,000 shares have been designated Series B Convertible Preferred Stock, (B) 150,000 shares have been designated Series C Convertible Preferred Stock and (C) 150,000 shares have been designated Series D Convertible Preferred Stock. As of the date hereof and at the Closing 17 21 Date, 4,742,923 shares of Common Stock are and will be issued and outstanding, 55,311 shares of Series B Convertible Preferred Stock are and will be issued and outstanding, 73,784 shares of Series C Convertible Preferred Stock are and will be issued and outstanding and 20,265 shares of Series D Convertible Preferred Stock will be issued and outstanding, respectively. All of the outstanding shares of the capital stock of the Borrower are validly issued, fully paid and non-assessable. As of the date hereof and at the Closing Date, the following additional securities are and will be issued and outstanding: (i) options to purchase an aggregate of 627,335 shares of Common Stock, (ii) warrants to purchase 2,773,901 shares of Common Stock, and (iii) subordinated debentures convertible into an aggregate of 1,085,094 shares of Common Stock. There are no other scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights exchangeable or convertible into, any shares of capital stock of the Borrower, or contracts, commitments, understandings or arrangements by which the Borrower is or may become bound to issue additional shares of capital stock of the Borrower or options, warrants, scrip, rights to subscribe to, or commitments to purchase or acquire, any shares, or securities or rights convertible into shares, of capital stock of the Borrower (except as contemplated by this Agreement). No event has occurred prior to the date hereof which, subsequent to the date hereof, will cause any adjustment in any conversion or exercise price or ratio with respect to any such securities pursuant to any anti-dilution provisions thereunder, nor as a result of any such event, will the number of shares of capital stock issuable upon such conversion or such exercise, as the case may be, be subject to adjustment. Section 4.5 SUBSIDIARIES. The Borrower does not, directly or indirectly, beneficially or legally own or hold any capital stock or other proprietary interest in any corporation, partnership, joint venture, business trust or other legal entity. Section 4.6 SEC DOCUMENTS; FINANCIAL STATEMENTS. The Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and the Borrower has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the Commission pursuant to the reporting requirements of the Exchange Act, including material filed pursuant to Section 13(a) or 15(d), in addition to one or more registration statements and amendments thereto heretofore filed by the Borrower with the Commission (all of the foregoing including filings incorporated by reference therein being referred to herein as the "SEC Documents"). The Borrower has delivered or made available to the Lender true and complete copies of all SEC Documents (including, without limitation, proxy information and solicitation materials and registration statements) filed with the Commission since September 27, 1996 and all annual SEC Documents filed with the Commission since September 27, 1996. Without 18 22 limiting any other representation or warranty herein, the Borrower has not provided the Lender with any information which, according to applicable law, rule or regulation, should have been disclosed publicly by the Borrower but which has not been so disclosed. As of their respective dates, the SEC Documents (as amended by any amendments filed prior to the Closing Date and provided to the Lender) complied in all material respects with the requirements of the Securities Act and the Exchange Act, and other federal, state and local laws, rules and regulations applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Borrower included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with Generally Accepted Accounting Principles applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Borrower as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Section 4.7 TAXES. Except as set forth on Schedule 4.7 annexed hereto, the Borrower has filed or caused to be filed all federal, state, municipal, foreign and other tax returns, reports and declarations, or extensions therefor, required to be filed by it, so as to prevent any valid lien, charge or encumbrance of any nature on its assets or properties and, except as set forth on Schedule 4.7 annexed hereto, has paid or shall pay all taxes which have been or shall become due with respect to the periods covered by said returns or pursuant to any assessment received by it in connection therewith, which lien, charge, encumbrance or failure to pay would, individually, or in the aggregate, have a Material Adverse Effect. Except as set forth on Schedule 4.7 annexed hereto, all assessments and charges (including penalties and interest, if any) related to periods ended on or before December 31, 1999 have been or will be paid by the Borrower, including any necessary adjustments with state and local tax authorities, the failure to pay which would, individually, or in the aggregate, have a Material Adverse Effect, and except as set forth on Schedule 4.7 annexed hereto, no material deficiency in payment of any taxes for any period has been asserted by any taxing authority which remains unsettled at the date hereof. Section 4.8 TITLE; CREDIT ARRANGEMENTS; DEFAULTS. The Borrower has good, valid, and marketable title to all assets and properties owned by it and material to its business, in each case free and clear of all Liens other than (i) Liens created pursuant to the Subordinated Secured Loan, (ii) Liens in favor 19 23 of the Lender, (iii) the Permitted Encumbrances, and (iv) Liens specifically permitted by the Lender in writing, and, without limiting the foregoing, the assets and properties owned by the Borrower and shown on the balance sheet as of and at September 30, 2000 included in the SEC Documents which are, individually, or in the aggregate, material to the Borrower's business or condition, are owned by the Borrower, in each case free and clear of all Liens other than (i) Liens created pursuant to the Subordinated Secured Loan, (ii) Liens in favor of the Lender, (iii) the Permitted Encumbrances, and (iv) Liens specifically permitted by the Lender in writing. The Borrower leases or owns all material properties and assets necessary for the operation of its business as currently conducted. Set forth on Schedule 4.8 attached hereto is a list of all contracts, agreements, mortgages, arrangements (written or oral), and other documents to which the Borrower is a party or by which the Borrower or any of its assets or properties is or may be bound, with respect to obligations of the Borrower for borrowed money or guaranties therefor, or any restriction on the repayment of indebtedness incurred or on the payment of dividends on any securities of any such entity. No event has occurred, or, is alleged to have occurred, which constitutes or with lapse of time or giving of notice or both, would constitute a default or a basis for a claim of FORCE MAJEURE or other claim of excusable delay or non-performance under any of the foregoing; and no such event has occurred, or is alleged to have occurred, under any other contract, agreement, license, lease, or other document to which the Borrower is a party, which would, individually or in the aggregate, have a Material Adverse Effect. Section 4.9 EMPLOYEE BENEFIT PLANS. All Benefit Plans and all Multiemployer Plans in which the employees of the Borrower participate comply in all material respects with all requirements of the Department of Labor and the Internal Revenue Service promulgated under ERISA and with all other applicable law. The Borrower does not have any employees covered by any Multiemployer Plan. The Borrower has not taken or failed to take any action with respect to the Benefit Plans which might create any liability on the part of the Borrower which, individually, or in the aggregate, would have a Material Adverse Effect. Each "fiduciary" (within the meaning of section 3(21)(A) of ERISA) as to each Benefit Plan and, to the best of the knowledge of the Borrower, as to each Multiemployer Plan, has complied in all material respects with the requirements of ERISA and all other applicable law in respect of each such Plan. In addition: (i) No Defined Benefit Plan or, to the best of the knowledge of the Borrower, any Multiemployer Plan, has incurred an "accumulated funding deficiency" (within the meaning of section 412(a) of the Code), whether or not waived; (ii) No "reportable event" (within the meaning of section 4043 of ERISA) has occurred with respect to any Benefit Plan or, to the best of the knowledge of the Borrower, any Multiemployer Plan; there have been no 20 24 terminations of any Defined Benefit Plan or, to the best of the knowledge of the Borrower, any Multiemployer Plan, or any related trust; and no such termination of any of the foregoing reasonably can be expected to occur; (iii) No "prohibited transaction" (within the meaning of section 406 of ERISA or section 4975(c) of the Code) has occurred with respect to any Benefit Plan, or to the best of the knowledge of the Borrower, any Multiemployer Plan; (iv) The aggregate present value of accrued benefits of the Defined Benefit Plans is not more than the aggregate value of the assets of such plans; there has been no withdrawal liability incurred by the Borrower with respect to any Multiemployer Plans; and the Borrower has not withdrawn (partially or totally within the meaning of ERISA) from any Multiemployer Plan; and (v) Other than claims in the ordinary course for benefits with respect to any Benefit Plan, or, to the best of the knowledge of the Borrower, any Multiemployer Plan, there are no actions, suits, or claims pending with respect to any Plan or any circumstances known to the Borrower which might give rise to any such action, suit, or claims, which, individually, or in the aggregate, would have a Material Adverse Effect. Section 4.10 DISPUTES AND LITIGATION. There is no action, suit, proceeding, or claim, pending or, to the knowledge of the Borrower, threatened, and no investigation by any court or government or governmental agency or instrumentality, domestic or foreign, pending or, to the best of the knowledge of the Borrower, threatened, against the Borrower before any court, government or governmental agency or instrumentality, domestic or foreign, nor is there any outstanding order, writ, judgment, stipulation, injunction, decree, determination, award, or other order of any court or government or governmental agency or instrumentality, domestic or foreign, against the Borrower, in each case which would have, individually or in the aggregate, a Material Adverse Effect. Without limiting any other representation or warranty herein, all claims, actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against the Borrower before any court, governmental agency or instrumentality, domestic or foreign, are covered by, and within the limits of coverage of, insurance maintained by the Borrower. The use by the Borrower of its assets and the conduct of its business does not, to its knowledge, involve infringement or claimed infringement of any patent, trademark, servicemark, tradename, copyright, license or similar right. 21 25 Section 4.11 COMPLIANCE WITH LAW; LICENSES; FRANCHISES; ENVIRONMENTAL LAWS. (a) The Borrower is not, and is not directly or indirectly controlled by or acting on behalf of any party which is, an "investment company" within the meaning of the U.S. Investment Company Act of 1940, as amended. (b) The Borrower has (or has made timely application for) all franchises, licenses, permits and other governmental and non-governmental approvals necessary to enable it to carry on its business and operations as currently conducted, the failure to have which would, individually or in the aggregate, have a Material Adverse Effect. All such franchises, licenses, permits, and governmental and other approvals are in full force and effect, there has been no material default or breach thereunder, and there is no pending or, to the best of the knowledge of the Borrower, threatened proceeding under which any may be revoked, terminated or suspended. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby, will not conflict with, contravene or terminate any such franchises, licenses, permits or governmental or other approvals. The Borrower has not violated, nor is alleged to have violated, any law, rule, regulation, judgment, stipulation, injunction, decree, determination, award or other order of any government, or governmental agency or instrumentality, domestic or foreign, binding upon the Borrower which violation, individually or in aggregate, might have a Material Adverse Effect. (c) Neither the consummation of the transactions contemplated by this Agreement nor, to the knowledge of the Borrower, any real property utilized by the Borrower nor, to the knowledge of the Borrower, any condition thereon violates any Environmental Laws, other than any such violations which would not have a Material Adverse Effect, and no provisions of any Environmental Laws or regulations in any way affect the consummation of the transactions contemplated by this Agreement. Section 4.12 USE OF PROCEEDS. The Borrower shall apply the proceeds of the Revolving Credit Loan solely in connection with the satisfaction of the GBCC Indebtedness and for general corporate purposes and working capital. Section 4.13 PRINCIPAL EXCHANGE/MARKET. The principal market on which the Common Stock is currently traded is Nasdaq. Section 4.14 NO MATERIAL ADVERSE CHANGE. Since September 30, 2000, the date through which the most recent quarterly report of the Borrower on Form 10-QSB has been prepared and filed with the Commission, a copy of which is included in the SEC Documents, no event which had or is likely to have a Material Adverse Effect has occurred or exists with respect to the Borrower. Section 4.15 NO UNDISCLOSED LIABILITIES. The Borrower does not have any liabilities or obligations not disclosed in the SEC Documents other than those 22 26 liabilities incurred in the ordinary course of their respective businesses since September 30, 2000 or liabilities or obligations, individually or in the aggregate, which do not or would not have a Material Adverse Effect on the Borrower. Section 4.16 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstances has occurred or events with respect to the Borrower, or its business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement of the Borrower which has not been publicly announced or disclosed. Section 4.17 BROKERS. The Borrower has taken no action which would give rise to any claim by any Person for brokerage commissions, finder's fees or similar payments relating to this Agreement or the transactions contemplated hereby. Section 4.18 DISCLOSURE. The Borrower has heretofore given Lender access to all information which it has requested regarding the business and affairs of the Borrower. No representation or warranty made under any provisions of the Loan Documents, or any of them, and none of the information furnished by the Borrower set forth herein, in the exhibits or schedules hereto or in any document specifically referenced in this Agreement and delivered to the Lender, or any authorized representative of the Lender, pursuant to this Agreement, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE LENDER The Lender represents, warrants and covenants to the Borrower that: Section 5.1 FORMATION. The Lender is duly organized, validly existing and in good standing under the laws of its jurisdiction of formation, and has full power and authority to advance the Revolving Credit Loan and to perform its obligations under the Loan Documents, and each of them. Section 5.2 AUTHORIZATION. The execution and delivery of the Loan Documents, and each of them, by Lender, the performance by Lender of its covenants and agreements under the Loan Documents, and each of them, and the consummation by Lender of the transactions contemplated by the Loan Documents, and each of them, have been duly authorized by all necessary action. When executed and delivered by Lender, the Loan Documents, and each of them, will constitute the valid and legally binding obligations of Lender enforceable against Lender in accordance with their respective terms, except as may be 23 27 limited by bankruptcy, insolvency, or other laws affecting generally the enforceability of creditors' rights and by limitations on the availability of equitable remedies. Section 5.3 CONFLICTS. Neither the execution and delivery of the Loan Documents, nor any of them, nor the consummation of the transactions contemplated in the Loan Documents, nor any of them: will violate any provision of the organizational documents of Lender or any law, rule, regulation, writ, judgment, injunction, decree, determination, award, or other order of any court, government or governmental agency or instrumentality, domestic or foreign, binding upon Lender; or conflict with or result in any breach of any of the terms of, or constitute a default under or result in the termination of or the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature pursuant to, the terms of