SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-K
FOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO SECTIONS 13 OR
15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number:
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KSW, INC.
(Exact name of the Registrant as specified in its charter)
DELAWARE 11-3191686
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
37-16 23RD STREET, LONG ISLAND CITY, NEW YORK 11101
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (718) 361-6500
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 15, 1997, there were 5,542,978 shares of Common Stock, $.01 par
value per share, outstanding.
The estimated aggregate market value of the voting stock held by
non-affiliates of the registrant on March 15, 1997 was $8,719,913 (based on a
price of $2.12 per share).
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive Proxy Statement relating to its
1997 Annual Meeting of Stockholders are incorporated by reference into Part III
of the Annual Report, as set forth herein.
<PAGE>
KSW, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business.............................................. 3
Item 2. Properties........................................... 6
Item 3. Legal Proceedings.................................... 7
Item 4. Submission of Matters to a Vote of Security Holders.. 7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................. 7
Item 6. Selected Financial Data.............................. 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 9
Item 8. Financial Statements and Supplementary Data.......... 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................. 13
PART III
Item 10. Directors and Executive Officers of the Registrant... 14
Item 11. Executive Compensation............................... 15
Item 12. Security Ownership of Certain Beneficial Owners
and Management....................................... 18
Item 13. Certain Relationships and Related Transactions....... 19
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K............................. 21
SIGNATURES........................................................ 52
INDEX TO EXHIBITS ...................................................53
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL. KSW, Inc., a Delaware corporation (the "Company" or "KSWI"),
furnishes and installs heating, ventilating and air conditioning ("HVAC")
systems and process piping systems for institutional, industrial, commercial,
high-rise residential and public works projects. The Company does not pursue
projects under $500,000. Directly or indirectly through separate subsidiaries,
the Company also serves as a mechanical trade manager, performing project
management services relating to the mechanical trades. The Company operates its
contracting business through its wholly-owned subsidiary, KSW Mechanical
Services, Inc. ("KSW Mechanical").
Based on its revenues, the Company believes that like its predecessor
since 1987, it is one of the largest mechanical contractors in the New York City
metropolitan area. The Company has generated significant revenues since 1991,
with total revenues for 1996 of $46,394,000. The Company had a project backlog
of approximately $65,000,000 at December 31, 1996. Of the Company's backlog at
year-end, Terminal One at JFK comprised 25% and the Brooklyn Renaissance Plaza
project comprised 18%. The Company believes that it is most competitive on large
projects, where its skill set is most valued. Some of the Company's ongoing
projects include the following: Terminal One at JFK, Brooklyn Renaissance Plaza,
Memorial Sloan Kettering Hospital chiller replacement, The New York Hospital,
replacement of the underground distribution system at Co-op City, rehabilitation
of the Greyhound Bus Depot and the Grand Central Terminal Main Concourse and
renovation. Based on increases in the number and size of new projects announced
by public authorities and by private parties in 1996, the Company believes that
the construction industry in the New York City metropolitan area is experiencing
an upturn. The Company believes that it is well positioned to obtain a
substantial number of new contracts. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The Company's primary strategic objectives are to increase its
revenues and to become more competitive in its present business. The Company
intends to use any additional funds to expand its business into new geographic
areas in the northeastern United States and into areas which would be
complementary to its current lines of business through possible joint ventures
or acquisitions. By acquiring complementary businesses, the Company believes
that it would also be able to realize significant economies of scale and
minimize the effect of economic downturns.
BACKGROUND OF THE COMPANY. The Company acquired certain of its
existing assets and management from Kerby Saunders-Warkol Inc. ("Kerby"), a
mechanical contracting business based in New York. Kerby was formed in 1987 and
consisted of three mechanical contracting subsidiaries, all of which had been
previously acquired by JWP, Inc. These companies, Warkol Mechanical Corp., Kerby
Saunders, Inc. and Afgo Engineering Corp., were each profitable businesses with
their own client base and particular expertise in the construction industry.
Both Afgo Engineering Corp. and Kerby Saunders, Inc. had been in the mechanical
contracting business in New York City for over sixty years. As a result of the
combination of these three subsidiaries, Kerby was the largest mechanical
contractor in the New York City metropolitan area and did business under the
name "JWP Mechanical Services."
Effective November 1, 1993, KSWI, a subsidiary of Helionetics, Inc., a
California corporation ("Helionetics"), acquired certain assets, certain rights
and assumed certain liabilities associated with the mechanical contracting
business conducted by Kerby Saunders-Warkol, Inc. and Afgo Engineering Corp.,
both subsidiaries of JWP Mechanical/Electrical Services East, Inc., itself a
subsidiary of JWP (the "Sellers"), pursuant to an asset purchase agreement dated
as of October 31, 1993. In connection with this acquisition, KSWI, for fees,
also assumed the responsibility for the management of certain contracts of the
Sellers not acquired by KSWI. Through January 20, 1994, all transactions of the
acquired business were recorded through a division of Helionetics (the "KSW
Division") on behalf of KSWI. Helionetics contributed the net assets of the KSW
Division to KSWI on January 20, 1994. The contribution was accounted for as a
transfer at historical basis in a manner similar to a pooling of interests.
THE DISTRIBUTION. Effective December 29, 1995, Helionetics distributed
all of its stock in the Company to shareholders of record of Helionetics as of
December 4, 1995 (the "Distribution"). The Company's common stock began trading
on January 26, 1996 on the NASDAQ Electronic Bulletin Board under the symbol
"KSWW."
MECHANICAL CONTRACTING/SUBCONTRACTING. The Company provides heating,
ventilation and air conditioning ("HVAC") systems and process piping systems
under direct contracts with owners of buildings or subcontracts with general
contractors or construction managers. These contracts normally are awarded by
competitive bids, since many of the owners are public entities. Some contracts
are obtained through negotiation with private parties.
Traditionally, the Company's mechanical contracting and subcontracting
work made up as much as 90% of its total revenues. Because mechanical
contracting and subcontracting is a substantial portion of its business, the
Company intends to continue its concentration in this line of business.
MECHANICAL TRADE MANAGEMENT. The Company's management pioneered the
concept of managing the mechanical trade portion of construction. On larger
complex projects (generally those having a mechanical portion valued over $20
million), it is often beneficial for a general contractor or construction
manager to lock in the costs of the mechanical portion of the contract prior to
completion of the contract documents. By engaging the services of a trade
manager, general contractors can more accurately evaluate design alternatives so
that the completed construction documents balance costs and project objectives.
As a mechanical trade manager, the Company or its subsidiary performs a
construction manager function for the mechanical trade portion of a project. The
Company divides the mechanical portion of the contract into bid packages for
sub-contractors, calculates subcontractor bids, negotiates subcontracts and
coordinates the work. Trade management helps to remove gaps between contractual
responsibilities, reduce disputes and claims between trades, and simplifies the
bonding process. This coordination makes a significant difference in keeping a
project on schedule and within budget.
As a mechanical trade manager, the Company may subcontract parts of a
large project to different subcontractors, thereby increasing competition on
projects and lowering bids by allowing smaller contractors to compete for the
subcontract work. Customers benefit by having a single source with the
responsibility for the cost, coordination and construction progress of the
mechanical portion of the projects.
As for any contract for trade management projects, the Company
provides a guaranteed maximum price ("GMP") to the owners for its scope of
responsibility. The Company controls the GMP by obtaining accurate maximum price
quotes from potential suppliers and subcontractors, requiring payment and
performance bonds from major subcontractors and adding a contingency allowance
to these before quoting the GMP. The Company also controls the costs because it
is a mechanical contractor and can perform the guaranteed work on its own. On
non- governmental projects, the Company may be able to split the benefit of cost
reductions it achieves on a project, but this is prohibited in certain
government contracts. The New York Hospital project was performed by the Company
as trade manager and was completed a year ahead of schedule and substantially
under the GMP.
Although trade management is typically available only on large jobs,
the Company believes there is opportunity for expanding this line of business.
While trade management projects provide a net profit margin similar to that for
contracting projects, there is generally less risk associated with trade
management projects because there is a contingency fund which can be drawn from
if necessary. A contingency fund is a line item which the Company includes in
the GMP to account for any contingencies the Company may not have anticipated in
estimating the GMP. In the event the Company's costs exceed the relevant line
items quoted in the GMP, the Company may draw from the contingency to cover such
expenses.
OPERATIONS. The Company obtains projects primarily through competitive
bidding and negotiations in response to advertisements by federal, state and
local government agencies and solicitations by private parties. The Company
submits bids after a detailed review of the project specifications, an internal
review of the Company's capabilities, equipment, personnel availability and an
assessment of whether the project is likely to meet the targeted profit margins.