any contract or agreement to which Lender is a party or by which Lender or any of its assets and properties is bound, which breach, default, termination, creation, imposition, or other charge or encumbrance would, individually or in the aggregate, have a material adverse impact on the ability of Lender to consummate the transactions contemplated by the Loan Documents. ARTICLE VI AFFIRMATIVE COVENANTS Section 6.1 GENERAL COVENANTS. The Borrower covenants and agrees with the Lender that, until the Maturity Date and thereafter for as long as any portion of the Revolving Credit Loan shall remain outstanding and until the full and final payment of the Revolving Credit Loan: (a) The Borrower shall punctually pay or cause to be paid the principal of and interest on the Revolving Credit Loan according to the terms hereof and of the Note. (b) The Borrower shall comply with and perform each and every covenant contained in the Security Agreement. (c) Contemporaneously with the formation or acquisition of any Subsidiary, the Borrower shall cause such Subsidiary to guarantee the Revolving Credit Loan, and to join in the Security Agreement in order to secure such guaranty, in each case in form and substance in all respects satisfactory to the Lender. (d) The Borrower shall and shall cause each Subsidiary to: (i) pay and discharge promptly, or cause to be paid and discharged promptly all taxes, assessments and governmental charges or levies imposed upon it or upon its income or upon any of its property, real, personal or mixed, or upon any part thereof, as well as all claims of any kind (including claims for labor, materials and 24 28 supplies which, if unpaid, might by law become a lien or charge upon its property), provided, however, that it shall not be required to pay any such tax, assessment, charge, levy or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings, and if required under Generally Accepted Accounting Principles, if it shall have set aside on its books reserves (segregated to the extent required by sound accounting practice) reasonably deemed by it adequate with respect thereto; (ii) do or cause to be done all things necessary or appropriate to preserve and keep in full force and effect its corporate existence, rights and material franchises, and use its best efforts to qualify as a foreign corporation entitled to do business in every jurisdiction in which the failure so to qualify would, individually or in the aggregate, have a Material Adverse Effect; (iii) maintain its used and useful properties in good working order and condition, and in compliance with all contractual obligations with respect thereto; (iv) keep its real and personal properties adequately insured with sound and reputable insurers in compliance with all contractual obligations with respect thereto, and in all cases to the extent and against such material risks (including fire and other risks commonly insured against by extended coverage) as should be maintained in accordance with good business practice so as not materially to differ, in a manner that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect on it, from insurance customarily maintained by companies in the same or similar businesses; and maintain in full force and effect public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it; (v) comply with all applicable national, federal, state, county and municipal laws, ordinances, rules, and regulations now in force or hereafter enacted (except those being contested in good faith by appropriate proceedings), including, without limitation, any and all Environmental Laws, and take all action with respect to each Benefit Plan in which its employees participate required by applicable law; and (vi) maintain its books, accounts and records in accordance with Generally Accepted Accounting Principles and permit any person or entity designated by reasonable, advance notice from the Lender to visit and inspect at reasonable hours any of its properties, books and financial records, and to make copies thereof and take extracts therefrom. 25 29 Section 6.2 FINANCIAL AND OTHER INFORMATION. The Borrower covenants and agrees with Lender that, until the Maturity Date and thereafter for as long as any portion of the Revolving Credit Loan shall remain outstanding and until the full and final payment of the Revolving Credit Loan, the Borrower shall furnish to Lender: (a) without limiting any provision contained in the Security Agreement, on the date which falls five business days after each such period, in form satisfactory to the Lender, in its reasonable discretion, a report, as of the close of the preceding bi-weekly calendar period, including: (x) a detailed aging report setting forth the amounts due and owing on all Accounts, on the books and records of the Borrower and on the books and records of any Subsidiary, together with a reconciliation report satisfactory to the Lender showing all sales, collections, payments and adjustments to Accounts, on the books and records of the Borrower and on the books and records of any Subsidiary, as of the close of such bi-weekly calendar period, (y) a detailed report of the amount of all Inventory, on the books and records of the Borrower and on the books and records of any Subsidiary, and (z) the Royalty then payable and scheduled due date of each component thereof, together with the units of Equipment and Royalty Rate (as those terms are defined under the Safety-Kleen Agreement) giving rise thereto, in each case under this paragraph (a) with a Borrowing Base Certificate duly executed and delivered on behalf of the Borrower; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, unaudited balance sheets of the Borrower and its Subsidiaries as of the end of such quarter and unaudited statements of operations and cash flows for such quarter and for the period commencing at the end of the previous fiscal year and ending with the end of such quarter (all in reasonable detail and with all notes and supporting schedules), certified by the chief financial officer of the Borrower as presenting fairly the financial condition of the Borrower and the Subsidiaries as of the dates and for the periods indicated and as having been prepared in accordance with Generally Accepted Accounting Principles consistently applied, except as may be otherwise disclosed in such financial statements or the notes thereto; provided that the delivery within the time periods specified above of the Borrower's Quarterly Report on either Form 10-QSB or 10-Q prepared in compliance with the requirements therefor and filed with the Commission shall be deemed to satisfy the requirements of this Section 6.2(b); (c) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, audited consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such year and audited consolidated statements of operations, cash flows and changes in stockholders' equity for such year (all in reasonable detail and with all notes and supporting schedules), certified without qualification by KPMG Peat Marwick LLP or such other independent public accountants satisfactory to the Lender, as 26 30 presenting fairly the financial condition of the Borrower and the Subsidiaries as of the dates and for the periods indicated and as having been prepared in accordance with Generally Accepted Accounting Principles consistently applied, except as may be otherwise disclosed in such financial statements or the notes thereto; provided that the delivery within the time period specified above of the Borrower's Annual Report on either Form 10-KSB or 10-K prepared in compliance with the requests therefor and filed with the Commission shall be deemed to satisfy the requirements of this Section 6.2(c); (d) concurrently with the financial statements furnished pursuant to clauses (b) and (c) of this Section 6.2, a certificate of the chief executive officer or the chief financial officer of the Borrower stating that no Event of Default hereunder and no event or act which, with the giving of notice or the passage or lapse of time, or both, would constitute such an Event of Default or other event shall exist, specifying all such events, and the circumstances thereof, and the steps if any being taken to remedy the same; (e) promptly upon their becoming available, copies of all financial statements, reports, notices, proxy statements and other communications sent by the Borrower to stockholders or to creditors generally, and copies of each regular or periodic report and any registration statements, prospectuses or written communication (other than transmittal letters) filed by the Borrower with the Commission or any successor agency; and with such other information relevant to the financial condition, properties and operations of the Borrower or any of the Subsidiaries as any Lender may from time to time reasonably request; and (f) prompt written notice after any officer of the Borrower knows or has reason to know that: (i) a default or an Event of Default hereunder, or any condition, event or act which with the giving of notice or the passage or lapse of time, or both, would constitute such an Event of Default, has occurred and is continuing, together with a specification of the same and the steps if any being taken to remedy the same; or (ii) any other circumstances or event has or is reasonably likely to have a Material Adverse Effect. Section 6.3 BUDGETS. Prior to the initial Borrowing Request and thereafter at least 30 days prior to the commencement of each succeeding fiscal year, the Borrower shall prepare and submit to the Lender, for review, operating and capital budgets setting forth the Borrower's projection of its cash receipts for such year on a monthly or quarterly basis (and those of its Subsidiaries), together with a detailed summary of its operating expenses and detailed summary of capital expenditures (and those of its Subsidiaries) projected by Borrower for such year on a monthly or quarterly basis. None of the Borrower, nor any 27 31 Subsidiary, shall incur any expenses other than those projected in budgets submitted by the Borrower pursuant to this Section 6.3 and shall not incur any expenses so projected until such budget has been reviewed and approved by the Lender (which approval shall not be unreasonably withheld or delayed). From time to time, the Borrower may submit to the Lender, for review, one or more supplements to or revisions of a budget approved as aforesaid. None of the Borrower, nor any Subsidiary, shall incur any expenses projected in any such supplement or revision until such supplement or revision has been reviewed and approved by the Lender (which approval shall not be unreasonably withheld or delayed). Each budget, which is approved by the Lender is called herein an "Approved Budget". ARTICLE VII NEGATIVE COVENANTS Section 7.1 GENERAL COVENANTS. The Borrower covenants and agrees with the Lender that, until the Maturity Date, and thereafter for as long as any portion of the Revolving Credit Loan shall remain outstanding and until the full and final payment of the Revolving Credit Loan, neither Borrower nor any Subsidiary shall: (a) create, incur, assume, suffer to exist, or become obligated for any Debt, other than the Subordinated Notes and the Subordinated Secured Loan, and except for unsecured indebtedness to trade creditors in the ordinary course of business; (b) create, incur or allow any Liens on any of its property or assets except: (i) existing Liens securing the Subordinated Secured Loan; (ii) Liens in favor of the Lender; and (iii) Permitted Encumbrances; (c) without limiting any provision of Paragraph (e) of this Section 7.1, directly or indirectly in any year pay or declare as dividends or other distributions on any class of its capital stock or other proprietary interest, or exchange or expend in redemption or purchase of any shares of its capital stock or other proprietary interest, any cash or property (except its own equity), or make any loans, advances or extensions of credit to any Affiliate (or to any other Person except in the ordinary course of business), or guaranty, endorse or otherwise be or become contingently liable in connection with any amounts therefor; (d) engage in any business other than the Business or cause or permit a change in the nature of the Business as conducted on the date hereof; (e) enter into any transaction with any Affiliate except upon fair and reasonable terms no less favorable, directly or indirectly, to the Borrower than would obtain in a comparable arms-length transaction with a person not an Affiliate; 28 32 (f) enter into any merger or consolidation, or sell, lease or otherwise dispose of all or substantially all of its assets or enter into any transaction outside the ordinary course of its business; (g) change its present accounting principles or practices, except as may be required by Generally Accepted Accounting Principles; (h) enter into any agreement containing any provisions that would be violated by the performance by the Borrower, of its obligations under this Agreement, the Note or any other Loan Document, or amend its certificate of incorporation or by-laws in any manner that might reasonably be expected to cause such a violation; (i) amend, modify or waive any provisions of the Safety-Kleen Agreement in a manner adverse to the Borrower or the Lender or which would increase the amount of the Royalty; or (j) enter into any transaction described under clauses (i) through (iii), inclusive, of Section 2.3(b) of the Shareholders Agreement, whether or not such agreement is then in effect, without the prior written consent of the Lender. ARTICLE VIII EVENTS OF DEFAULT Section 8.1 EVENTS OF DEFAULT. The entire unpaid principal amount of the Revolving Credit Loan, together with all accrued interest thereon, at the option of the Lender exercised by notice to the Borrower, shall forthwith become and be due and payable if any one or more of the following events (herein called "Events of Default") shall have occurred (for any reason whatsoever and whether such happening shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) and be continuing at the time of such notice, that is to say: (a) if default shall be made in the due and punctual payment of the principal of or interest on the Revolving Credit Loan when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, and such default shall have continued for a period of ten days; (b) if any representation or warranty made by the Borrower in any of the Loan Documents shall prove to have been false, incorrect or misleading in any material respect on the date as of which is made; (c) if default shall be made in the performance or observance of any of the other covenants, agreements or conditions of the Borrower contained in this Agreement, the Note or in any other Loan Document, and such 29 33 default shall have continued for a period of 30 days after notice thereof by the Lender to the Borrower; (d) if this Agreement, the Note or any other Loan Document shall cease to be enforceable in accordance with its terms against the Borrower; (e) if (i) the Borrower or any Subsidiary shall default beyond any period of grace provided with respect thereto in the payment of principal of, premium, if any, or interest on any obligation in an amount in excess of $250,000 in respect of borrowed money when due, whether by acceleration or otherwise (including, without limitation, in connection with the Subordinated Secured Loan or the Subordinated Notes); or (ii) the Borrower or any Subsidiary shall default in the performance or observance of any other agreement, term or condition contained in such obligation or in any agreement under which any such obligation is created, if the effect of any such default is to cause or permit the holder or holders of such obligations (or a trustee on behalf of such holder or holders) to cause such obligation to become due prior to the date of its stated maturity, unless, in the case of each of (i) and (ii), such holder or holders or trustee shall have waived such default after its occurrence or unless such holder or holders or trustee shall have failed to give any notice, or take any other action, required to create an event of default thereunder; (f) if final judgment for the payment of money in excess of $250,000 shall be rendered by a court of record against the Borrower or any Subsidiary and not be covered by insurance maintained by the Borrower or such Subsidiary, and the Borrower or such Subsidiary, respectively, shall not discharge the same or provide for its discharge in accordance with its terms, or shall not procure a stay of execution thereon within 30 days from the date of entry thereof and, within the period during which execution of such judgment shall have been stayed, appeal therefrom, and cause the execution thereof to be stayed during such appeal; (g) if the Borrower or any Subsidiary shall: (i) admit in writing its inability to pay its debts generally as they become due; (ii) file a petition in bankruptcy or a petition to take advantage of any insolvency act; (iii) make an assignment for the benefit of creditors; (iv) consent to the appointment of a receiver of itself or of the whole or any substantial part of its property; or 30 34 (v) file a petition or answer seeking reorganization or arrangement under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any