After computing the estimated costs of the project upon the Company adds its
desired profit margin before submitting a bid. The Company believes it has been
successful in the competitive bidding process because it is selective in the
projects it bids upon and has highly skilled personnel familiar with the local
market. The Company has been able to avoid costly bidding errors by becoming
thoroughly familiar with all aspects of a project and developing a comprehensive
project budget using its proven cost estimation system. Projects are divided
into phases and line items indicating separate labor, equipment, material,
subcontractor and overhead cost estimates. As a project progresses, the
Company's project managers are responsible for planning, scheduling and
overseeing operations and reviewing project costs against the estimates. Cost
overruns can therefore be kept to a minimum. During 1995 and 1996, the Company
incurred no significant losses as a result of cost overruns.
The Company has received letters of approval as an authorized bidder
by various government agencies, including the New York City Transit Authority,
the New York City Health and Hospitals Corporation, the New York City Housing
Authority and the New York State Dormitory Authority.
MARKETS. The Company competes for business primarily in the New York
City metropolitan area. However, the Company has in the past performed work
outside of that area and anticipates competing for work in other areas, such as
in Atlantic City, New Jersey.
BACKLOG. The Company has a backlog (anticipated revenue from the
uncompleted portions of awarded projects) of orders totalling approximately
$65,000,000 as of December 31, 1996. As of December 31, 1996, the Company had
substantially completed its obligations under the Asset Purchase Agreement to
complete contracts for Kerby. The trade management contract for a total value of
$44,000,000 for The New York Hospital is also substantially completed.
A portion of the Company's anticipated revenue in any year is not
reflected in its backlog at the start of the year because some projects are
started and completed the same year. The Company believes that its backlog is
firm, subject to provisions contained in some contracts which allow customers to
modify or cancel the contracts at any time, subject to certain conditions,
including reimbursement of costs incurred in connection with the contracts and
the possible payment of cancellation fees.
COMPETITION. The mechanical contracting market is highly competitive.
There are many larger regional and national companies with resources greater
than those of the Company. However, many of these large competitors are
unfamiliar with the New York City metropolitan area. The Company competes
favorably in New York City with respect to such companies because of its
reputation in the area and its knowledge of the local labor force. The Company
believes that it has only one dominant competitor in the New York City
metropolitan area, (DualStar Technologies, Inc.) There are many smaller
contractors and subcontractors in the New York City metropolitan area, but the
Company believes it has a competitive advantage over smaller competitors due to
the barriers to entry for smaller competitors, including bonding requirements,
relationships with subcontractors, suppliers and union workers.
REGULATION. The construction industry is subject to various
governmental regulations from local, state and federal authorities. The Company
is impacted by state and federal requirements regarding the handling and
disposal of lead paint, but the impact cannot be predicted at this time since it
varies from project to project. The Company must also comply with regulations as
to the use and disposal of solvents and hazardous wastes, compliance with which
are now a normal part of its operations. The Company does not do asbestos
abatement but has occasionally subcontracted that part of a contract to duly
licensed asbestos companies with the Company being named as an additional
insured on the asbestos company's liability insurance policy. For work on
certain existing building projects, the Company has purchased a $5,000,000
Contractor's Pollution Liability Policy insuring against losses resulting from
exposure to hazardous materials. The Company has not incurred any liability for
violation of environmental laws. The Company must also comply with rules and
regulations promulgated by the Occupational Safety and Health Administration.
EMPLOYEES. At December 31, 1996, the Company had 53 permanent
employees. The Company also employs field employees who are union workers. The
number of union workers employed varies at any given time, depending on the
number and types of ongoing projects and the scope of construction work under
contract. The Company hires union labor for specific work assignments and can
reduce the number of union workers hired at will with no penalties.
The Company pays for benefits payable to union employees through the
payment of funds to a trust established by the union. The Company's only
obligation is to pay a percentage of the wages of union workers to the trust
fund. Thus, the Company does not accrue liabilities for pension and medical
benefits to union retirees. The Company provides its permanent employees with
medical insurance benefits and a discretionary matching 401(k) plan. A profit
sharing plan has also been established but has not been funded to date.
DEPENDENCE UPON CUSTOMERS. The Company seeks large, multi-year
contracts. At any given time, a material portion of the Company's contracting
business may be for one large contract for one customer.
For the year ending December 31, 1996, work on a trade management
contract with New York Hospital amounted to 23% of the Company's total revenues.
From time to time, work with the following parties has accounted for over 10% of
a given year's revenue: Morse Diesel International, Inc., NAB Construction
Company and Lehrer McGovern Bovis, Inc.
Historically, a considerable portion of the Company's revenue has been
generated from contracts with federal, state and local governmental authorities.
Consequently, a reduction in public sector contracts for any reason, including
an economic downturn or a reduction in government spending, would have a
material adverse effect on the Company's results of operations. At any one time,
the Company's contracts with federal, state and local governmental authorities
may or may not represent a material portion of its revenues.
INSURANCE CLAIMS AND BONDING REQUIREMENTS. On a previously completed
project, where KSW Mechanical Services has been paid in full, the owner has
incurred certain additional costs for which its sought reimbursement from its
insurer and the general contractor. Based upon the claim that these costs were
KSW's responsibility, the claim was tendered to the Company's carrier, which
settled all claims within the policy limits.
On most of its projects, the Company is required to provide a surety
bond. The Company's ability to obtain bonding, and the amount of bonding
required, is primarily based upon the Company's net worth and working capital
and the number and size of projects under construction. The larger the project
and/or the number of projects under contract, the greater the Company's bonding,
net worth and working capital requirements. The Company generally pays a fee to
the bonding company of an amount less than 1% of the amount of the contract to
be performed. Since inception, the Company has not encountered difficulties in
obtaining Payment and Performance Bonds nor has any bonding company been
required to make a payment on any bonds issued for the Company.
OTHER MATTERS. The Company does not own any patents, patent rights, or
similar intellectual property, and none is material to its business. The
Company's business is not subject to large seasonal variations. The Company
expended no funds for research and development in 1994, 1995 or 1996, and no
research and development costs are anticipated.
ITEM 2. PROPERTIES.
The Company leases a building in Long Island City, New York,
consisting of 35,000 square feet of office, manufacturing and warehouse space.
The Company acquired its interest in the lease by way of assignment from Kerby
pursuant to the Asset Purchase Agreement. The lease has a term of ten years
ending on April 30, 1998. The annual rent, effective May 1, 1996, is $249,773,
or the sum of $205,000 plus one half of the increase in the Consumer Price Index
from April 1986 to April 1998. The lease is a triple net lease and thus the
Company pays the taxes ($66,276 per year accruing currently), maintenance,
insurance and utilities.
In connection with the Asset Purchase Agreement, the Company also assumed a
lease for a building and a storage yard in Bronx, New York, consisting of a
14,000 square feet building, including 14,000 square foot of offices, 10,000
square feet of shop space and an adjacent 5,000 square foot storage yard. This
lease is a triple net lease. The Company pays rent of $103,000 per year, plus
taxes (currently $24,335 per year), maintenance, insurance and utilities. The
lease will expire on December 31, 1998. See "Certain Relationships and Related
Transactions."
ITEM 3. LEGAL PROCEEDINGS.
The Company is not aware of any pending or threatened legal
proceedings which could have a material adverse effect on its financial position
or operations. However, there are ongoing class action lawsuits and other
lawsuits against the Company's former parent, Helionetics. The wife of the
Chairman of the Board of Directors of Helionetics has irrevocably pledged
500,000 shares of the stock she received in the Distribution of the Company as
collateral security for any payment of any claims by KSW, Inc. against
Helionetics in connection with the December 28, 1995 Distribution of KSW, Inc.
stock by Helionetics. The Company has received notice of three claims arising in
connection with the Distribution, totaling $274,182. The Company has paid one
claim in the sum of $21,182 and intends to recover that sum under the Pledge
Agreement. Helionetics has disputed the validity of the other two claims
(totaling $253,000) and those issues will be submitted to arbitration.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following matters were submitted to a vote of the shareholders at
the Company's Annual Meeting held on June 27, 1996:
1. The election of two Class 1 Directors, each to serve for a term of
three years until his successor shall have been duly elected and qualified. The
Directors elected at the meeting were Armand D'Amato and Daniel Spiegel. The
Directors whose term of office continued after the meeting were Robert Brussel
(term expires 1997), Floyd Warkol and Burton Reyer (both terms expiring in
1998).
2. The adoption of an Amendment to the Company's 1995 Stock Option
Plan to increase by 350,000 shares the aggregate number of shares of Common
Stock of the Company available for future options to 490,000 shares. There were
3,238,134 votes for the proposal, 64,934 against and 33,690 abstentions.