State, district or territory thereof; (h) if a court of competent jurisdiction shall enter, except at the direct or indirect request of the Lender, an order, judgment, or decree appointing, without the consent of the Borrower or any Subsidiary, a receiver of the Borrower or any Subsidiary, respectively, or of the whole or any substantial part of its property, or approving a petition filed against it seeking reorganization or arrangement of the Borrower or any Subsidiary under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any State, district or territory thereof, or any other jurisdiction, and such order, judgment or decree shall not be vacated or set aside or stayed within 60 days from the date of entry thereof; (i) if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Borrower or any Subsidiary or of the whole or any substantial part of its property and such custody or control shall not be terminated or stayed within 60 days from the date of assumption of such custody or control; or (j) if the Lender shall reasonably feel insecure for any material reason whatsoever, including, without limitation, fear of removal or waste of the collateral, or any part thereof, covered by the Security Agreement. Section 8.2. ENFORCEMENT. In the case any one or more of the Events of Default specified in Section 8.1 hereof shall have occurred and be continuing, the Lender may proceed to protect and enforce their respective rights either by suit in equity and/or by action at law, whether for the specific performance of any covenant or agreement contained in this Agreement, its Note or its rights under any other Loan Document, or the Lender may proceed to enforce the payment of all Obligations or to enforce any other legal or equitable right of the Lender. The Borrower hereby expressly waives presentment, demand or notice of any kind in connection with the exercise by the Lender of its rights hereunder, except as explicitly provided herein. In the event an Event of Default shall have occurred and any holder of a Note shall employ attorneys, or incur other costs and expenses for the collection of payments due or to become due, or for the enforcement or performance or observance of any obligation or agreement of the Borrower, the Borrower agrees that it will pay to such holder, on demand, the reasonable fees of such attorney together with all other costs and expenses incurred by such holder. Section 8.3 WAIVER OF JURY TRIAL. THE BORROWER HEREBY WAIVES ANY AND ALL RIGHTS THAT IT MAY NOW OR HEREAFTER HAVE UNDER THE LAWS OF THE UNITED STATES 31 35 OF AMERICA OR ANY STATE OR OTHER JURISDICTION, TO A TRIAL BY JURY OF ANY AND ALL ISSUES ARISING EITHER DIRECTLY OR INDIRECTLY IN ANY ACTION OR PROCEEDING BETWEEN THE BORROWER, THE LENDER OR ITS SUCCESSORS AND ASSIGNS, OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. IT IS INTENDED THAT SAID WAIVER SHALL APPLY TO ANY AND ALL DEFENSES, RIGHTS, AND/OR COUNTERCLAIMS IN ANY ACTION OR PROCEEDING. ARTICLE IX MISCELLANEOUS Section 9.1 MODIFICATION OF AGREEMENT. No modification, amendment or waiver of any provision of, nor any consent required by, this Agreement, nor any consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender and then such modification, amendment, waiver or consent shall be effective only in the specific instance and for the purpose which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in the same, similar or other circumstances. Section 9.2 REMEDIES CUMULATIVE, ETC. No right, power or remedy herein conferred upon or reserved to the Lender is intended to be exclusive of any other right, power or remedy or remedies, and each and every right, power and remedy of the Lender pursuant to this Agreement, or the other Loan Documents, now or hereafter existing at law or in equity or by statute or otherwise shall, to the extent permitted by law, be cumulative and concurrent and shall be in addition to every other right, power or remedy pursuant to this Agreement, or the other Loan Documents, or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Lender of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by the Lender of any or all such other rights, powers or remedies. Section 9.3 NO WAIVER, ETC. To the fullest extent permitted by law, no failure or delay by the Lender to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement or the other Loan Documents, or to exercise any right, power or remedy hereunder or thereunder or consequent upon a breach hereof or thereof, shall constitute a waiver of any such term, condition covenant, agreement, right, power or remedy or of any such breach, or preclude the Lender from exercising any such right, power or remedy at any later time or times. Section 9.4 NOTICES. All notices, requests or instructions hereunder shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by telecopy (or like transmission) as follows: 32 36 (1) if to the Borrower: 8305 N.W. 27th Street Suite 107 Miami, Florida 33122 Telecopy No: (305) 593-8018 Attention: Paul I. Mansur, Chief Executive Officer with a copy to: Ira N. Rosner, Esq. Greenberg Traurig, P.A. 1221 Brickell Avenue Miami, Florida 33131 Telecopy No: (305)579-0717 (2) if to the Lender: Hansa Finance Limited Liability Company 450 Park Avenue, Suite 2302 New York, New York 10022 Attention: Paul A. Biddelman Telecopy No: (212)223-2425 with a copy to: Howard Kailes, Esq. Krugman & Kailes LLP Park 80 West - Plaza Two Saddle Brook, New Jersey 07663 Telecopy No: (201) 845-3434 Any notice so addressed and mailed shall be deemed to be given when so mailed. Any notices addressed and otherwise delivered shall be deemed to be given when actually received by the addressee. Any of the above addresses or telecopy numbers may be changed at any time by notice given as provided above; provided, however, that any such notice of change of address shall be effective only upon receipt. Section 9.5 SURVIVAL OF REPRESENTATIONS. Each representation, warranty, covenant and agreement of the parties hereto herein contained shall survive the Closing Date and each Revolving Credit Borrowing, notwithstanding any investigation at any time made by or on behalf of any party hereto. Section 9.6 ENTIRE AGREEMENT. This Agreement and the other Loan Documents referred to herein contain the entire agreement between the parties hereto with respect to the transactions contemplated hereby, and supersede all 33 37 prior understandings, arrangements and agreements with respect to the subject matter hereof. Section 9.7 EXPENSES. The Borrower shall promptly pay, or reimburse the Lender on demand for, all out-of-pocket fees and expenses incurred by it, including, without limitation, the reasonable fees and expenses of counsel to the Lender, in connection with the negotiation, preparation, execution and delivery of this Agreement and the other Loan Documents and any other instruments and documents required hereunder and thereunder (whether or not the transactions contemplated hereby shall be consummated). The Borrower shall also reimburse the Lender, for all out-of-pocket fees and expenses incurred by it, including without limitation the reasonable fees and expenses of counsel, in the enforcement of this Revolving Credit Loan Agreement or the other Loan Documents. Section 9.8 BENEFIT OF AGREEMENT. This Revolving Credit Loan Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Borrower may not assign any of its rights or obligations under this Agreement or the other Loan Documents without the prior written consent of the Lender. Without limiting the generality of the foregoing and notwithstanding any other provision contained in this Agreement or the other Loan Documents, the Lender may, at any time, sell or otherwise assign all or any part of the Note and any related rights hereunder and under any of the Loan Documents to its Affiliates and, with the prior written consent of the Borrower (which shall not be unreasonably withheld or delayed) to any non-Affiliate. The foregoing shall not in any manner restrict the grant of any participating interest therein and in any related rights hereunder and under any of the Loan Documents. Section 9.9 GOVERNING LAW. This Revolving Credit Loan Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable in the case of agreements made and to be performed entirely within such state. Section 9.10 CAPTIONS. The captions appearing herein are for the convenience of the parties only and shall not be construed to affect the meaning of the provisions of this Agreement. Section 9.11 SEVERABILITY. (a) In the event that one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision and never been contained herein. (b) Without limiting the generality of the foregoing and notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, the Borrower shall not be obligated to pay, and the Lender 34 38 shall not charge, reserve, collect or receive interest (which shall be calculated as the aggregate of all charges which constitute interest under applicable law) in excess of the maximum non-usurious interest rate, as in effect from time to time, which may be charged, reserved, received or collected by the Lender in connection with this Agreement or any Loan Document. During any period of time in which the interest rates specified herein may exceed the maximum rate as aforesaid, interest shall accrue and be payable at such maximum rate; provided, however, that if the interest rate payable hereunder declines below the maximum rate as aforesaid, interest shall continue to accrue and be payable at such maximum rate until the interest that has been paid by the Borrower hereunder and under the other Loan Documents equals the amount of interest that would have been paid if interest had at all times accrued and been payable at the applicable interest rate specified in this Agreement and the other Loan Documents. In the event that the Lender shall collect from the Borrower any amount which is deemed to constitute interest at a rate in excess of the maximum rate as aforesaid, all such excess amounts shall be credited to the payment of outstanding principal advanced to the Borrower pursuant to this Agreement and the other Loan Documents. Section 9.12 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, this Revolving Credit Loan Agreement has duly executed by the parties hereto as of the date first-above written. SYSTEMONE TECHNOLOGIES INC. By ---------------------------------------- HANSA FINANCE LIMITED LIABILITY COMPANY By: Hansabel Partners LLC By: Hanseatic Corporation By ---------------------------------------- 35 EX-10.18 13 g68025ex10-18.txt FORM OF REVOLVING CREDIT NOTE 11/30/00 1 EXHIBIT 10.18 SYSTEMONE TECHNOLOGIES INC. REVOLVING CREDIT NOTE $5,000,000 November 30, 2000 SECTION 1. GENERAL. SYSTEMONE TECHNOLOGIES INC., a Florida corporation (hereinafter referred to as the "Borrower"), with offices at 8305 N.W. 27th Street, Suite 107, Miami, Florida 33122, for value received, hereby promises to pay to Hansa Finance Limited Liability Company, with offices at 450 Park Avenue, Suite 2302, New York, New York 10022, or order, the principal amount of Five Million Dollars ($5,000,000), or the amount of all outstanding advances hereunder, whichever is lesser in amount, the entire principal balance of which shall be due and payable on May 30, 2003 (subject to optional and mandatory prepayment in whole or in part in the manner hereinafter referenced), in such coin or currency of the United States of America as at the time of payment shall be legal tender therein for payment of public and private debts; and, to pay interest on the unpaid balance of the principal amount hereof, as set forth in the Loan Agreement hereinafter described, at the rate per annum equal to 14%, in like coin or currency, monthly in arrears commencing on December 31, 2000 (the payment due on such date to include all accrued interest from the date hereof) and on the last day of each calendar month thereafter, and together with final payment of all remaining principal hereunder, and to pay interest at such rate on any overdue principal and (to the extent permitted by law) on any overdue interest, from the due date thereof until the obligation of the Borrower with respect to the payment thereof shall be discharged; all payments and prepayments of principal of this Note and all payments of the interest on this Note to be made at 450 Park Avenue, Suite 2302, New York, New York 10022, or such other location as shall be specified in writing by the holder of this Note to the Borrower. SECTION 2. REVOLVING CREDIT BORROWINGS. All Revolving Credit Borrowings (as defined in the Loan Agreement hereinafter described) and payments of interest and principal thereon shall be recorded by the holder of this Note and endorsed on Schedule A attached hereto, which is hereby made a part of this Note; provided, however, that the failure of the holder of this Note to make any such endorsement shall not in any manner affect the obligation of the Borrower to repay this Note in accordance with the terms of the Loan Agreement and the terms hereof. SECTION 3. GOVERNING LAW. This Note shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such state. SECTION 4. RELATED AGREEMENTS. This Note is issued pursuant to, and is the Note referred to in, the Revolving Credit Loan Agreement dated as of November 30, 2000 (herein referred to as the "Loan Agreement") between the 1 2 Borrower and Hansa Finance Limited Liability Company and is entitled to the benefits and subject to the provisions thereof (including, without limitation, those providing for the optional and mandatory prepayment of this Note and the acceleration of the maturity hereof), and to the benefits of the Security Agreement dated the date hereof between the Borrower and Hansa Finance Limited Liability Company. Copies of such agreements may be obtained by any holder of this Note at the principal executive offices of the Borrower. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first-above written. ATTEST: SYSTEMONE TECHNOLOGIES INC. __________________________ By_________________________________ 2 EX-10.19 14 g68025ex10-19.txt SECURITY AGREEMENT 11/30/00 1 EXHIBIT 10.19 SECURITY AGREEMENT AGREEMENT dated as of November 30, 2000, by and between SYSTEMONE TECHNOLOGIES INC., a corporation duly organized and validly existing under the laws of the State of Florida (hereinafter referred to as the "Borrower"), and the undersigned HANSA FINANCE LIMITED LIABILITY COMPANY, a limited liability company duly organized and validly existing under the laws of the State of Delaware (hereinafter referred to as the "Lender"). W I T N E S S E T H: WHEREAS, under the terms and conditions of a Revolving Credit Loan Agreement dated as of November 30, 2000 (together with all amendments, supplements, restatements and other modifications, if any, from time to time hereafter made thereto, the "Loan Agreement") between the Borrower and the Lender, the Lender has agreed to advance to the Borrower up to the aggregate principal amount of $5,000,000 (hereinafter referred to as the "Loan"), which Loan is to be evidenced by a certain Revolving Credit Note dated the date hereof (hereinafter referred to as the "Note"), with payment of the Note and any other obligations of the Borrower to the Lender to be secured as provided for in the Loan Agreement; WHEREAS, pursuant to the Loan Agreement, the Borrower has agreed to execute and deliver to the Lender this Security Agreement granting the Lender a first priority lien on and security interest in the Collateral herein described to secure the Borrower's payment and discharge of all of its obligations under the Loan Agreement and the Notes; NOW, THEREFORE, in consideration of the premises and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following additional terms shall have the following meanings, unless the context indicates otherwise: (i) The term "BORROWER" shall have the meaning ascribed and assigned to such term as set forth in the preamble of this Agreement. (ii) The term "COLLATERAL" shall mean all of the Borrower's right, title and interest in, to and under all Equipment, Inventory, Receivables and Related Contracts, Intellectual Property Collateral, and Investment Property; all books, records, writings, data bases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to, any of the foregoing; and all of the Borrower's 2 other property and rights of every kind and description and interests therein; and all products, offspring, rents, issues, profits, returns, income and proceeds of and from any and all of the foregoing Collateral, including, without limitation, all payments under insurance, and any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral). The security interest hereby claimed relates to all of the foregoing types of Collateral, whether now owned or hereafter acquired or arising. The claim of proceeds shall not be construed to be a consent to the disposition of any of the foregoing Collateral. Non-capitalized terms used herein to describe the Collateral shall have the definitions used in the Uniform Commercial Code. (iii) The term "COMPUTER HARDWARE AND SOFTWARE COLLATERAL" shall mean: (a) all computer and other electronic data processing hardware, integrated computer systems, central processing units, memory units, display terminals, printers, features, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories and all peripheral devices and other related computer hardware; (b) all software programs (including both source code, object code and all related applications and data files), whether now or hereafter owned by the Borrower, designed for use on the computers and electronic data processing hardware described in clause (a) immediately preceding; (c) all licenses and leases of software programs; (d) all firmware associated therewith; (e) all documentation (including flow charts, logic diagrams, manuals, guides and specifications) with respect to such hardware, software and firmware described in clauses (a) through (c) immediately preceding; and (f) all rights with respect to all of the foregoing, including any and all copyrights, licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, additions or model conversions of any of the foregoing. (iv) The term "COPYRIGHT COLLATERAL" shall mean all copyrights of the Borrower, whether statutory or common law, registered or unregistered, now or hereafter in force throughout the world, including all of the Borrower's right, title and interest in and to all copyrights registered in the United States Copyright Office or anywhere else in the world, including, without limitation, as set forth in SCHEDULE 1 annexed hereto, and all applications for registration thereof, whether pending or in preparation, all copyright licenses, including each copyright license referred to in Schedule 1, the right to sue for past, present and future infringements of any thereof, all rights corresponding thereto throughout the world, all extensions and renewals of any thereof and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and proceeds of suit. (v) The term "DEPOSIT ACCOUNT" shall have the meaning assigned and ascribed to such term under Section 5 hereof. 2 3 (vi) The term "EQUIPMENT" shall mean all equipment in all of its forms of the Borrower, wherever located, including all machinery, components, parts and accessories installed thereon or affixed hereto and all parts thereof, and all fixtures and all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor. (vii) The term "INTELLECTUAL PROPERTY COLLATERAL" shall mean, collectively, the Computer Hardware and Software Collateral, the Copyright Collateral, the Patent Collateral, the Trademark Collateral and the Trade Secrets Collateral, and all general intangibles not described under Paragraph (xvi) of this Section 1. (viii) The term "INVENTORY" shall mean all inventory in all of its forms of the Borrower, wherever located, including, without limitation: (a) all merchandise, goods and other personal property which are held for sale or lease, all raw materials and work in process therefor, finished goods thereof, and materials used or consumed in the manufacture or production thereof; (b) all goods in which the Borrower has an interest in mass or a joint or other interest or right of any kind (including goods in which the Borrower has an interest or right as consignee); and (c) all goods which are returned to or repossessed by the Borrower; and all accessions thereto, products thereof and documents therefor. (ix) The term "INVESTMENT PROPERTY" shall mean all Securities (whether certificated or uncertificated), security entitlements, securities accounts, commodity contracts and commodity accounts of the Borrower, whether now owned or hereafter acquired by the Borrower. (x) The term "LENDER" shall have the meaning ascribed and assigned to such term as set forth in the preamble of this Agreement. (xi) The term "LOAN" shall have the meaning ascribed and assigned to such term as set forth in the first recital of this Agreement. (xii) The term "LOAN AGREEMENT" shall have the meaning ascribed and assigned to such term as set forth in the first recital of this Agreement. (xiii) The term "NOTE" shall have the meaning ascribed and assigned to such term in the first recital of this Agreement. (xiv) The term "OBLIGATIONS" shall mean all of the obligations on the part of the Borrower to be performed under the Loan Agreement, the Note and this Agreement, as may from time to time be amended, supplemented, restated and otherwise modified. (xv) The term "PATENT COLLATERAL" shall mean: (a) all letters patent and applications for letters patent throughout the world, including all patent 3 4 applications in preparation for filing anywhere in the world and including each patent and patent application referred to in SCHEDULE 2 annexed hereto; (b) all patent licenses, including each patent license referred to in Schedule 2; (c) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in clauses (a) and (b) above; and (d) all proceeds of, and rights associated with, the foregoing (including license royalties and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, including any patent or patent application referred to in Schedule 2, and for breach or enforcement of any patent license, including any patent license referred to in Schedule 2, and all rights corresponding thereto throughout the world. (xvi) The term "RECEIVABLES AND RELATED CONTRACTS" shall mean all accounts (including all bank accounts, collection accounts and concentration accounts, together with all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing such accounts), contracts, contract rights, chattel paper, documents, instruments, rights to receive payment and general intangibles of the Borrower (including invoices, contracts, rights, accounts receivable, notes, refunds, indemnities, undertaking and all other obligations owing to the Borrower from any person), whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights of the Borrower now or hereafter existing in and to all security agreements, guaranties, leases and other contracts securing or otherwise relating to any such accounts, contracts, contract rights, chattel paper, documents, instruments, and general intangibles, and all rights of the Borrower to receive proceeds of any insurance, indemnity, warranty or guaranty of any nature whatsoever. (xvii) The term "SECURITIES" shall mean any obligations of an issuer or any shares, participations or other interests in an issuer or in property or an enterprise of an issuer which: (a) are represented by a certificate representing a security in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the issuer; (b) are one of a class or series or by its terms is divisible into a class or series of shares, participation, interests or obligations; and (c)(i) are, or are of a type, dealt with or trade on securities exchanges or securities markets or (ii) are a medium for investment and by their terms expressly provide that they are a security governed by Article 8 of the Uniform Commercial Code. (xviii) The term "TRADEMARK COLLATERAL" shall mean: (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos, other source of business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of a like 4 5 nature (all of the foregoing items in this clause (a) being collectively called a "TRADEMARK"), now existing anywhere in the world or hereafter adopted or acquired, whether currently in use or not, all registrations and recordings thereof and all applications in connection therewith, whether pending or in preparation for filing, including registrations, recordings and applications in the United State Patent and Trademark Office or in any office or agency of the United States of America or any State thereof or any foreign country, including those referred to in SCHEDULE 3 annexed hereto; (b) all Trademark licenses, including each Trademark license referred to in Schedule 3; (c) all reissues, extensions or renewals of any of the items described in clauses (a) and (b) immediately preceding; (d) all of the goodwill of the business connected with the use of, and symbolized by the items described in, clauses (a) and (b) immediately preceding; and (e) all proceeds of, and rights associated with, the foregoing, including any claim by the Borrower against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration or Trademark license, including any Trademark, Trademark registration or Trademark license referred to in Schedule 3, or for any injury to the goodwill associated with the use of any such Trademark or for breach or enforcement of any Trademark license. (xix) The term "TRADE SECRETS COLLATERAL" shall mean common law and statutory trade secrets and all other confidential or proprietary information and all know-how obtained by or used in or contemplated at any time for use in the business of the Borrower (all of the foregoing being collectively called a "TRADE SECRET"), whether or not such Trade Secret has been reduced to a writing or to the tangible form, including all documents and things embodying, incorporating or referring in any way to such Trade Secret, all Trade Secret licenses, and including the right to sue for and to enjoin and to collect damages for the actual or threatened misappropriation of any Trade Secret and for the breach or enforcement of any such Trade Secret license. (xx) The term "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code, as enacted in any jurisdiction in which perfection of the security interest granted to the Lender hereunder is required. 2. CREATION OF SECURITY INTEREST. As an inducement to the Lender to enter into the Loan Agreement, to make the Loan, and to secure prompt payment, performance and discharge in full of all the Obligations, the Borrower hereby unconditionally and irrevocably grants to the Lender a continuing security interest in, a lien upon and a right of set-off against all of the Collateral, which shall be senior and first-in-right with respect to all other security interests and liens. Upon the payment, performance and discharge in full of all Obligations, the security interest granted herein shall expire. 3. FINANCING STATEMENTS. The right is expressly granted to the Lender in its sole discretion, to file one or more financing statements without the signature of the Borrower under the Uniform Commercial Code, naming the Borrower as debtor under Section 2 hereof and the Lender as a secured party and 5 6 indicating therein the items to be secured, or any of them, herein specified, and such other documentation shall be reasonably required by the Lender so as to perfect the security interest granted to the Lender hereunder pursuant to the laws of any jurisdiction in which such perfection is required. The Borrower will, upon request by the Lender, execute such financing statements and other notices, affidavits or other documents as the Lender may deem necessary to protect its security interest granted under Section 2 hereof. The Borrower will not file or authorize or permit to be filed in any jurisdiction any such financing or like statement, with respect to the Collateral in which the Lender is not named as the secured party or grant or permit the placing upon the Collateral of any lien other than that granted hereby except as expressly provided in this Agreement. All filing costs under this Section 3 shall be borne by the Borrower. 4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower hereby represents and warrants to, and covenants with, the Lender that: (a) The Borrower (i) has, and shall have at all times hereafter until all of the Obligations shall have been paid in full, good and marketable title to the Collateral and (ii) owns, and shall own at all times hereafter until all of the obligations shall have been paid in full, the Collateral and each such item free and clear of all liens, charges, encumbrances, taxes and assessments of any kind or nature whatsoever and except as permitted under the Loan Agreement and hereunder. Without limiting the generality of the foregoing, the Factoring Agreement, License Agreement and Security Agreement Supplement, each dated November 26, 1997, between Capital Factors, Inc. and the Borrower, and the Loan and Security Agreement dated as of May 17, 1999 between Capital Business Credit, a division of Capital Factors, Inc (as assigned to Guaranty Business Credit Corporation), and the Borrower, as amended, are no longer in effect and any and all security interests granted thereunder have been or will be discharged (and the Borrower has taken or will take all actions necessary to discharge such security interests, including but not limited to filing one or more termination statements under the Uniform Commercial Code, as enacted in any jurisdiction where such security interest has been perfected). The Borrower shall preserve the Collateral and abstain from and not permit the commission of waste with regard thereto; and shall not sell, lease or otherwise transfer or dispose of any of the Collateral except: (I) (x) sales of Inventory or dispositions of obsolete assets, (y) licensing of Intellectual Property Collateral and (z) sales of the Royalty (as defined in the Loan Agreement), or part thereof, in each case under clauses (x), (y) and (z) immediately preceding in the ordinary course of business to third parties not constituting Affiliates (as defined in the Loan Agreement) of the Borrower and 6 7 for consideration equal to the fair market value thereof (the interest so conveyed to any third party to be free of the lien of this Agreement), and (II) except as permitted by Section 5. For purposes hereof, performance by the Borrower of the Safety-Kleen Agreement (as defined in the Loan Agreement) shall not be deemed prohibited by this Agreement, nor shall Safety-Kleen Systems Inc. nor any Affiliate thereof be deemed an Affiliate of the Borrower by virtue of its holding of the warrant issued by the Borrower pursuant to the Safety-Kleen Agreement or of the shares underlying such warrant. The Borrower shall at all times maintain the liens and security interests provided for hereunder as valid and perfected liens and security interests in the Collateral, and each item thereof, hereby granted to the Lender, senior and first-in-right with respect to all other security interests and liens and shall safeguard and protect the Collateral, and all items thereof, for the account of the Lender. (b) Without limiting the generality of the foregoing, all Intellectual Property Collateral is subsisting and has not been adjudged invalid or unenforceable, in whole or in part, and is valid and enforceable; the Borrower has made all necessary filings and recordations to protect its interest in the Intellectual Property Collateral, including recordation of all of its interests in the Patent Collateral and Trademark Collateral in the United States Patent and Trademark Office and in corresponding offices throughout the world, and its claims to the Copyright Collateral in the United States Copyright Office and in corresponding offices throughout the world; in the case of any Intellectual Property Collateral that is owned by the Borrower, the Borrower is the exclusive owner of the entire and unencumbered right, title and interest in and to such Intellectual Property Collateral (subject to the provisions of the Safety-Kleen Agreement and any licenses permitted by Section 4(a) hereof) and no claim has been made that the use of such Intellectual Property Collateral does or may violate the asserted rights of any third party; (iv) in the case of any Intellectual Property Collateral that is licensed, the Borrower is in compliance with the terms of such license; and the Borrower has performed and will continue to perform all acts and has paid and will continue to pay all required fees and taxes to maintain each and every item of such Intellectual Property Collateral in full force and effect throughout the world, as applicable. The foregoing provisions of this Paragraph (a) shall not require filings and recordations with respect to Intellectual Property Collateral outside of the United States in any jurisdiction which, individually or in the aggregate with any other jurisdiction in which such filings are not made, is not material to the business, operations or financial position of the Borrower. The Borrower owns directly or is entitled to use by license or otherwise, all patents, Trademarks, Trade Secrets, copyrights, licenses, technology, know-how, processes and rights with respect to any of the foregoing used in or necessary for the conduct of the Borrower's business. Schedules 1, 2 and 3 constitute true and complete lists of, respectively, the Borrower's Copyright Collateral, Patent Collateral and Trademark Collateral. 