3. To ratify the appointment of Marden Harrison & Kreuter, certified
public accountants, as the Company's independent auditors for the fiscal year
ended December 31, 1996. There were 4,976,691 votes for this proposal, 19,367
against and 8,367 abstentions.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Beginning on January 26, 1996, the Company's Common Stock was approved
for listing on the NASDAQ's Electronic Bulletin Board under the symbol "KSWW."
At March 14, 1997, the Company had 5,542,978 shares of KSWI Common
Stock issued and outstanding held by approximately 12,000 shareholders of
record.
In February 1996 the Company applied for listing on the NASDAQ
Smallcap Market. The NASDAQ Listing Qualifications Committee has denied the
Company's request for listing at that time based upon its failure to satisfy the
minimum bid requirements. The Company was invited to re-apply for listing at
such time as it has established a bid price at or above $3 in bonafide market
conditions.
Currently, the Company intends to retain earnings for future growth;
and it has not paid and does not anticipate paying dividends on its Common Stock
in the foreseeable future.
The following information on high and low trading ranges is provided
since February 1, 1996, the date on which the Company's Common Stock actually
began trading on the NASDAQ Electronic Bulletin Board.
QUARTER High Low
First............................... $2.75 $2.00
Second.............................. 3.18 1.75
Third............................... 2.12 1.50
Fourth.............................. 1.87 1.50
ITEM 6. SELECTED FINANCIAL DATA.
The following summary of certain financial information relating to the
Company for the years ended December 31, 1996, December 31, 1995 and December
31, 1994 is derived from, and is qualified by reference to, the financial
statements for the year ended December 31, 1996, audited by Marden, Harrison &
Kreuter, and the financial statements for the years ended December 31, 1995 and
December 31, 1994, audited by Corbin & Wertz, each of which is included herein,
and should be read in conjunction with such financial statements and the notes
thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(Dollars in thousands, except share and per share amounts)
1996 1995 1994
---- ---- ----
Income Statement:
<S> <C> <C> <C>
Revenues.......................................... $46,394 $44,176 $36,131
Direct costs...................................... 42,600 38,990 30,046
Gross profit...................................... 3,794 5,186 6,085
Operating expenses................................ 3,970 4,115 4,523
Selling, general,
administration, 3,898 4,615 5,479
depreciation, interest and income tax expenses..
Income (loss) before income taxes................. (176) 1,071 1,562
Net income (loss)................................. (104) 571 606
Net income per share (loss)....................... (0.02) .07(1)
.08(1)
Number of shares used in computation.............. 5,568,429 7,785,754(1) 7,800,000(1)
Balance Sheet Data:
Total assets...................................... 28,734 20,431 18,380
Working capital................................... 5,582 4,928 4,564
Current liabilities............................... 18,195 10,302 7,305
Long term liabilities............................. 0 0 0
Stockholders' equity.............................. 10,539 10,129 11,075
Other Data:
Current ratio..................................... 1.31:1 1.48:1 1.62:1
- ----------------
(1) Pro forma earnings per share after giving effect to the 7,800-to-1
stock split and the repurchase of 2,600,000 shares of KSWI Common Stock
by the Company from Helionetics would be $0.11 and $0.12 for the years
ended December 31, 1995 and 1994 respectively, based on 5,200,000
shares of KSWI Common Stock outstanding.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following is a discussion of the financial condition and results of
operations of the Company for the fiscal years ended December 31, 1996, 1995 and
1994.
OVERVIEW
On November 1, 1993, KSWI acquired certain assets and rights and
assumed certain liabilities associated with the mechanical contracting business
conducted by Kerby. On December 29, 1995, KSWI became a separate publicly traded
corporation as a result of the distribution by Helionetics of its common stock
of KSWI to its shareholders.
The Company's contracts often involve work periods in excess of one
year. Revenue on uncompleted fixed price contracts is recorded under the
"percentage of completion" method of accounting. The Company begins to recognize
profit on its contracts when it first incures direct costs. Contract costs
include all direct material, labor and other direct costs related to contract
performance, including, but not limited to, subcontractor's costs and supplies.
General and administrative costs are charged to expense as incurred. Pursuant
to construction industry practice, a portion of billings, generally not
exceeding 10%, may be retained by the customer until the project is completed
and all obligations of the contractor are paid. The Company has not been
subject to a material loss in connection with any such retention.
Given the drawn out effect associated with contract revenues, the
Company's results of operations over the period from January, 1994 through the
third quarter of 1996 reflect the delayed impact of the unwinding of the
Company's predecessor and the economic downturn in the New York area during the
early 1990's. Similarly, the long lead time for obtaining new contracts and
commencement of work has the same effect on any upturn in the business--
recognition of increases in revenues are delayed.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, certain
items of the Company's statement of operations for the years indicated.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
(Dollars in thousands)
Net Sales:
<S> <C> <C> <C> <C> <C> <C>
Contracts....................... $45,611 98.3 $41,381 93.7 $28,934 80.1
Fees............................ 783 1.7 2,795 6.3 7,197 19.9
--------- ---- ------ ----- ------- -----
Total........................... 46,394 100.0 44,176 100.0 36,131 100.0
Costs of sales.................... 42,600 91.8 38,990 88.3 30,046 83.2
--------- ------ ------- ------ --------- ------
Gross profit...................... 3,794 8.2 5,186 11.7 6,085 16.8
Expenses:
Selling, general & 3,970 8.6 4,115 9.3 4,523 12.5
administrative expenses.......
Income (loss) before provision.... (176) (0.4) 1,071 2.4 1,562 4.3
for income taxes..................
Provision for income taxes........ (72) (0.2) 500 1.1 956 2.6
----- ----- ------ --- ---- -----
Net (loss) income................. $(104) (0.2) $571 1.3 $ 606 1.7
------ ----- --- -- ---
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KSW, INC.
COMPUTATION OF NET INCOME PER SHARE
(000'S EXCEPT NET INCOME PER SHARE)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average common 5,440 7,786 7,800
post-split shares
Shares acquired from Helionetics (2,600) (2,600)
Pro forma weighted average common shares 5,440 5,186 5,200
=========== ========= =========
Common stock and common stock equivalent
using the Treasury stock method 128 0 0
---------- --------- ---------
Total shares outstanding for purposes of
calculating primary and fully diluted earnings
(loss) per share 5,568 5,186 5,200
====== ====== ==========
Net Income (loss) as reported $(104) $ 571 $ 606
====== ====== =========
Pro forma net income (loss) per share $( .02) $ 0.11 $0.12
======= ====== ===========
Net income as reported $ 606
Goodwill amortization adjustment 174
Pro forma net income $ 780
========
Pro forma net income per share $ 0.15
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenue increased by $2,218,000 or 5.0% to $46,394,000 for the
year ended December 31, 1996, compared to $44,176,000 for the same period in
1995. If KSWI had booked the full revenues under the contracts it managed for
Kerby, it would have booked additional revenues of $230,000 for the year ended
December 31, 1996 and $1,508,000 for the same period in 1995.
Revenue was lower in the first three quarters of 1996 due to the
delays in starting many of the projects. As a result, the revenue increased in
each quarter and rose substantially (45%) in the fourth quarter. Revenue by
quarter for 1996 was as follows:
REVENUE (000'S)
lst Quarter $ 8,837
2nd Quarter 10,588
3rd Quarter 11,019
4th Quarter 15,950
------
TOTAL $46,394
=======
Cost of sales increased by $3,610,000 or 9.3% to $42,600,000 for the
year ended December 31, 1996, compared to $38,990,000 for the comparable period
in 1995 primarily as a result of the increase in contract revenues.
Gross profit as a percentage of net sales decreased to 8.2% for the
year ended December 31, 1996, compared to 11.7% for the same period in 1995. The
decrease in the gross profit margin for the year ended December 31, 1996 was due
to increased competition.
Selling, general and administrative expenses decreased by $145,000 or
3.5% to $3,970,000 for the year ended December 31, 1996, compared to $4,115,000
for the comparable period in 1995. This decrease was a result of reductions in
insurance costs which were partially offset by increased costs during 1996
attributable to being a public company.
The income tax credit for 1996 was ($72,000) as opposed to a provision
of $500,000 for 1995. The credit (provision) were a result of the taxable income
(loss) of the comparable periods.
The was a $104,000 loss for 1996 compared to a net profit of $571,000
in 1995 as a result of all the items previously mentioned.
During 1995 61% of revenues came from one contract as compared to 23%
of revenues coming from the same contract in 1996. This contract is 91% complete
at December 31, 1996 and should not account for a major portion of revenues in
1997. However, the Company is receiving new contracts of significant value and
currently has three large contracts each of which may account for over 10% of
revenues in 1997. In addition, the Company is bidding on several other major
contracts which, if obtained, could account for significant revenues in 1997.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenue increased by $8,045,000 or 22.3% to $44,176,000 for
1995, compared to $36,131,000 for 1994. This increase can be primarily
attributed to the fact that a larger percentage of revenues for 1994 consisted
of fee income where only labor and profit for projects were included in revenue.