7 8 (c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body (other than the filing of financing statements under the Uniform Commercial Code, the filing of this Agreement with the United States Patent and Trademark Office and the filing of this Agreement with the United States Copyright Office) is required either: (i) for the grant by the Borrower of the security interest granted hereby or for the execution, delivery and performance of this Agreement by the Borrower; or (ii) for the perfection of or the exercise by the Lender of its rights and remedies hereunder. (d) The Borrower shall comply in all material respects with all applicable national, federal, county, municipal and other laws, ordinances, rules, and regulations now in force or hereafter enacted with respect to the ownership or use of the Collateral. (e) Each account included in the Collateral shall be evidenced by such invoices, shipping documents, or other instruments ordinarily used in the trade as shall be reasonably satisfactory to the Lender; each such item shall be a valid and legally binding obligation of the account debtor, not subject to credit, allowance, offset, defense, counterclaim or adjustment by the account debtor, except discounts allowed for prompt payment or credits or allowances in the ordinary course of business; and all representations made by the Borrower to the Lender with reference to the description, content or valuation of any or all such items shall be true and correct. (f) The Borrower shall from time to time execute and deliver to the Lender in such form and manner required by the Lender, such confirmatory schedules of accounts included in the Collateral, and other appropriate reports designating, identifying and describing the Collateral. The Borrower shall furnish the Lender with schedules of agings of such accounts in such form and at such intervals as the Lender may from time to time specify. In addition, the Borrower shall provide to the Lender copies of agreements with, or purchase orders from the Borrower's customers and copies of invoices to customers, proof of shipment or delivery and such other documentation and information relating to the accounts as the Lender may require. (g) With respect to the Intellectual Property Collateral, the Borrower shall not do any act, or omit to do any act, whereby: (i) any of the Patent Collateral may lapse or become abandoned or dedicated to the public or unenforceable; (ii) any of the Trademark Collateral may lapse or become invalid or unenforceable; or (iii) any of the Copyright Collateral or any of the Trade Secrets Collateral may lapse or become invalid or unenforceable or placed in the public domain. The Borrower shall not file an application for the registration of any Intellectual Property Collateral with the United States Patent and 8 9 Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, unless it promptly informs the Lender and, upon request of the Lender, executes and delivers any and all agreements, instruments, documents and papers as the Lender may reasonably request to evidence the Lender's security interest in such Intellectual Property Collateral and the goodwill and general intangibles of the Borrower relating thereto or represented thereby. (h) The Borrower shall defend the Collateral against all claims and demands of all other persons at any time claiming the same or an interest therein and shall pay promptly when due all taxes and assessments upon the Collateral, provided, however, that it shall not be required to pay any such tax or assessment if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings, and if required under generally accepted accounting principles, if it shall have set aside on its books reserves (segregated to the extent required by sound accounting practice) reasonably deemed by it adequate with respect thereto. At its option in its reasonable discretion, the Lender may discharge any or all taxes, liens or other encumbrances at any time levied against or placed on the Collateral, all of which amounts shall become part of the Obligations. The Borrower shall not, except in the ordinary course of business, consistent with past practices, compromise, discharge, extend the time for payment or otherwise grant any indulgence or allowance with respect to any account included in the Collateral without the prior written consent of the Lender, which consent shall not unreasonably be withheld. (i) The Borrower shall maintain insurance coverage in accordance with good business practice against loss or damage to the Collateral by fire and other hazards, with such insurance carriers as are reasonably satisfactory to the Lender. In the event of loss or damage in any material respect to such Collateral as shall constitute tangible property, the Borrower shall give immediate written notice thereof to the Lender. In such events, the Borrower shall promptly adjust or compromise any loss claims under the insurance and replace such Collateral or apply the proceeds to the outstanding obligations to the Lender. If the Borrower fails to promptly adjust or compromise any loss claims under the insurance (other than for valid business purposes), the Lender shall have the right at its reasonable election, to adjust or compromise any such loss claims under such insurance. (j) The Borrower shall at all times keep accurate and complete books and records of the Collateral in such detail, form and scope as the Lender shall reasonably require, and shall maintain the same at its principal place of business. Such books and records shall be maintained in accordance with recognized, good accounting principles and practices and in a manner reasonably satisfactory to the Lender. The Lender or any of its respective agents shall have the right to call at the Borrower's place or places of business upon reasonable prior notice and at intervals to be determined by such Lender and without hindrance or delay, to inspect, audit, make verifications (including 9 10 those with account debtors) and otherwise check and make extracts from such books and records (including, without limitation, orders, receipts, correspondence and other data) relating to the Collateral or to any other transactions among the parties hereto, subject to the Lender's agreement to maintain any confidential or proprietary information of the Borrower in accordance with the same confidentiality procedures applied by the Lender with respect to its own confidential information (such agreement not to extend to any information: (i) already in the Lender's possession without obligation of confidentiality, (ii) developed independently, (iii) obtained from a source other than the Borrower without obligation of confidentiality, (iv) publicly available when received or thereafter becoming publicly available through no fault of the Lender, or (v) disclosed by the Borrower to another party without obligation of confidentiality). If requested by the Lender, the Borrower shall mark its records concerning accounts included in the Collateral in a manner satisfactory to the Lender to show the security interest of the Lender therein. (k) The Borrower's complete legal name is as first set forth above, and the Borrower does not utilize or do business under any tradename. The Borrower's principal place of business, and the location of its records of accounts, is as set forth hereinafter. The Borrower's principal place of business is leased under the Miami Lease (as defined in the Loan Agreement) from United Capital Holdings Corporation. The Borrower maintains such additional places of business as are listed in the attached SCHEDULE 4 annexed to this Agreement. The Borrower shall not without at least 30 days prior written notice to the Lender change its principal place of business, change the location of its records of the Collateral, nor open any new places of business or close any existing places of business, or change its name or any tradename, in any such case which would require the filing of an additional financing statement or statements, or other documentation, then or at any time in the future required to preserve the security interest of the Lender in any items of the Collateral. 5. ESTABLISHMENT OF DEPOSIT ACCOUNT. (a) The Lender hereby authorizes the Borrower to collect all of its accounts; provided, however, that upon request by the Lender at any time during the existence of an Event of Default under the Loan Agreement, all proceeds of the Collateral collected and received by the Borrower shall be held in trust for the Lender and delivered by the Borrower as directed by the Lender, within two business days of receipt, in exactly the form in which received (except for the addition thereto of the endorsement of the Borrower when and where necessary to permit collection thereof, which endorsement the Borrower agrees to make). Such proceeds so delivered shall be deposited in and credited to a special account (herein referred to as the "Deposit Account") maintained by the Lender in a bank located in New York City which is a member of the Federal Deposit Insurance Corporation, over which the Lender alone (or its nominee) shall have the power of application and withdrawal. The Borrower shall not 10 11 commingle any such proceeds with any of its other funds or property, and shall hold them separate and apart from any other funds or property in trust for the Lender until deposit thereof is made in the Deposit Account. The Lender shall promptly apply the collected proceeds of the Collateral on deposit in the Deposit Account to the payment in full or in part of the principal of and interest on any of the Obligations, in such order and in such manner as the Lender shall determine consistent with Section 7(b)(vi) hereof. Any portion of such collected proceeds which the Lender elects not to apply and which it deems not required as security shall be paid over from time to time by the Lender to the Borrower. (b) The authority given to the Borrower in Paragraph (a) immediately preceding to collect its accounts shall terminate upon the occurrence and during the continuation of an Event of Default (as hereinafter defined). Upon the occurrence and during the continuation of an Event of Default, if requested by the Lender in writing, the Borrower shall forthwith notify all of its account debtors that its accounts have been assigned to and shall be payable as directed by the Lender, and shall indicate on all billings therefor that all payments thereon shall be made as directed by the Lender. The Lender may, at any time upon the occurrence of an Event of Default and at any time thereafter during the continuation of an Event of Default, in the name of the Lender: (i) notify any and all account debtors that the Borrower's accounts have been assigned to the Lender and that any payment on account thereof shall be made as directed by the Lender; (ii) collect, compromise, endorse, sell, assign, discharge, or extend the time for payment of, any such account; (iii) institute legal action for the collection of any such account, and (iv) do all acts and things incidental thereto, all of which are hereby approved by the Borrower. 6. ACTION OF THE LENDER. Should any covenant, duty, or agreement of the Borrower fail to be performed in accordance with its terms hereunder, the Lender may perform or attempt to perform such covenant, duty or agreement on behalf of the Borrower, and any amount expended by the Lender in such performance or attempted performance together with interest thereon at the rate then provided for in the Loan Agreement, shall become a part of the Obligations secured by this Agreement, and, at the request of the Lender, the Borrower covenants and agrees to promptly pay such amount to the Lender; provided, that the Lender shall not assume and shall never have any liability for the performance of any duties of the Borrower under or in connection with the Collateral, or any part thereof, or under any transaction, agreement, or contract out of which the Collateral, or any part thereof, may arise. If any account debtor of an account 11 12 fails or refuses to make payment thereon when due, the Lender is authorized, in its discretion, either in its own name or in the name of the Borrower, to take such action as the Lender shall deem appropriate for the collection of any proceeds of the Collateral with respect to which a delinquency exists. Regardless of any other provision hereof, however, the Lender shall not be liable for its failure to collect, or for its failure to exercise diligence in the collection of any proceeds of an account, and shall not be under any duty whatsoever to anyone except to account for the funds that it shall actually receive hereunder. 7. EVENTS OF DEFAULT. (a) The following events shall be "Events of Default": (i) An Event of Default under the Loan Agreement; or (ii) Any representation, warranty, certification or statement made by the Borrower hereunder shall prove to have been incorrect in any material respect when made. (b) Upon occurrence of any of the above Events of Default and at any time thereafter during the continuation of an Event of Default the Lender may accelerate all of the Obligations secured hereby and the Lender shall have all the rights and remedies of secured parties under the Uniform Commercial Code as in effect in the State of Florida (whether or not in effect in the jurisdiction where the rights and remedies are asserted) and/or any other applicable law as to the Collateral, or any part thereof, of any other jurisdiction as to the Collateral, or any part thereof, therein located (whether or not such other law applies to the affected Collateral) and shall further have, in addition to all other rights and remedies provided herein, by the Loan Agreement or by law, the following rights and powers: (i) The Lender is authorized to take possession of the Collateral, and any and all items thereof, and, for that purpose, may enter, with the aid and assistance of any person or persons, any premises where records related to the Collateral, or any part thereof, are, or may be, placed and remove the same; (ii) At the Lender's request, the Borrower shall assemble the records related to the Collateral and make it available to the Lender at places which the Lender shall select, whether at the Borrower's premises or elsewhere; (iii) The Lender's obligation, if any, to give additional credit of any kind to the Borrower shall immediately terminate. (iv) The Lender shall have the right from time to time to (A) sell, resell, assign and deliver all or any part of the Collateral for cash, for credit or for other property, for immediate or future delivery, and for such price or prices as the Lender shall reasonably determine, (B) adjourn any such sale or cause the same to be adjourned from time to time to a subsequent time and place announced at the time and place fixed for the sale, and (C) carry out 12 13 any agreement to sell the Collateral, or any part thereof, in accordance with the terms of such agreement, notwithstanding the fact that after the Lender shall have entered into such an agreement, the Note and other Obligations due under the Loan Agreement may have been paid in full; (v) Upon each such sale, the Lender may, unless prohibited by applicable statute which cannot be waived, bid for and purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of the Borrower, which are hereby waived and released; (vi) The proceeds of any such sale or other disposition of the Collateral, or any part thereof, shall be applied, first, to the expenses of retaking, holding, processing and preparing for sale, selling, and the like, and to the reasonable attorneys' fees and legal expenses incurred by the Lender and then to satisfaction of the Obligations and to the payment of any other amounts required by applicable law, after which the Lender shall account to the Borrower for any surplus proceeds. If, upon the sale or other disposition of the obligations, or any part thereof, the proceeds thereof are insufficient to pay all amounts to which the Lender is legally entitled, the Borrower will be liable for the deficiency, together with interest thereon, at the rate prescribed in the Loan Agreement, and the reasonable fees of any attorneys employed by the Lender to collect such deficiency. To the extent permitted by applicable law, the Borrower waives all claims, damages, and demands against the Lender arising out of the repossession, removal, retention or sale of the Collateral, or any part thereof. 8. THE LENDER AS ATTORNEY-IN-FACT. The Borrower hereby constitutes and appoints the Lender and its respective successors and assigns, the true and lawful attorney or attorneys of the Borrower, with full power of substitution, for it and in its name and stead or otherwise during the existence of an Event of Default: (a) to institute and prosecute from time to time, any proceedings at law, in equity or otherwise, that the Lender, its respective successors or assigns, may deem proper in order to assert or enforce any claim, right or title of any kind in and to the Collateral, or any part thereof, and to defend and compromise any and all actions, suits or proceedings in respect of the Collateral, or any part thereof; (b) to receive, take, endorse, sign, assign and deliver any and all checks, notes, drafts, and other documents or instruments relating to the Collateral, or any part thereof; (c) to transmit to account debtors notice of the interest of the Lender therein and to request from such customers at any time, in the name of the Lender or of the Borrower, information concerning the Collateral, or any part thereof, and the amounts owing thereon; 13 14 (d) to notify account debtors to make payment as directed by the Lender; and (e) generally to do any and all such acts and things in relation to the Collateral as the Lender, its respective successors or assigns, shall deem advisable, including, but not limited, to, the execution of any and all financing statements and instruments contemplated under Section 2 hereof. The Borrower declares that the appointment hereby made and the power hereby granted are coupled with an interest and shall be irrevocable by the Borrower. 