If revenue had been grossed up to include all of the costs associated with
projects (some of which were paid by a predecessor entity), revenue for 1994
would have shown an additional $7,098,000 and an additional $1,508,000 in 1995.
Using these grossed up revenues, the revenue increase would have been only
$2,455,000 or 6.8% from 1994 to 1995. By December 31, 1995, the Company had
completed substantially all of the assigned Kerby contracts and had begun to
acquire contracts under its own name. Thus, in 1995, the Company has been able
to channel its resources to procure its own contracts.
For 1995, revenues from one contract accounted for 61% of revenues,
while for 1994, revenues from another contract accounted for 52% of total
revenues.
Cost of sales increased by $8,944,000 or 29.8% to $38,990,000 for
1995, compared to $30,046,000 for 1994. However, using grossed up numbers, the
cost of sales would show an increase of $3,354,000, instead of the actual
$8,944,000 increase.
The gross profit percentage shows a decrease from 16.8% to 11.7% from
1994 to 1995; however, this was due to the high gross profit from fee contracts.
In addition, a significant portion of net income for 1995 ($25,870,000) came
from a trade management project. Although the gross profit percentage is
generally lower for trade management projects, certain selling, general and
administrative expenses are included in project costs.
Selling, general and administrative expenses decreased by $408,000 or
9.0% to $4,115,000 for 1995, compared to $4,523,000 for 1994. Selling, general
and administrative expenses as a percentage of net sales decreased to 9.3% for
1995, compared to 12.5% for 1994. This decrease resulted primarily from a one
time charge of $607,000 incurred in 1994 for compensation expenses relating to
common stock issued to officers and directors. This was offset by one time costs
of $575,000 incurred in 1995 for professional fees (amounting to $200,000) and
bonuses paid to officers (amounting to $375,000) in connection with the filing
of the Registration Statement on Form 10 relating to the Distribution and KSW,
Inc. becoming an independent company.
The provision for income taxes decreased by $456,000 or 47.7% to
$500,000 in 1995, compared to $956,000 for 1994. The decrease was attributable
to the fact that a one time charge of $607,000 for compensation expenses for
1994 was not tax deductible. If the charge for compensation expenses had been
tax deductible, the provision for taxes would have been $273,000 less and equal
to 44% of income before provision for income taxes, a rate comparable to that
for 1995.
Based on a stockholder's agreement with Helionetics, the Company was
required to pay Federal income taxes only if Helionetics had a consolidated
liability. Since Helionetics had no such liability for the years ended December
31, 1995 and 1994, the Company paid no Federal income taxes. A provision was set
up for these years; however, and an adjustment to capital surplus for
"forgiveness of debt by Helionetics" of $343,000 and $335,000 for the years
ended December 31, 1994 and 1995, respectively (see Consolidated Statement of
Stockholders' Equity). State and local taxes were accrued and paid, since the
Company was the only Helionetics subsidiary doing business in New York.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its capital resources will be adequate to
maintain its current level of business. The Company believes that it is well
positioned to obtain new contracts and generate increased revenues over the next
year. Public agencies and private parties have announced many new bids for
multi-million dollar projects in which the Company would have a strong
competitive advantage. The tax abatement for construction in lower Manhattan has
led to an increase in the number of new projects announced by private parties.
The Company's current bonding limits are also sufficient given the
volume and size of the Company's contracts. The Company's surety may require
that the Company maintain certain tangible net worth levels if the Company
should desire increased bonding limits.
The Company utilized $777,000 of cash during 1996, primarily to fund
increases in accounts receivable due to increased volume in the fourth quarter.
In addition, $206,000 was used to purchase fixed assets and $323,000 was
provided by the sale/redemption of stock. In 1995, $1,313,000 was provided by
operations, while $479,000 was used for investing activities and $550,000 for
payment of dividends.
The Company believes its current cash resources are adequate to fund a
moderate increase in sales volume over the next fiscal year. However, the
Company's capital resources may not be sufficient to sustain the Company's
long-term plans for growth. In addition to seeking new contracts, the Company
intends to expand into new geographic areas. The Company is also considering
potential acquisitions of companies engaged in complementary businesses. The
Company believes that entering into complementary lines of business could
achieve significant economies of scale.
The Company's management has had experience in expanding into new
geographic areas with the Company's predecessors; however, to date the Company
has conducted its operations exclusively in the New York City metropolitan area.
The Company has not identified any acquisition candidates nor has it entered
into any plans, agreements or understandings in respect of acquisitions. There
can be no assurance that the Company will identify potential acquisition
candidates, reach favorable terms, or successfully integrate into its operations
any acquired businesses. Acquisitions may require significant additional
capital. The Company may seek to raise capital through debt or equity financing,
or both, which may result in substantial dilution to stockholders.
The Company currently has a line of credit of $2,500,000 with Fleet
Bank, which bears interest at a rate of 1% over the bank's prime rate and is
subject to certain covenants. As of March 14, 1997, the Company has not drawn
down any monies against this line. The Company is currently negotiating a
revolving credit line with increased limits to be used for expansion of its
current business as well as acquisitions.
The Company currently has no significant capital expenditure
commitments.
During the construction period, owners or general contractors may
request that KSWI perform certain work which is a change to or an addition to
the original contract. Such work often requires several months to obtain formal
change orders (including dollar amounts). Change orders are often the subject of
dispute and, sometimes, of litigation. Slow receipt on collections may also
result from general contractor or owner financial difficulties. KSWI tries to
limit its financial exposure, by refusing, whenever possible, to do work without
a signed formal change order.
IMPACT OF INFLATION
Although the Company's operations are not directly affected by
inflation, both New York City and New York State have large debt service
burdens. Inflationary pressures have tended to result in a reduction in capital
spending by both state and local agencies; such capital expenditure reductions
in turn have a negative impact on the Company's revenues.
CAUTIONARY STATEMENT CONCERNING FOWARD-LOOKING INFORMATION
Except for historical information contained herein, certain matters
discussed in this Form 10-K are "forward- looking statements" as defined in the
Private Securities Litigation Reform Act (PSLRA) of 1995, which involve risk and
uncertainties that exist in the Company's operations and business environment
and are subject to change based on various important factors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements are submitted in Item 14 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
See Item 4(3) avobe.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The Board of Directors of the Company is divided into three classes,
with each class serving for three years or until their successors have been
elected. The officers serve at the pleasure of the Board of Directors.
Information as to the directors and executive officers of the Company and the
proposed directors is as follows:
NAME AGE TITLE
Floyd Warkol 49 President, Chief Executive Officer,
Chairman of the Board and Director
Burton Reyer 62 Executive Vice President, Secretary and
Director
Robert Brussel 54 Chief Financial Officer and Director
Armand D'Amato 52 Director
Daniel Spiegel 71 Director
Mr. Floyd Warkol has been principally employed as Chairman of the
Board since December 15, 1995 and as President and Chief Executive Officer of
KSWI and as Chairman and Chief Executive Officer of its subsidiary KSW
Mechanical since January 1994. From February 1987 to January 1994, he was
principally employed as Chief Executive Officer of Kerby.
Mr. Burton Reyer has been principally employed as Executive Vice
President and Secretary of KSWI since December 15, 1995 and as Vice President
and Director of KSWI and as President and Chief Operating Officer of its
subsidiary KSW Mechanical since January 1994. From December 1987 to January
1994, he was principally employed as Chief Operating Officer of Kerby.
Mr. Robert Brussel has been principally employed as Chief Financial
Officer and Director of KSWI and Chief Financial Officer of its subsidiary KSW
Mechanical Inc. since January 1994. From June 1988 to January 1994, he was
principally employed as Chief Financial Officer of Kerby.
Mr. Armand D'Amato has been Director of KSWI since December 15, 1995.
He is also currently, and has been since 1994, the President of the Lloyd Group,
Inc., a company specializing in land use and environmental consulting for real
estate developers and solid waste operators. From 1976 to 1993, he was a partner
at the law firm of Forchelli, Schwartz, Minco and Carlino, Mineola, New York.
From 1972 to 1987, he was a member of the New York State Assembly.
Mr. Daniel Spiegel was appointed as an interim director in January
1996. He had been principally employed as Senior Vice President of Tishman
Realty & Construction Company, Inc. from 1970 until March 1995. He is presently
a consultant to various construction-related companies.
COMMITTEES OF THE BOARD OF DIRECTORS. A Compensation Committee
approves the salary, incentives and benefit plans for directors, officers and
other employees and the granting of options and other compensation matters. The
Compensation Committee consists of non-employee Directors, Armand D'Amato and
Daniel Spiegel. An Audit Committee, also composed of non-employee Directors,
oversees actions taken by the Company's independent auditors and reviews the
Company's financial controls.
CLASSIFIED BOARD OF DIRECTORS. The Company's Board of Directors is
divided into three classes of Directors serving staggered three-year terms.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. Susan Barnes, a
beneficial owner of more than 10% of issued and outstanding KSWI Common Stock,
has failed to file on a timely basis, reports required by Section 16(a) of the
Securities Exchange Act of 1934, as amended, for the year ended December 31,
1996.
On January 2, 1996, Susan Barnes sold 111,163 shares of her common
stock to another party. On January 31, 1996, she sold 59,500 shares of her
common stock to Allen & Company and 25,500 shares of her common stock to an
Allen & Company Managing Director, Paul A. Gould. On May 6, 1996, she sold
98,882 shares of her common stock purportedly under Rule 144. On December 18,
1996, she sold 480,000 shares of her common stock to Floyd Warkol and 145,000
shares of her common stock to Burton Reyer. Ms. Barnes has failed to file a Form
4 or a Form 5 to report these transactions.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth remuneration paid to executive officers
of the Company for the fiscal years ended December 31, 1996 and December 31,
1995.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
AWARDS PAYOUTS
Name and Principal Securities
Position Fiscal Year Other Annual Restricted Underlying LTIP All Other
SALARY BONUS COMPENSATION STOCK OPTIONS/SARS PAYOUTS COMPENSATION
- ----------------- ----- ------ ----- ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Floyd Warkol 1996 $550,000 $0
President & Chief 1995 $525,000 $250,000 - - - $100,000
Executive Officer
Burton Reyer 1996 $300,000 $0
Vice President 1995 $287,000 $125,000
Robert Brussel 1996 $135,000 $32,500
Chief Financial 1995 $125,000 $30,000
Officer
James Oliviero 1996 $150,000 $32,500
Director of 1995 $125,000 $25,000
Investor Relations
- --------------------------------------
The Company and KSW Mechanical entered into a three-year employment
contract and a non-competition agreement with Mr. Warkol as of January 1, 1994.
The employment contract provides for base annual compensation of $500,000,
increasing by $25,000 per annum. Mr. Warkol is also entitled to medical
insurance, (disability insurance with payments equal to 60% of base
compensation,) a $1 million life insurance policy payable as directed by the
employee (at a cost of $1,210 per year), $10,000 per year in club dues, a car
and chauffeur and bonuses if, and when, declared by a two-thirds vote of the
Company's Board of Directors. Mr. Warkol is entitled to terminate his employment
for "good reason," i.e., a substantial change in the nature or status of his
responsibilities or the person to whom he reports, in which event he is entitled
to receive full pay and benefits for the remainder of the term of the contract.
The Company is not entitled to discharge Mr. Warkol for disability until he has
been disabled for 180 consecutive days. Mr. Warkol's estate is entitled to
two-months pay in the event of his death. Mr. Warkol has agreed that he will not
compete in the mechanical contracting business in the New York City metropolitan
area for the term of his employment contract and for two years thereafter.
</TABLE>
The Company and KSW Mechanical entered into a three-year employment
contract and a non-competition agreement with Mr. Reyer as of January 1, 1994.
The employment contract provides for base annual compensation of $275,000,
increasing by $12,500 per annum. Mr. Reyer is entitled to medical insurance,
disability insurance with payments equal to 60% of base compensation, a $500,000
policy of life insurance payable as directed by the employee, $5,000 per year in
club dues and bonuses if, and when, declared by a two-thirds vote of the
Company's Board of Directors. Mr. Reyer is entitled to terminate his employment
for good reason, i.e., a substantial change in the nature or status of his
responsibilities or the person to whom he reports, in which event he is entitled
to receive full pay and benefits for the remainder of the term of the contract.
The Company is not entitled to discharge Mr. Reyer for disability until he has
been disabled for 180 consecutive days. Mr. Reyer's estate is entitled to two
months' pay in the event of his death.
In December 1995, Messrs. Warkol and Reyer agreed to extend their
executive employment agreements for an additional two years, under similar terms
and conditions. Messrs. Warkol and Reyer received salary increases of $25,000 in
each of the two years.
OPTIONS GRANTED IN 1996. The Company adopted the 1995 Stock Option
Plan of KSW, Inc. (the "Stock Option Plan") on December 15, 1995, and the Stock
Option Plan was approved by the KSWI stockholders by unanimous written consent
on December 15, 1995. The Stock Option Plan is administered by the Board of
Directors or a Committee appointed by the Board of Directors (each herein called
the "Compensation Committee"). All key employees of, consultants to, and certain
non-employee Directors of the Company, as may be determined by the Compensation
Committee from time to time, are eligible to receive options under the Stock
Option Plan. No options were granted in 1996.
A total of 750,000 shares were originally authorized for issuance
under the Stock Option Plan. Prior to 1996, the Company had granted options with
respect to 610,000 shares at an exercise price of $1.50 per share to certain
eligible participants under the Stock Option Plan (of which 535,000 were issued
to officers and directors of the Company and its subsidiaries). At the Company's
Annual Meeting held on June 27, 1996 the shareholders approved an amendment to
the Stock Option Plan to increase by 350,000 shares the aggregate number of
shares of Common Stock available for future options to 490,000 shares.
The exercise price of an incentive stock option and a non-qualified
stock option is fixed by the Compensation Committee on the date of grant;
however, the exercise price under an incentive stock option must be at least
equal to the fair market value of the KSWI Common Stock on the date of grant.
Stock options are exercisable for a duration determined by the
Compensation Committee, but in no event more than ten years after the date of
grant. Options shall be exercisable at such rate and times as may be fixed by
the Compensation Committee on the date of grant. The aggregate fair market value
(determined at the time the option is granted) of the KSWI Common Stock with
respect to which incentive stock options are exercisable for the first time by a
participant during any calendar year (under all stock option plans of the
Company and its subsidiaries) shall not exceed $100,000; to the extent that this
limitation is exceeded, such excess options shall be treated as non-qualified
stock options for purposes of the Stock Option Plan and the Internal Revenue
Code of 1986, as amended (the "Code").
At the time a stock option is granted, the Compensation Committee may,
in its sole discretion, designate whether the stock option is to be considered
an incentive stock option or non-qualified stock option plan. Stock options with
no such designation shall be deemed an incentive stock option to the extent that
the $100,000 limit described above is met.
Payment of the purchase price for shares acquired upon the exercise of
options may be made by any one or more of the following methods: in cash, by
check, by delivery to the Company of shares of KSWI Common Stock already owned
by the option holder, or by such other method as the Compensation Committee may
permit from time to time. However, a holder may not use previously owned shares
of KSWI Common Stock that were acquired pursuant to the Stock Option Plan, or
any other stock plan that may be maintained by the Company or its subsidiaries,
to pay the purchase price under an option, unless the holder has beneficially
owned such shares for at least six months. Stock options become immediately
exercisable in full upon the retirement of the holder after reaching the age of
65, upon the disability or death of the holder while in the employ of or service
with the Company, upon a Change of Control (as defined in the Stock Option
Plan), or upon the occurrence of such special circumstances as in the opinion of
the Compensation Committee merit special consideration. However, no options may
be exercised earlier than six months following the date of grant.
Stock options terminate at the end of the tenth business day following
the holder's termination of employment or service. This period is extended to
one year in the case of the disability or death of the holder, and in the case
of death, the stock option is exercisable by the holder's estate.
The options granted under the Stock Option Plan contain anti-dilution
provisions which will automatically adjust the number of shares subject to the
option in the event of a stock dividend, split-up, conversion, exchange, re-
classification or substitution. In the event of any other change in the
corporate structure or outstanding shares of KSWI Common Stock, the Compensation
Committee may make such equitable adjustments to the number of shares and the
class of shares available under the Stock Option Plan or to any outstanding
option as it shall deem appropriate to prevent dilution or enlargement of
rights.
The Company shall obtain such consideration for granting options under
the Stock Option Plan as the Compensation Committee in its discretion may
request.
Each option may be subject to provisions to assure that any exercise
or disposition of KSWI Common Stock will not violate the securities laws.
No option may be granted under the Stock Option Plan after December
15, 2005.
The Board of Directors or the Compensation Committee may at any time
withdraw or amend the Stock Option Plan and may, with the consent of the
affected holder of an outstanding options at any time withdraw or amend the
terms and conditions of outstanding options. Any amendment which would increase
the number of shares issuable pursuant to the Stock Option Plan or change the
class of individuals to whom options may be granted shall be subject to the
approval of the stockholders of the Company within one year of such amendment.
The following table shows the number of shares as to which options
were granted immediately before the Distribution on December 29, 1995 to the
Company's executive officers: (no options were granted during the 1996 fiscal
year.)