9. TERM OF AGREEMENT. This Agreement shall terminate when all payments under the Note have been made in full and all other Obligations have been paid or discharged. Upon such termination, the Lender at the request of the Borrower, will join in executing any termination statement with respect to any financing statement executed and filed pursuant to Section 2 of this Agreement. 10. MODIFICATION OF AGREEMENT. No modification, amendment or waiver of any provision of, nor any consent required by, this Agreement, nor any consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender and the Borrower and then such modification, amendment, waiver or consent shall be effective only in the specific instance and for the purpose which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in the same, similar or other circumstances. 11. REMEDIES CUMULATIVE, ETC. No right, power or remedy herein conferred upon or reserved to the Lender are intended to be exclusive of any other right, power or remedy or remedies, and each and every right, power and remedy of the Lender pursuant to this Agreement, the Loan Agreement, or the Note or now or hereafter existing at law or in equity or by statute or otherwise shall, to the extent permitted by law, be cumulative and concurrent and shall be in addition to every other right, power or remedy pursuant to this Agreement, or the Note or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Lender of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by the Lender of any or all such other rights, powers or remedies. 12. NO WAIVER, ETC. To the fullest extent permitted by law, no failure or delay by the Lender to insist upon the strict performance of any term, condition, covenant or agreement of this Agreement, the Loan Agreement, or of the Note or to exercise any right, power or remedy hereunder or thereunder or consequent upon a breach hereof or thereof, shall constitute a waiver of any such term, condition covenant, agreement, right, power or remedy or of any such breach, or preclude the Lender from exercising any such right, power or remedy at any later time or times. 14 15 13. NOTICES. All notices, requests or instructions hereunder shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by telecopy (or like transmission), as follows: (1) if to the Borrower: 8305 NW 27th Street, Suite 107 Miami, Florida 33122 Attention: Paul I. Mansur Chief Executive Officer Telecopy Number: (305) 593-8016 with a copy to: Ira N. Rosner, Esq. Greenberg Traurig, P.A. 1221 Brickell Avenue Miami, Florida 33131 Telecopy Number: (305) 579-0717 15 16 (2) if to the Lender: c/o Hanseatic Corporation 450 Park Avenue, Suite 2302 New York, New York 10022 Attention: Paul A. Biddelman with a copy to: Howard Kailes, Esq. Krugman & Kailes LLP Park 80 West - Plaza Two Saddle Brook, New Jersey 07663 Telecopy Number: (201) 845-9627 Any notice so addressed and mailed shall be deemed to be given when so mailed. Any notices addressed and otherwise delivered shall be deemed to be given when actually received by the addressee. Any of the above addresses and telecopy numbers may be changed at any time by notice given as provided above; provided, however, that any such notice of change of address shall be effective only upon receipt. 14. SURVIVAL OF AGREEMENT. Each representation, warranty, covenant and agreement of the herein contained, shall survive the making by the Lender of all loans and advances under the Loan Agreement and the execution and delivery to the Lender of the Note, notwithstanding any investigation at any time made by or on behalf of any party, and shall continue in full force and effect so long as any obligation is outstanding and unpaid. 15. ENTIRE AGREEMENT. This Agreement, the Loan Agreement and the documents contemplated thereby contain the entire agreement with respect to the transactions contemplated hereby, and supersedes all prior understandings, arrangements and agreements with respect to the subject matter hereof. 16. BENEFIT OF AGREEMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and may be assigned, without limitation, to the Lender's respective affiliates. Assignments of this Agreement to any non-affiliate of the Lender shall not be made without the prior written consent of the Borrower (which shall not be unreasonably withheld or delayed). The foregoing shall not in any manner restrict the grant of participation rights by the Lender with respect to the Loan and any and all rights hereunder. 17. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida applicable in the case of agreements made and to be performed entirely within such state. 16 17 18. CAPTIONS. The captions appearing herein are for the convenience of the parties only and shall not be construed to affect the meaning of the provisions of this Agreement. 19. SEVERABILITY. In the event that one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision and never been contained herein. 20. COUNTERPARTS. This Agreement may be signed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. SYSTEMONE TECHNOLOGIES INC. By ------------------------------ HANSA FINANCE LIMITED LIABILITY COMPANY By: Hansabel Partners, L.L.C., Managing Member By: Hanseatic Corporation, Managing Member By ------------------------------ 17 EX-10.20 15 g68025ex10-20.txt MASTER LEASE AGREEMENT 1 EXHIBIT 10.20 MASTER LEASE AGREEMENT MASTER LEASE AGREEMENT ("Master Lease") dated as of December 14, 1997 between The CIT Group/Equipment Financing, Inc. ("Lessor"), having a place of business at 900 Ashwood Parkway, 6th Floor Atlanta GA 30338 - ------------------------------------------------------------------------------------------------------------------- Address City State Zip Code Mansur Industries Inc.("Lessee"), having a place of business at 8305 NW 27th Street, Suite 107 Miami FL 33122 - ------------------------------------------------------------------------------------------------------------------- Address City State Zip Code
This Master Lease Agreement provides a set of terms and conditions that the parties hereto intend to be applicable to various transactions for the lease of personal property. Each lease contract shall be evidenced by an equipment schedule ("Schedule") executed by Lessor and Lessee that explicitly incorporates the provisions of this Master Lease Agreement and that sets forth specific terms of that particular lease contract. Where the provisions of a Schedule conflict with the terms hereof, the provisions of the Schedule shall prevail. Each Schedule shall constitute a complete and separate lease agreement, independent of all other Schedules, and without any requirement of being accompanied by an originally executed copy of this Master Lease Agreement. The term "Lease" when used herein shall refer to an individual Schedule. One originally executed copy of the Schedule shall be determined "Originally Executed Copy No. 1 of ____ originally executed copies" and such copy shall be retained by Lessor. If more than one copy of the Schedule is executed by Lessor and Lessee, all such other copies shall be numbered consecutively with numbers greater than 1. Only transfer of possession by Lessor of the originally executed copy denominated "Originally Executed Copy No. 1" shall be effective for purposes of perfecting an interest in such Schedule by possession. 1. Equipment Leased and Term. This Lease shall cover such personal property as is described in any Schedule executed by or pursuant to the authority of Lessee, accepted by Lessor in writing and identified as a part of this Lease (which personal property with all replacement parts, additions, repairs, accessions and accessories incorporated therein and/or affixed thereto is hereinafter called the "Equipment"). Lessor hereby leases to Lessee and Lessee hereby hires and takes from Lessor, upon and subject to the covenants and conditions hereinafter contained, the Equipment described in any Schedule. Notwithstanding the commencement date of the term of this Lease with respect to any item of Equipment, Lessee agrees that all risk of loss of the Equipment shall be on Lessee from and after shipment of the Equipment to Lessee by the seller thereof, F.O.B. seller's point of shipment shall be for the period as set forth in the Schedule. Lessee hereby gives Lessor authority to insert the actual commencement date and date of first monthly rental for any item of Equipment in any Schedule as well as such terms as serial numbers if such are not already inserted when such Schedule is executed by Lessee. "Seller" as used in this Lease means the supplier from which Lessor acquires any item of Equipment. 2 2. Rent. The aggregate rent payable with respect to each item of Equipment shall be in the amount shown with respect to such item on the Schedule, Lessee shall pay to Lessor the aggregate rental for each item of Equipment for the full period and term for which the Equipment is leased, such rental to be payable at such times and in such amounts for each item of Equipment as shown in the applicable Schedule. All rent shall be paid at Lessor's place of business shown above, or such other place as Lessor may designate by written notice to the Lessee. All rents shall be paid without notice or demand and without abatement, deduction or set off of any amount whatsoever. The operation and use of the Equipment shall be at the risk of Lessee and not of Lessor and the obligation of Lessee to pay rent hereunder shall be unconditional. 3. Destruction of Equipment. If any Equipment is lost, totally destroyed, damaged beyond repair or taken by governmental action, the liability of the Lessee to pay rent therefor may be discharged by paying to Lessor all the rent due thereon, plus all the rent to become due thereon less the net amount of the recovery, if any, actually received by Lessor from insurance or otherwise for such loss or damage. In the event of partial destruction of any Equipment, the rent due and to become due thereon shall not abate and Lessee shall, at its own expense, cause such Equipment to be restored to usable condition, but Lessor shall, upon receiving satisfactory evidence of such restoration, promptly pay Lessee the proceeds of any insurance or compensation received by reason of such damage. If the estimated cost of restoring such Equipment exceeds 50% of the unmatured rent therefor, such Equipment shall, on notice by Lessee, be deemed, for all purposes hereof, to be totally destroyed and the liability of the Lessee to pay rent therefor shall be discharged if Lessee pays the rent described in the preceding paragraph of this Section. Lessor shall not be obligated to undertake by litigation or otherwise the collection of any claim against any person for loss or damage to the Equipment. Except as expressly provided above, the total or partial destruction of any Equipment or the total or partial loss of use or possession thereof to Lessee shall not release or relieve Lessee from the duty to pay the rent herein provided. 4. No Warranty by Lessor; Maintenance and Compliance with Laws. Lessor, not being the manufacturer of the Equipment, nor manufacturer's agent, MAKES NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE FITNESS, QUALITY, DESIGN, CONDITION, CAPACITY, SUITABILITY, MERCHANTABILITY OR PERFORMANCE OF THE EQUIPMENT OR OF THE MATERIAL OR WORKMANSHIP THEREOF, IT BEING AGREED THAT THE EQUIPMENT IS LEASED "AS IS" AND THAT ALL SUCH RISKS, AS BETWEEN LESSOR AND LESSEE, ARE TO BE BORNE BY LESSEE AT ITS SOLE RISK AND EXPENSE, Lessee accordingly agrees not to assert any claim whatsoever against Lessor based thereon. Lessee further agrees, regardless of cause, not to assert any claim whatsoever against Lessor for loss of anticipatory profits or consequential damages. Lessor shall have no obligation 2 3 to install, erect, test, adjust or service the Equipment. Lessee shall look to the manufacturer and/or Seller for any claims related to the Equipment. Lessor hereby acknowledged that any manufacturer's and/or Seller's warranties are for the benefit of both Lessor and Lessee. No oral agreement, guaranty, promise, condition, representation or warranty shall be binding; all prior conversations, agreements or representations related hereto and/or to the Equipment are integrated herein. Lessee agrees, at its own cost and expense: (a) to pay all shipping charges and other expenses incurred in connection with the shipment of the Equipment by the Seller to Lessee; (b) to pay all charges and expenses in connection with the operation of each item of Equipment; (c) to comply with all governmental laws, ordinances, regulations, requirements and rules with respect to the use, maintenance and operation of the Equipment; and (d) to make all repairs and replacements required to be made to maintain the Equipment in good condition, reasonable wear and tear excepted. 5. Insurance. Lessee shall maintain at all times on the Equipment, at its expense, all risk physical damage insurance and comprehensive general and/or automobile (as appropriate) liability insurance (covering bodily injury and property damage exposures including, but not limited to, contractual liability and products liability) in such amounts, against such risks, in such form and with such insurers as shall be satisfactory to Lessor; provided, that the amount of all risk physical damage insurance shall not on any date be less than the greater of the full replacement value or a sum equal to all the rent due thereon, plus all rent to become due. Each physical damage insurance policy will name Lessor as loss payee. Each liability insurance policy will name Lessor as additional insured. Each insurance policy will also require that the insurer give Lessor at least thirty (30) days prior written notice of any alteration in or cancellation of the terms of such policy and require that Lessor's interests be continued insured regardless of any breach or violation by Lessee or others of any warranties, declarations or conditions contained in such insurance policy. In no event shall Lessor be responsible for premiums, warranties or representations to any insurer or any agent thereof. Lessee shall furnish to Lessor a certificate or other evidence satisfactory to Lessor that such insurance coverage is in effect, but Lessor shall be under no duty to ascertain the existence or adequacy of such insurance. The insurance maintained by Lessee shall be primary without any right of contribution from insurance which may be maintained by Lessor. Lessee shall be liable for all deductible portions of all required insurance. Lessor may, at its own expense, for its own benefit, purchase insurance in excess of that required under this Lease Agreement. Physical damage insurance proceeds shall be applied as set forth in Section 6. 3 4 6. Loss and Damage. Lessee agrees to assume and bear the entire risk of any partial or complete loss with respect to the Equipment from any and every cause whatsoever including theft, loss, damage, destruction or governmental taking, whether or not such loss is covered by insurance or caused by any default or neglect of Lessee. Lessee agrees to give Lessor prompt notice of any damage to or loss of any Equipment. All physical damage insurance proceeds shall be payable directly to Lessor. Following payment of such loss, and if no Event of Default as defined in Section 11 has occurred and remains continuing, Lessor will then: (a) transfer to Lessee Lessor's rights to such Equipment "as-is, where-is and with all defects," without recourse and without representation or warranty, express or implied, other than a warranty that the Equipment is free and clear of any liens created by Lessor; and (b) remit rent to Lessee and physical damage insurance proceeds arising out of such loss in excess of the sum due the Lessor. Lessee shall determine in the exercise of its reasonable judgment whether the Equipment is damaged beyond repair, subject to Lessor's approval. In the event of damage or loss which does not result in damage beyond repair or a total loss of the Equipment or any item thereof, Lessee shall cause the affected Equipment to be restored to the condition required by the terms of this Lease. Upon completion of such repair and after applying Lessor with satisfactory evidence thereof (and provided no Event of Default has occurred and remains continuing), Lessee shall be entitled to receive any insurance proceeds or other recovery to which Lessor would otherwise be entitled in connection with such loss up to the amount expended by Lessee in making the repair. Lessor shall not be obligated to undertake by litigation or otherwise the collection of any claim against any person for loss of, damage to, or governmental taking of the Equipment, but Lessor will cooperate with Lessee at Lessee's expense to pursue such claims. Except as expressly provided above, the total or partial destruction of any Equipment or Lessee's total or partial loss of use or possession thereof shall not release or relieve Lessee from its obligations under this Master Lease or any Schedule including the duty to pay the rent(s) herein provided. 7. Taxes. Lessee agrees that, during the term of this Lease, in addition to the rent and all other amounts provided herein to be paid, it will promptly pay all taxes, assessments and other governmental charges (including penalties and interest, if any, and fees for filing or registration, if required) levied or assessed: (a) upon the interest of Lessee in the Equipment or upon the use or operation thereof or on the earnings arising therefrom; and (b) against Lessor on account of its acquisition or ownership of the Equipment or any part thereof, or the use or operation thereof or the leasing hereof to Lessee, or the rent herein provided for, or the earnings arising therefrom, exclusive, however, of any taxes based on net income of Lessor. 