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN 1996
AND OPTION/SAR VALUES AT DECEMBER 31, 1996
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-
Options/SARs Money
at Fiscal Options/SARs
Year-End (#) at Fiscal
Shares Exercisable/ Year-End ($)
NAME Acquired VALUE Unexercisable Exercisable/
on Exercise (#) REALIZED ($) Unexercisable
Exercisable Unexercisable Exercisable Unexcercisable
<S> <C> <C> <C> <C>
Floyd Warkol........0 0 100,000/200,000 37,500/75,000
Burton Reyer.. .....0 0 50,000/100,000 18,750/37,500
Robert Brussel. ....0 0 8,333/16,667 3,125/6,250
James Oliviero......0 0 6,667/13,333 2,500/5,000
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information relating to the beneficial
ownership of KSWI Common Stock by (i) those persons known to the Company to
beneficially own more than 5% of the Company's Common Stock, (ii) each of the
Company's directors, proposed directors and executive officers and (iii) all of
the Company's directors, proposed directors and executive officers as a group.
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership
SOLE VOTING PERCENT
NAME OF BENEFICIAL OWNER AND OF CLASS
POWER
<S> <C> <C>
Susan Barnes........................................647,913 (1) 11.6%
541 Loring
Los Angeles, CA 90024
Floyd Warkol.......................................1,647,913(2) 29.7%
Meadow Lane
Purchase, NY 10577
Burton Reyer........................................ 405,000 7.3%
17 Foxwood Road
Kings Point, NY 11024
Allen & Company..................................... 385,000 6.8%
711 Fifth Avenue
New York, NY
Robert Brussel...................................... 25,000 .45%
365 Woodmere Blvd.
Woodmere, NY 11598
All Executive officers............................ 2,077,913 37.5%
and directors as a group
</TABLE>
As used in this table, "beneficial ownership" means the sole or shared
power to vote, or to direct the voting of a security, or the sole or shared
investment power with respect to a security (i.e., the power to dispose, or
direct the disposition, of a security). Accordingly, they may include shares
owned by or for, among others, the wife, minor children or certain other
relatives of such individual, as well as other shares as to which the individual
has the right to acquire within 60 days after such date.
(1) Share quantities reflect that Susan Barnes sold 480,000 shares of
her KSWI Common Stock to Floyd Warkol, and 145,000 shares to Burton Reyer.
Includes shares owned by affiliates of Ms. Barnes.
(2) Includes Susan Barnes' shares over which Mr. Warkol has an irrevocable
proxy. Includes 78,000 shares owned by Mr. Warkol's wife in trust for their
minor daughter, and 78,000 shares owned by Mr. Warkol's son, which Mr. Warkol
denies beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Susan Barnes, the owner of approximately 12% of KSWI's outstanding
shares of Common Stock, has granted to Mr. Warkol an irrevocable proxy to vote
all of the shares of KSWI Common Stock which were distributed to her, empowering
Mr. Warkol, as President of KSWI, to vote these shares to elect members of the
Company's Board of Directors and to vote in favor of or against any other
matters that come before the stockholders of the Company.
Susan Barnes irrevocably pledged 500,000 of the shares she received in
the Distribution to the Company. (See Item 3, above)
Floyd Warkol, President of the Company and a foundation he controls
jointly are the landlord on the Company's lease in Bronx, New York. See
"Properties."
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) FINANCIAL STATEMENTS
The financial statements required to be filed by Item 8 herewith
follow this page.
(b) A Current Report on Form 8-K was filed on August 8, 1996.
(c) EXHIBITS
Reference is made to the Exhibit Index found on page 53 of this Form
10-K.
(d) A schedule of valuation and qualifying accounts is filed
herewith as Exhibit 27.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
FINANCIAL STATEMENTS OF KSWI
Independent Auditors' Report.........................................F-13
Consolidated Balance Sheets as of December 31,
1996 and 1995......................................................F-14
Consolidated Statement of Operations years ended December 31, 1996,
1995 and 1994........................................................F-15
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994.............................F-16
Consolidated Statement of Cash Flows years ended
December 31, 1996, 1995 and 1994...................................F-17
Notes to Financial Statements........................................F-19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
March 30, 1997 on its behalf by the undersigned, thereunto duly authorized.
KSW, INC.
By: /S/ FLOYD WARKOL
Floyd Warkol
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ Floyd Warkol Chairman of the Board and Chief
Floyd Warkol Executive Officer (Principal March 30,1997
Executive Officer)
/S/ Burton Reyer Vice President and Director March 30, 1997
Burton Reyer
/S/ Robert Brussel Chief Financial Officer and
Robert Brussel Director March 30, 1997
/S/ Armand D'Amato Director March 30, 1997
Armand D'Amato
/S/Daniel Spiegel Director March 30, 1997
Daniel Spiegel
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
KSW, Inc. and Subsidiary
37-16 23rd Street
Long Island City, New York 11101
We have audited the accompanying consolidated balance sheet of KSW, Inc. and
subsidiary as of December 31, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The consolidated financial statements
of KSW, Inc. and subsidiary as of December 31, 1995 and 1994 were audited by
other auditors whose report dated February 19, 1996 expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of KSW,
Inc. and subsidiary as of December 31, 1996, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
MARDEN, HARRISON & KREUTER Certified Public Accountants, P.C.
/s/ Marden, Harrison & Kreuter
Port Chester, New York
January 30, 1997
<PAGE>
EXHIBIT INDEX
Exhibit Incorporated Filed with
No. Description Herein by Reference Electronic
Submission
3.1.2 Amended and Restated Articles of
Incorporation of the Registrant X
3.11.2 Amended and Restated By-Laws of X
the Registrant
10.1A Subcontract Agreement dated as of November X
21, 1996 between KSWI and Morse Diesel
International, Inc. for Brooklyn
Renaissance Plaza
10.1B Subcontract Agreement dated as of May 1, X
1996 between KSWI and Morse Diesel
International, Inc. for Terminal One
at JFK Aairport.
10.5 General Agreement of Indemnity, X
dated February 28, 1994, by and
among Seaboard Surety Company-St.
Paul Fire and Marine Insurance
Company and KSWI Mechanical
Services, Inc. or the Registrant
10.6 General Agreement of Indemnity, X
dated February 28, 1994, by and
among Helionetics, Inc. Seaboard
Surety Company- St. Paul Fire and
Marine Insurance Company and KSWI
Mechanical Services, Inc. or the
Registrant
10.8 Employment Agreement, dated as of X
January 1, 1994, by and among KSW
Mechanical Services, Inc., Burton
Reyer and the Registrant
10.9 Employment Agreement, dated as of X
January 1, 1994, by and among KSW
Mechanical Services, Inc., Burton
Reyer and the Registrant
10.11 Pledge Agreement by and between X
Susan Barnes and the Registrant
10.12 Irrevocable Proxy, dated December X
5, 1995, by Susan Barnes to Floyd
Warkol, in his capacity as
President of the Registrant
10.13 Amendatory Employment Agreement, X
dated as of December 15, 1995, by
and among KSW Mechanical Services,
Inc., the Registrant and Floyd
Warkol
10.14 Amendatory Employment Agreement, X
dated as of December 15, 1995, by
and among KSW Mechanical Services,
Inc., the Registrant and Burton
Reyer
21.1 List of Subsidiaries X
27 Financial Data Schedule X
for Year Ending December 31, 1996
PROJECT # 2172901
TRADE CODE # 15050
HVAC
TERMINAL ONE JFK INTERNATIONAL AIRPORT
SUBCONTRACT
KSW MECHANICAL SERVICES, INC.
37-17 23RD STREET
LONG ISLAND CITY, NY 11101
CONSTRUCTION MANAGER:
MORSE DIESEL INTERNATIONAL, INC.
1633 BROADWAY
NEW YORK, NY 10019
<PAGE>
INDEX PAGE
ARTICLE 1: Subcontract Price; Scope of the Work.............4
ARTICLE 2: Certain Obligations of the Subcontractor to the
Construction Manager and Architect...............5
ARTICLE 3: Terms of Payment.................................6
ARTICLE 4: Scheduling.......................................9
ARTICLE 5: Progress.........................................9
ARTICLE 6: Timing...........................................9
ARTICLE 7: Bonds............................................9
ARTICLE 8: Sub-Subcontracts and Purchase Orders............10
ARTICLE 9: Certain Warranties and Guarantees...............10
ARTICLE 10: Insurance.......................................11
ARTICLE 11: Default.........................................12
ARTICLE 12: No Waiver Except in Writing.....................14
ARTICLE 13: Merger..........................................14
ARTICLE 14: Amendments......................................14
ARTICLE 15: Additional Terms and Conditions.................14
ARTICLE 16: Captions........................................14
ARTICLE 17: Notices.........................................14
ARTICLE 18: Miscellaneous...................................15
ARTICLE 19: No Third Party Beneficiary......................15
ARTICLE 20: Termination.....................................15
ARTICLE 21: Disputes........................................16
ARTICLE 22: Assignments.....................................17
LIST OF EXHIBITS
<PAGE>
ARCHITECT: WILLIAM NICHOLAS BODOUVA + ASSOCIATES
S U B C O N T R A C T
THIS SUBCONTRACT AGREEMENT is entered into as of the 1 day of May, 1996 by and
between KSW Mechanical Services, Inc., a Delaware Corporation, as an independent
contractor (the "Subcontractor"), and MORSE DIESEL INTERNATIONAL, INC., a
Delaware Corporation (the "Construction Manager"), as
construction manager.
WHEREAS, the Construction Manager has entered into a Construction
Management Agreement dated July 14, 1994 (the "CM Agreement") with Terminal One
Group Association, L.P. a New York Limited Partnership (the "Owner"), as Owner,
to provide construction management services in connection with the construction
of the Owner's Terminal One at John F. Kennedy International Airport in Jamaica,
New York (the "Project"); and
WHEREAS, the Construction Manager has awarded this subcontract for the
Work, as hereinafter defined, to the Subcontractor and the Subcontractor has
agreed to enter into this Agreement and to perform such Work;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, the Subcontractor and the Construction Manager agree
as follows:
<PAGE>
ARTICLE 1: SUBCONTRACT PRICE; SCOPE OF THE WORK.
1.1 Subject to all of the terms and conditions herein contained, the
Subcontractor shall receive the total subcontract price of Sixteen million five
hundred thousand and 00/100---- Dollars ($16,500,000.00) (the "Subcontract
Price") (which price is firm, not subject to escalation, and includes all
applicable federal, state and municipal taxes) for the full and faithful
performance and completion of all of its obligations under this Agreement,
including but not limited to the performance and completion of all construction
contemplated by the Subcontract Documents, as hereinafter defined, including all
labor necessary to complete such construction, all materials and equipment
(whether for temporary or permanent use) incorporated or to be incorporated in
such construction and all other services, facilities, tools and equipment
necessary to complete such construction (the "Work"), all of the foregoing
necessary to complete the following:
HVAC WORK
1.2 The foregoing Work shall include, without limitation, the
preparation, delivery and installation or erection, as the ease may be, of
materials and machinery, scaffolding, tools, equipment, and all transportation,
cartage, loading and hoisting, patterns, models, surveys, field measurements or
other measurement, shop drawings, temporary light, protection of work and labor
from winter conditions, and payment of royalties. Without limitation of any
provision of the General Conditions, as hereinafter defined, any Work shown on
drawings and not mentioned in specifications, or described in specifications and
not shown on drawings, shall be included in the Work. The Subcontractor shall
faithfully and diligently undertake and complete the Work to comply in every
respect with this Agreement and the other Subcontract Documents
1.3 For purposes of the Agreement, the "Subcontract Documents" shall
consist of this Agreement, the documents listed on "List of Exhibits" (page 16)
attached hereto and any addenda or modifications thereto hereafter issued, any
supplementary General Conditions or Special Conditions hereafter issued, the
relevant terms and conditions of the Prime Contract and Port Site Lease as
hereinafter described in the event of any inconsistency between the terms and
conditions of this Agreement, the documents listed on "List of Exhibits" and any
addenda or modifications thereto hereafter issued, any supplementary General
Conditions or Special Conditions hereafter issued, the Prime Contract or the
Port Site Lease, the more restrictive provisions, as applied to the
Subcontractor, shall govern. Subcontractor shall perform the work hereinafter
described all in accordance with the terms and conditions stated in this
Subcontract The contract between Morse Diesel International and Terminal One
Group Association L P. dated July 14, 1994 is incorporated herein and made part
of this Subcontract except as set forth below
LIST OF EXCLUDED PRIME CONTRACT SECTIONS
Section 2 03.A
Section 2 03.B. 2(a): paragraphs 2 and 3
Section 2 03.B. 3(a), (b), (e)
Section 2 03 B. 19 (second paragraph)
Section 2 04.A
Section 2.06.C
Section 3
Section 4.01: Change "Notice-to-Proceed" to "Letter or Intent "
Section 5
Section 6
Section 7
Section 8.01.F
Section 11
Exhibit 2
Exhibit 3
For the purpose of incorporating the Prime Contract into this
Subcontract, unless this Subcontract or the Prime Contract requires otherwise,
to the extent that the Construction Manager is obligated to the Owner under the
Prime Contract, the Subcontractor and its Sub-subcontractors shall be equally
obligated to the Construction Manager and the Owner for the work to be performed
or provided by Subcontractor or sub-subcontractors under this Subcontract. The
Subcontractor shall be bound to the same extent Construction Manager is so bound
by all of the relevant terms and conditions of the Prime Contract and to the
same extent that the Owner is so bound by all of the relevant thrills and
conditions of the Port Site Lease, which is incorporated in and made part of
this Subcontract. The Subcontractor will be responsible for assuring that its
performance of this Subcontract is planned and executed in accordance with the
terms and conditions of the Prime Contract and Port Site Lease. For purposes of
this Agreement, any reference in the General Conditions to the "Contract
Documents" shall mean the Subcontract Documents as defined herein.
1.4 This Agreement is solely between the Construction Manager and the
Subcontractor and shall not be deemed to create a contractual relationship
between the Owner and the Subcontractor.
ARTICLE 2: CERTAIN OBLIGATIONS OF THE SUBCONTRACTOR TO THE CONSTRUCTION
MANAGER AND ARCHITECT.
2.1 The Subcontractor affirms that it has visited the site and has
become familiar with all conditions at the site, including, without limitation,
the condition described in Article 1 of the General Conditions. Without
limitation of any other provision hereof, the Subcontractor shall perform the
Work and its obligations under this Agreement in accordance with and subject to
each of the provisions of the General Conditions to the fullest extent that each
such provision is applicable to the Work. It being intended that the General
Conditions supplement the terms and provisions of this Agreement, in the event
of any inconsistency between the terms and conditions of this Agreement and such
General Conditions, the more restrictive provision, as applied to the
Subcontractor shall govern. The Subcontractor expressly agrees that to the
extent the General Conditions require the performance of any act or thing by
(including, without limitation, representations or warranties), or impose any
obligation on, the Construction Manager in connection with the performance or
completion of any part or the Work, the Subcontractor hereby assumes the
performance of any such act, thing or obligation, and the Subcontractor shall
perform the same to the fullest extent that the General Conditions require such
performance of tile Construction Manager. The Construction Manager shall have
the same rights and remedies against the Subcontractor with respect to such
acts, things and obligations as the Owner may have against the Construction
Manager under the General Conditions with the same force and effect as if every
such right or remedy were set forth in full herein. Any claims (or actions
arising therefrom) by the Subcontractor against the Construction Manager shall
be subject to the conditions and limitations set forth in the General
Conditions.
2.2 The Subcontractor shall undertake and complete the Work under the
direction and supervision of, and to the entire satisfaction of the Construction
Manager and the Architect. The Construction Manager shall provide the
subcontractor with one (1) set of drawings and specifications for the Work.
Additional copies of drawings and specifications will be provided at the
Subcontractor's expense. The Architect shall provide such additional drawings,
details and explanations as may be necessary to detail and illustrate the Work,
and the Subcontractor shall conform to and abide by any such drawings, details
and explanations.
2.3 The Subcontractor, if it subcontracts any part of the Work, shall
enter into agreements substantially similar to this Agreement with each sub-tier
subcontractor and shall require that each sub-tier subcontractor read and
expressly agree in writing to be bound by all provisions of the General
Conditions applicable to its work.
ARTICLE 3: TERMS OF PAYMENT.
3.1 If the Subcontractor is making satisfactory progress with the Work
(in the Construction Manager's reasonable opinion), is not in default under this
Agreement or under any other Subcontract Document, and is in compliance with all
the documentation requirements of this Agreement and the General Conditions, and
if (but only to the extent that) the Construction Manager has received payment
from the Owner for such Work, the construction Manager will, subject to the
Section 3.2 below, make periodic payments to the subcontractor equal to the
value of Work performed, less retention as set forth in Article 15 of the
General Conditions. The Construction Manager will submit monthly statements to
the Owner for work performed during the previous month. It is anticipated that
the Construction Manager will receive payment from the Owner within
approximately thirty-five days after submission of each such statement, subject
to actions of the Port Authority of New York and New Jersey. The Subcontractor
recognizes that an essential terms of the Subcontract shall be that the
Subcontractor shall not be entitled to payment or demand or claim payment from
Construction Manager unless or until construction Manager as a condition
precedent receives payment for the workscope of the Subcontractor from the
Owner. In the event payment is not made for any reason whatsoever, including,
but not limited to, default by the Owner or non-payment by the Trustee, the
subcontractor shall look exclusively to the Owner for payment of any and all
funds due under the Subcontract. The Subcontractor further agrees that delay in
payment or non-payment by the Owner does not create any separate obligation of
the Construction Manager to pay regardless of the extent of the delay. Retention
shall be paid to the Subcontractor in accordance with Article 15 of the General
Conditions, less in any event any amounts the Construction Manager has applied
to cure any default by the Subcontractor under the Contract Documents.