4 5 Lessee agrees to file, in behalf of Lessor, all required tax returns and reports concerning the Equipment with all appropriate governmental agencies, and within not more than 45 days after the due date of such filing to send Lessor confirmation, in form satisfactory to Lessor, of such filing. 8. Lessor's Title, Right of Inspection and Identification of Equipment. Title to the Equipment shall at all times remain in Lessor and Lessee will at all times protect and defend, at its own cost and expense, the title of Lessor from and against all claims, liens and legal processes of creditors of Lessee and keep all the Equipment free and clear from all such claim, liens and processes. The Equipment is and shall remain personal property. Upon the expiration of termination of this Lease with respect to any item of Equipment: (a) Lessee at Lessee's sole expense shall return such Equipment unencumbered to Lessor at the place where the rent is payable or to such other place as Lessor and Lessee agree upon, and in the same condition as when received by Lessee, reasonable wear and tear resulting from use thereof alone excepted; or (b) in lieu of returning such Equipment to Lessor, Lessee agrees that Lessee will, upon request of Lessor, store such Equipment on Lessee's premises, at an inside location protected from the weather and elements, without charge to Lessor for a period of 15 days following the date of expiration or termination of this Lease. During such storage period Lessee shall not use the Equipment for any purpose. Upon expiration of such storage period Lessee will return such Equipment to Lessor in accordance with the provisions of (a) above. Lessor shall have the right from time to time during reasonable business hours to enter upon Lessee's premises or elsewhere for the purpose of confirming the existence, condition and proper maintenance of the Equipment and during any period of storage Lessor shall also have the right to demonstrate and show the Equipment to others. The foregoing rights of entry are subject to any applicable governmental laws, regulations and rules concerning industrial security. Lessee shall, upon the request of Lessor, and at its own expense firmly affix to the Equipment, in a conspicuous place, such a decalcomania or metal plate as shall be supplied by Lessor showing the Lessor as the owner and lessor of such Equipment. 9. Possession, Use and Changes in Location of Equipment. So long as Lessee shall not be in default under the Lease it shall be entitled to the possession and use of the Equipment in accordance with the terms of this Lease. The Equipment shall be used in the conduct of the lawful business of Lessee, and no item of Equipment shall be removed from its location shown on the Schedule, without the prior written consent of Lessor. Lessee shall not, without Lessor's prior written consent, part with possession or control of the Equipment or attempt or purport to sell, pledge, mortgage or otherwise encumber any of the Equipment or otherwise dispose of or encumber any interest under this Lease. 10. Performance of Obligations of Lessee by Lessor. In the event that the Lessee shall fail duly and promptly to perform any of its obligations under the provisions of Sections 4, 5, 6, 7, and 8 of this Lease, Lessor may, at its option, perform the same for the account of 5 6 Lessee without thereby waiving such default, and any amount paid or expense (including reasonable attorneys' fees), penalty or other liability incurred by Lessor in such performance, together with interest at the rate of 1 1/2% per month thereon (but in no event greater than the highest rate permitted by relevant law) until paid by Lessee to Lessor, shall be payable by Lessee upon demand as additional rent for the Equipment. Lessee shall be responsible for any pay to Lessor's a returned check fee, not to exceed the maximum permitted by law, which fee will be equal to the sum of (i) the actual bank charges incurred by Lessor plus (ii) all other actual costs and expenses incurred by Lessor. The returned check fee is payable upon demand as additional rent under this Lease. 11. Default. An Event of Default shall occur if: (a) Lessee fails to pay when due any installment of rent and such failure continues for a period of 10 days; (b) Lessee shall fail to perform or observe any covenant, condition or agreement to be performed or observed by it hereunder and such failure continues uncured for 15 days after written notice thereof to Lessee by Lessor; (c) Lessee ceases doing business as a going concern, makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it or of all or any substantial part of its assets or properties, or if it or its shareholders shall take any action looking to its dissolution or liquidation; (d) within 60 days after the commencement of any proceedings against Lessee seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or if within 60 days after the appointment without Lessee's consent or acquiescence of any trustee, receiver or liquidation of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated; or (e) Lessee attempts to remove, sell, transfer, encumber, part with possession or sublet the Equipment or any item thereof. Upon the occurrence of an Event of Default, Lessor shall have all the rights and remedies provided by applicable law and by this Lease. Notwithstanding that this Agreement is a lease and title to the Equipment is at all times in Lessor, Lessor may nevertheless at its option choose those rights and remedies of a secured party under the Uniform Commercial Code. In addition, Lessor, at its option may: 6 7 (a) declare all sums due and to become due hereunder immediately due and payable, but in no event shall the Lessee, upon demand by Lessor for payment of the unpaid rent, upon acceleration of the maturity thereof or otherwise, be obligated to pay any amount in excess of that permitted by law; (b) proceed by appropriate court action or actions or other proceedings either at law or equity to enforce performance by the Lessee of any and all covenants of this Lease and to recover damages for the breach thereof; (c) demand that Lessee deliver the Equipment forthwith to Lessor at Lessee's expense at such place as Lessor may designate; and (d) Lessor and/or its agents may without notice or liability or legal process, enter into any premises of or under control or jurisdiction of Lessee or any agent of Lessee where the Equipment may be or by Lessor is believed to be, and repossess all or any item thereof, disconnecting and separating all thereof from any other property and using all force necessary or permitted by applicable law so to do, Lessee hereby expressly waiving all further rights to possession of the Equipment and all claims for injuries suffered through or loss caused by such repossession; Lessor may sell or lease the Equipment at a time and location of its choosing provided that the Lessor acts in good faith and in a commercially reasonable manner, but the Lessor shall nevertheless, be entitled to recover immediately as liquidated damages for loss of the bargain and not as a penalty any unpaid rent that accrued on or before the occurrence of the event of default plus an amount equal to the difference between the aggregate rent reserved hereunder for the unexpired term of this Lease and the then aggregate rental value of all Equipment for such unexpired term, provided, however, that if any statute governing the proceeding in which such damages are to be proved specifies the amount of such claim, Lessor shall be entitled to prove as and for damages for the breach an amount equal to that allowed under such statute. The provisions of this paragraph shall be without prejudice to any rights given to the Lessor by such statute to prove for any amounts allowed thereby. Should any proceedings be instituted by or against Lessor for monies due to Lessor hereunder and/or for possession of any or all of the Equipment or for any other relief, Lessee shall pay a reasonable sum as attorneys' fees. No remedy of Lessor hereunder shall be exclusive of any remedy herein or by law provided, but each shall be cumulative and in addition to every other remedy. 12. Indemnity. Lessee agrees that Lessor shall not be liable to Lessee for, and Lessee shall indemnify and save Lessor harmless from and against any and all liability, loss, damage, expense, causes of action, suits, claims or judgments arising from or caused directly or indirectly by: (a) Lessee's failure to promptly perform any of its obligations under the provisions of Sections 4, 5, 6, 7 and 8 of this Lease; or 7 8 (b) injury to persons or damage to property resulting from or based upon actual or alleged use, operation, delivery or transportation of any or all of the Equipment or its location or condition; or (c) Inadequacy of the Equipment, or any part thereof, for any purpose or any deficiency or defect therein or the use or maintenance thereof or any repairs, servicing or adjustments thereto or any delay in providing or failure to provide any thereof or any interruption or loss of service or use thereof or any loss of business; and shall, at its own cost and expense, defend any and all suits which may be brought against Lessor, either alone or in conjunction with others upon any such liability or claim or claims and shall satisfy, pay and discharge any and all judgments and fines that may be recovered against Lessor in any such action or actions, provided however, that Lessor shall give Lessee written notice of any such claim or demand. Lessee agrees that its obligations under this Section 12 shall survive the expiration or termination of this Lease. 13. Assignment, Notices and Waivers. This Lease and all rights of Lessor hereunder shall be assignable by Lessor without Lessee's consent, but Lessee shall not be obligated to any assignee of Lessor except after written notice of such assignment from Lessor. Following such assignment, solely for the purpose of determining assignee's rights hereunder, the term "Lessor" shall be deemed to include or refer to Lessor's assignee. Without the prior written consent of Lessor, Lessee shall not assign this Lease or its interests hereunder or enter into any sub-lease with respect to the Equipment covered hereby, it being agreed Lessor will not unreasonably withhold its consent to a sub-lease of the Equipment. All notices to Lessor shall be delivered in person to an officer of the Lessor, or shall be sent certified mail return receipt requested to Lessor at its address shown herein or at any later address last known to the sender. All notices to Lessee shall be in writing and shall be delivered by mail at its address shown herein or at any later address last known to the sender. A waiver of a default shall not be a waiver of any other or a subsequent default. 14. Further Assurances. Lessee shall execute and deliver to Lessor, upon Lessor's request such instruments and assurances as Lessor deems necessary or advisable for the confirmation or perfection of this Lease and Lessor's rights hereunder. Lessee may not terminate any Schedule without the written consent of Lessor. If Lessor in good faith believes itself insecure or performance impaired, it may declare a default hereunder or, instead of declaring a default, Lessor may demand, and Lessee agrees to give, additional Equipment or other collateral as security for the obligations hereunder. 15. Lease Irrevocability. This Lease is irrevocable for the full terms thereof as set forth in any Schedule and for the aggregate rentals therein reserved and the rent shall not abate by reason of termination of Lessee's right of possession and/or the taking of possession by the Lessor or for any other reason. Any 8 9 payment not made when due shall, at the option of Lessor, bear late charges thereon calculated at the rate of 1 1/2% per month, but in no event greater than the highest rate permitted by relevant law. 16. Purchase Option. If any Schedule has a purchase option price set forth therein with respect to the items of Equipment listed on such Schedule, then at the expiration of the original lease term in such Schedule with respect to such items of Equipment, if Lessee has paid in full all rentals owing under such Schedule, and be not then in default under this Lease (including all obligations under any Schedule), Lessee shall have the option to purchase all, but not less than all, the items of Equipment in the applicable Schedule upon giving written notice not less than 30 days prior to expiration of the original term thereof. The purchase price shall be as set forth in the applicable Schedule and shall be payable upon expiration of the original Lease term. If any Schedule does not contain a purchase option price, then Lessee shall not have an option to purchase any Equipment on such Schedule. Any purchase option price state as "fair market value" ("FMV") for any item of Equipment on a Schedule shall be determined on the basis of, and shall be equal in amount to, the value which would obtain in an arm's length transaction between an informed and willing buyer-user (other than a Lessee currently in possession and a used Equipment dealer) and an informed and willing seller under no compulsion to sell and, in such determination, costs of removal of the items of Equipment from their location of current use shall not be a deduction from such value. 17. Renewal. Any renewal privilege shown on any Schedule with respect to any item of Equipment shall be exercised by Lessee giving Lessor a notice in writing and paying Lessor the amount of the renewal rental plus applicable taxes, at least 45 days prior to the commencement of the renewal term of the Lease with respect to such item of Equipment. Upon such notification and payment, this Lease shall be renewed for the stated renewal period at the stated renewal rental with the other provisions and conditions of the lease continuing unchanged. 18. Miscellaneous. If any provision of this Lease is contrary to, prohibited by or deemed invalid under applicable laws or regulations of any jurisdiction, such provision shall be inapplicable and deemed omitted but shall not invalidate the remaining provisions hereof. In the event this Lease or any part hereof is deemed to be a lease intended as security, Lessee grants Lessor a security interest in each item of Equipment as security for all of Lessee's indebtedness and obligations owing under this Lease and under each Schedule as well as all other present and future indebtedness and obligations of Lessee to Lessor of every kind and nature whatsoever. This Lease contains the entire agreement between the parties with respect to the Equipment and may not be altered, modified, terminated or discharged except by a writing signed by the party against whom such alternation, modification, termination or discharge is sought. Lessee's initials ___________________ 9 10 19. Special Provisions. If Lessee is a corporation, this Lease is executed by authority of its Board of Directors. If Lessee is a partnership or joint venture, this Lease is executed by authority of all its partners or co-venturers. Dated: December 14, 1997 Lessee: Mansur Industries, Inc. - --------------------------------- Name of individual corporation By: /s/ Title: CHIEF FINANCIAL OFFICER ----------------------------- ---------------------------------- If corporation have signed by President, Vice President or Treasurer, and give official title. If owner or partner, state which Lessor: THE CIT GROUP/EQUIPMENT FINANCING, INC. By: /s/ Title: AGENT ----------------------------- ---------------------------------- If Lessee is a partnership, enter: PARTNERS' NAMES HOME ADDRESSES ----------------------------- ---------------------------------- 10 11 Equipment Schedule No. 1, dated December 14, 1997, to Master Lease Agreement, dated December 14, 1997, between THE CIT GROUP/EQUIPMENT FINANCING, INC. ("Lessor") and MANSUR INDUSTRIES INC. ("Lessee"). This Equipment Schedule incorporates the terms and conditions of the above-referenced Master Lease Agreement. This is Originally Executed Copy No. 1 of 1 originally executed copies. Only transfer of possession by Lessor of Originally Executed Copy No. 1 shall be effective for purposes of perfecting an interest in this Schedule by possession. The Equipment listed on this Schedule will be located at 8305 NW 27th Street, Suite 107 Miami Dade FL 33122 - ------------------------------------------- ------------------- ------------------ ------------------ ------------------ Address City County State Zip Code
LEASE TERM: The term of this Lease for the items described in this Schedule shall be 60 months. RENTALS: For said term or any portion thereof, Lessee shall pay to Lessor the stated aggregate rentals, of which $9,447.86 is herewith paid in advance and the balance of the rentals is payable in 59 equal, successive, monthly payments as stated, of which the first is due on the first monthly rental date set forth below, and the others on a like date of each month thereafter, until fully paid.
- ---------- ------------------------------------------------------------------------ ---------------- --------------- Item Description of Equipment Aggregate Monthly No. (Include make, kind of unit, year, model and serial number) Rental Rental - ---------- ------------------------------------------------------------------------ ---------------- --------------- One (1) New 1997 Trumpf TC200 $566,871.60 $9,447.86 - ---------- ------------------------------------------------------------------------ ---------------- --------------- One (1) New 1997 Trumpf V130 - ---------- ------------------------------------------------------------------------ ---------------- --------------- Including all present and future attachments and accessories thereto, and replacements and proceeds thereof, including amounts payable under any insurance policy. - ---------- ------------------------------------------------------------------------ ---------------- --------------- - ---------- -------------------------- ------------------------- -------------------------- ------------------------- Item No. Date Lease Term Commences Date of First Monthly Renewals (No. of Years Purchase Option Price Rental and Amount Per Year) - ---------- -------------------------- ------------------------- -------------------------- ------------------------- N/A $1.00 - ---------- -------------------------- ------------------------- -------------------------- ------------------------- - ---------- -------------------------- ------------------------- -------------------------- ------------------------- - ---------- -------------------------- ------------------------- -------------------------- ------------------------- - ---------- -------------------------- ------------------------- -------------------------- -------------------------
The Lease term commences on December 31, 1997. The first Monthly Rental is due on December 31, 1997. The Lease term may be renewed for -0- Months with the Monthly Rental for such renewal term of N/A . 11 12 The Lessee has the option to purchase the Equipment as of the last day of the initial Lease term for $1.00. Special Provisions Instructions: Accepted: LESSEE: Mansur Industries, Inc. By: _______________________ Title: Chief Financial Officer LESSOR: The CIT Group/Equipment Financing, Inc. By: _______________________ Title: Agent 12 13 Equipment Schedule No. 2, dated December 14, 1997, to Master Lease Agreement, dated December 14, 1997, between THE CIT GROUP/EQUIPMENT FINANCING, INC. ("Lessor") and MANSUR INDUSTRIES INC. ("Lessee"). This Equipment Schedule incorporates the terms and conditions of the above-referenced Master Lease Agreement. This is Originally Executed Copy No. 1 of 1 originally executed copies. Only transfer of possession by Lessor of Originally Executed Copy No. 1 shall be effective for purposes of perfecting an interest in this Schedule by possession. The Equipment listed on this Schedule will be located at 8305 NW 27th Street, Suite 107 Miami Dade FL 33122 - ------------------------------------------- ------------------- ------------------ ------------------ ------------------ Address City County State Zip Code
LEASE TERM: The term of this Lease for the items described in this Schedule shall be 60 months. RENTALS: For said term or any portion thereof, Lessee shall pay to Lessor the stated aggregate rentals, of which $1,170.13 is herewith paid in advance and the balance of the rentals is payable in 59 equal, successive, monthly payments as stated, of which the first is due on the first monthly rental date set forth below, and the others on a like date of each month thereafter, until fully paid.
- ---------- ------------------------------------------------------------------------ ---------------- --------------- Item Description of Equipment Aggregate Monthly No. (Include make, kind of unit, year, model and serial number) Rental Rental - ---------- ------------------------------------------------------------------------ ---------------- --------------- One (1) Nordson Industrial Coating Equipment $70,270.80 $1,170.13 - ---------- ------------------------------------------------------------------------ ---------------- --------------- - ---------- ------------------------------------------------------------------------ ---------------- --------------- Including all present and future attachments and accessories thereto, and replacements and proceeds thereof, including amounts payable under any insurance policy. - ---------- ------------------------------------------------------------------------ ---------------- --------------- - ---------- -------------------------- ------------------------- -------------------------- ------------------------- Item No. Date Lease Term Commences Date of First Monthly Renewals (No. of Years Purchase Option Price Rental and Amount Per Year) - ---------- -------------------------- ------------------------- -------------------------- ------------------------- N/A $1.00 - ---------- -------------------------- ------------------------- -------------------------- ------------------------- - ---------- -------------------------- ------------------------- -------------------------- ------------------------- - ---------- -------------------------- ------------------------- -------------------------- ------------------------- - ---------- -------------------------- ------------------------- -------------------------- -------------------------
The Lease term commences on December 31, 1997. The first Monthly Rental is due on December 31, 1997. The Lease term may be renewed for -0- Months with the Monthly Rental for such renewal term of N/A . 13 14 The Lessee has the option to purchase the Equipment as of the last day of the initial Lease term for $1.00. Special Provisions Instructions: Accepted: LESSEE: Mansur Industries, Inc. By: _______________________ Title: Chief Financial Officer LESSOR: The CIT Group/Equipment Financing, Inc. By: _______________________ Title: Agent 14 15 Equipment Schedule No. 3, dated November 17, 1998, to Master Lease Agreement, dated December 14, 1997, between THE CIT GROUP/EQUIPMENT FINANCING, INC. ("Lessor") and MANSUR INDUSTRIES INC. ("Lessee"). This Equipment Schedule incorporates the terms and conditions of the above-referenced Master Lease Agreement. This is Originally Executed Copy No. 1 of 1 originally executed copies. Only transfer of possession by Lessor of Originally Executed Copy No. 1 shall be effective for purposes of perfecting an interest in this Schedule by possession. The Equipment listed on this Schedule will be located at 8305 NW 27th Street, Suite 107 Miami Dade FL 33122 - ------------------------------------------- ------------------- ------------------ ------------------ ------------------ Address City County State Zip Code
LEASE TERM: The term of this Lease for the items described in this Schedule shall be 60 months. RENTALS: For said term or any portion thereof, Lessee shall pay to Lessor the stated aggregate rentals, of which $0.00 is herewith paid in advance and the balance of the rentals is payable in 60 equal, successive, monthly payments as stated, of which the first is due on the first monthly rental date set forth below, and the others on a like date of each month thereafter, until fully paid.
- ---------- ------------------------------------------------------------------------ ---------------- --------------- Item Description of Equipment Aggregate Monthly No. (Include make, kind of unit, year, model and serial number) Rental Rental - ---------- ------------------------------------------------------------------------ ---------------- --------------- (1) New 1998 Trumpf TC 200 Punch Press S/N 97 0721, (2) New 1998 $635,760.00 $10,596.00 Trumpf V85 Press Brake - ---------- ------------------------------------------------------------------------ ---------------- --------------- S/N 88 3274 and S/N 88 3232 including all present and future attachments and accessories thereto and replacements and proceeds thereof, including amounts payable under any insurance policy. - ---------- ------------------------------------------------------------------------ ---------------- --------------- - ---------- -------------------------- ------------------------- -------------------------- ------------------------- Item No. Date Lease Term Commences Date of First Monthly Renewals (No. of Years Purchase Option Price Rental and Amount Per Year) - ---------- -------------------------- ------------------------- -------------------------- ------------------------- N/A $1.00 - ---------- -------------------------- ------------------------- -------------------------- ------------------------- - ---------- -------------------------- ------------------------- -------------------------- ------------------------- - ---------- -------------------------- ------------------------- -------------------------- ------------------------- - ---------- -------------------------- ------------------------- -------------------------- -------------------------
The Lease term commences on _______________. The first Monthly Rental is due on ___________________. The Lease term may be renewed for N/A Months with the Monthly Rental for such renewal term of N/A . 15 16 The Lessee has the option to purchase the Equipment as of the last day of the initial Lease term for $1.00. Special Provisions Instructions: Accepted: LESSEE: Mansur Industries, Inc. By: _______________________ Title: Chief Financial Officer LESSOR: The CIT Group/Equipment Financing, Inc. By: _______________________ Title: Agent 16 17 Equipment Schedule No. 4, dated September 1, 1998, to Master Lease Agreement, dated December 14, 1997, between THE CIT GROUP/EQUIPMENT FINANCING, INC. ("Lessor") and MANSUR INDUSTRIES INC. ("Lessee"). This Equipment Schedule incorporates the terms and conditions of the above-referenced Master Lease Agreement. This is Originally Executed Copy No. 1 of 1 originally executed copies. Only transfer of possession by Lessor of Originally Executed Copy No. 1 shall be effective for purposes of perfecting an interest in this Schedule by possession. The Equipment listed on this Schedule will be located at 8305 NW 27th Street, Suite 107 Miami Dade FL 33122 - ------------------------------------------- ------------------- ------------------ ------------------ ------------------ Address City County State Zip Code
LEASE TERM: The term of this Lease for the items described in this Schedule shall be 60 months. RENTALS: For said term or any portion thereof, Lessee shall pay to Lessor the stated aggregate rentals, of which $0.00 is herewith paid in advance and the balance of the rentals is payable in 60 equal, successive, monthly payments as stated, of which the first is due on the first monthly rental date set forth below, and the others on a like date of each month thereafter, until fully paid.
- ---------- ------------------------------------------------------------------------ ---------------- --------------- Item Description of Equipment Aggregate Monthly No. (Include make, kind of unit, year, model and serial number) Rental Rental - ---------- ------------------------------------------------------------------------ ---------------- --------------- Lincoln Electric Robotic GMAW STT - II Welding System - See Schedule $287,700.00 $4,795.00 Attached hereto and incorporated herein by reference. - ---------- ------------------------------------------------------------------------ ---------------- --------------- Including all present and future attachments and accessories thereto, and replacements and proceeds thereof, including amounts payable under any insurance policy. - ---------- ------------------------------------------------------------------------ ---------------- --------------- - ---------- ------------------------------------------------------------------------ ---------------- --------------- - ---------- -------------------------- ------------------------- -------------------------- ------------------------- Item No. Date Lease Term Commences Date of First Monthly Renewals (No. of Years Purchase Option Price Rental and Amount Per Year) - ---------- -------------------------- ------------------------- -------------------------- ------------------------- 9-9-98 10-9-98 N/A $1.00 - ---------- -------------------------- ------------------------- -------------------------- ------------------------- - ---------- -------------------------- ------------------------- -------------------------- ------------------------- - ---------- -------------------------- ------------------------- -------------------------- ------------------------- - ---------- -------------------------- ------------------------- -------------------------- -------------------------
The Lease term commences on 9-9-98. The first Monthly Rental is due on 10-9-98. The Lease term may be renewed for N/A Months with the Monthly Rental for such renewal term of N/A . 17 18 The Lessee has the option to purchase the Equipment as of the last day of the initial Lease term for $1.00. Special Provisions Instructions: Accepted: LESSEE: Mansur Industries, Inc. By: _______________________ Title: Chief Financial Officer LESSOR: The CIT Group/Equipment Financing, Inc. By: _______________________ Title: Agent 18 EX-23.1 16 g68025ex23-1.txt CONSENT OF KPMG LLP 1 EXHIBIT 23.1 KPMG One Biscayne Tower Telephone 305-358-2300 Suite 2800 Fax 305-913-2692 2 South Biscayne Boulevard Miami, FL 33131 INDEPENDENT AUDITORS' CONSENT The Board of Directors SystemOne Technologies Inc.: We consent to the incorporation by reference in the registration statements (No. 333-86757 and No. 333-50401) on Form S-3 and registration statement (No. 333-70379) on Form S-8 of SystemOne Technologies Inc. (the "Company"), of our report dated March 2, 2001, relating to the balance sheets of SystemOne Technologies Inc. as of December 31, 2000 and 1999, and the related statements of operations, stockholders' deficit, and cash flows for the years then ended, which report appears in the December 31, 2000, annual report on Form 10-KSB of SystemOne Technologies Inc. Our report dated March 2, 2001, contains an explanatory paragraph that states that the Company has suffered recurring losses from operations primarily resulting from the significant expenses incurred in the establishment of its national direct marketing and distribution organization and has a net capital deficiency. The Company may also need to raise additional capital that may be required to pay maturing issues of long-term debt and redeemable convertible preferred stock. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management plans to address these matters, relating principally to a recently executed marketing and distribution agreement with Safety-Kleen Services, Inc. are also described in note 2. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. /s/ KPMG LLP ------------------------- April 2, 2001 -----END PRIVACY-ENHANCED MESSAGE-----