3.2 In order to receive any payment for the Work, the subcontractor
must comply with the terms and conditions of Article 15 of the General
Conditions and must furnish such other documentation or information as may be
required by Construction Manager. 3.3 Notwithstanding anything to the contrary
in this Agreement or the existence of any performance or labor and material
payment bond but without limitation of the provisions of Article 15 of the
General Conditions, the Construction Manager is hereby empowered but not
required at any time to withhold from the Subcontractor an amount or amounts
equal in he opinion of the Construction Manager to the amounts necessary to
complete the entire Work, or any part thereof, and to pay and fully discharge
any claims or liens arising out of the Work performed under this Agreement that
may arise and be unpaid, for which, if established, the Construction Manager or
the Owner may become liable. Without limitation of any other rights or remedies
of Construction Manager, the amount of all such payments of the Subcontractor's
obligations by the Construction Manager shall be deducted from the Subcontract
Price then unpaid. If any such obligations, claims or liens exceed the amount of
the Subcontract Price then unpaid, or arise after Construction Manager has paid
or otherwise satisfied the full Subcontract Price in accordance with and subject
to the terms and conditions hereof, the Subcontractor, immediately upon demand,
shall pay to the Construction Manager all monies that the Construction Manager
may have paid to discharge such obligations, liens or claims with respect to the
Project.
3.4 The Subcontractor expressly agrees that said Subcontract Price
includes (a) all Work provided for in the drawings and specifications, together
with all work reasonably inferable therefrom (consistent with the scope of the
Project described in the General Conditions), and (b) all increases in cost,
foreseen or unforeseen, including, without limiting the generality of the
foregoing, taxes, labor and materials, the cost of all of which is to be borne
solely by the Subcontractor. All loss or damage arising from any of the Work
through unforeseen or unusual obstructions, difficulties or delays which may be
encountered in the prosecution of same or through the action of the elements
shall be borne by the Subcontractor. It is mutually agreed between the parties
hereto that no payment made under this Agreement shall be conclusive evidence of
the performance of this Agreement by the Subcontractor, either wholly or in
part, nor shall it be construed to be an acceptance of defective Work or
materials, or an approval of any of the items in any requisitions made or
invoice rendered. All invoices or requests for payments must be presented in
writing in such form as may be required by Construction Manager. Provided
payments are made to the Subcontractor as provided for hereunder, Subcontractor
shall pay all costs necessary for the satisfactory completion of the Work in
accordance with the Subcontract Documents.
3.5 Subcontractor shall use the sums advanced to it pursuant to this
Article 3 solely for the purpose of performance of the work and the
construction, furnishing, and equipping of the Project in accordance with
Contract Documents. Any and all funds paid to Subcontractor hereunder are hereby
declared to constitute trust funds in the hands of Subcontractor to be applied
before application to any other purpose to the payment of (a) claims of sub-
subcontractors, sub-laborers, materialmen or other persons arising out of the
Work and employed by Subcontractor, (b) to claims for utilities furnished and
taxes imposed, and to the payment of premiums on surety bonds and other bonds
filed and premiums on insurance accruing during the construction of the Work,
and (c) any indemnity obligations of Subcontractor hereunder.
ARTICLE 4: SCHEDULING.
Concurrently with the execution of this Subcontract, the Subcontractor
shall give the Construction Manager a proposed detailed time and manpower
schedule, providing for completion of the Work within the time necessary, in the
Construction Manager's reasonable opinion, to allow completion of the Project by
the Construction Manager by the date specified by the Construction Manager,
taking into account all work by all other subcontractors necessary to complete
the Project. The Subcontractor also shall furnish, upon request by Construction
Manager from time to time, cash flow projections, on a month by month basis,
including, without limitation, an estimate of its total expenditures for labor
for its Work (which shall include the estimated payroll for each of the trades
it will employ by subcontract). At the Construction Manager's request, the
Subcontractor shall revise the schedule and such projections until same are
satisfactory to the Construction Manager. The Construction Manager intends to
and shall use the above referenced schedule in preparing the master Project
Schedule to list the dates for completion of the various segments of the Work.
Without limitation of any provision of the General Conditions, the Subcontractor
shall complete the Work in accordance with the Project Schedule, including any
revisions thereto provided by Construction Manager. The Construction Manager
exclusively shall control scheduling, including the periodic updating thereof,
if any, and the Subcontractor shall comply therewith. The Construction Manager
shall have the right to schedule other work at the same time and in the same
areas as the Subcontractor's Work. The Subcontractor shall coordinate its Work
with any other subcontractor's work in such manner as the Construction Manager
may direct to avoid conflict or interference with such work of others, shall
participate in the preparation of coordinated drawings of congested areas and
shall conform the Work to the work of other subcontractors to prevent
discrepancies (and to avoid unnecessary cutting or patching) with contiguous
work. At its sole discretion, the Construction Manager may schedule Work during
a time of, and from time to time during, winter conditions. The determination of
when winter conditions exist shall rest exclusively with the Construction
Manager.
ARTICLE 5: PROGRESS.
5.1 The Subcontractor shall keep itself informed at all times of the
progress of the Project, and of the progress of others whose work may affect, or
who may be affected by, its progress. At the Construction Manager's request, the
Subcontractor shall inform the Construction Manager about materials on hand,
progress made in the manufacturing and fabricating of materials for the Work, or
any other matters relating to the condition or progress of the Work. The
Construction Manager, Owner's representatives, and the Architect at all times
shall have free access to the office, shops and yards of the Subcontractor to
verify any information about the Work given by the Subcontractor.
5.2 The Subcontractor, upon twenty-four (24) hours notice, in person
or by duly authorized representative having power to act and acceptable to
Construction Manager, shall attend, at its own expense, all meetings or
conferences that the Owner, Architect or Construction Manager may call, at the
building site or elsewhere, for the purpose of discussing progress of the Work,
safety at the site, or ways to expedite the completion of the Project.
ARTICLE 6: TIMING.
TIME IS OF THE ESSENCE OF THIS AGREEMENT. The Construction Manager
and/or the Owner may sustain financial loss if the whole Project or any part
thereof is delayed because the Subcontractor fails to perform any part of the
Work in accordance with the Subcontract Documents, including, without
limitation, a failure to comply with the Construction Manager's directions or
the Project Schedule. The Subcontractor shall begin the Work at the time
directed by the Construction Manager and shall perform its obligations under
this Agreement with diligence and with sufficient manpower to maintain the
progress of the Work as scheduled, without delaying other trades or areas of
work. At the request of the Construction Manager, the Subcontractor shall
perform certain parts of the Work before other parts, add extra manpower, or
other overtime labor in order to comply with the Project Schedule, all without
any increase in the Subcontract Price (unless otherwise specifically provided in
the General Conditions).
ARTICLE 7: BONDS.
The Subcontractor shall furnish a performance bond and a labor and
material payment bond, within five (5) days after execution of this Agreement,
at its own expense. Such bonds shall be with a corporate surety licensed in New
York rated by Best's Key Rating Guide as B+ or better and acceptable to the
Construction Manager and the Owner, in the amount of the Subcontract Price and
shall name the Owner (and each member thereof) and Owner's mortgagee, if any, as
additional obligees thereunder. Such bonds shall include provisions to the
effect that the Subcontractor shall faithfully, promptly and with due diligence
(i) perform all of the terms and provisions of this Agreement on its part to be
performed, (ii) pay all of the Subcontractor's obligations to its employees,
agents, all subcontractors, material men, suppliers or other relating to the
Work, and (iii) complete the various portions of the Work in accordance with the
terms of the Subcontract Documents, and such bonds shall otherwise be in form
and substance mutually satisfactory to the Construction Manager and Owner. To
the extent, if any, that the Subcontract Price is increased in accordance with
the Subcontract Documents, Subcontractor shall, upon request of the Owner or
Construction Manager, cause the amount of such bonds to be increased accordingly
and shall promptly deliver satisfactory evidence of such increase to
Construction Manager. The bonds shall further provide that no change or
alteration of this Agreement (including, without limitation, an increase in the
Subcontract Price, as aforesaid), extensions of time, premature payment or
overpayment to the Subcontractor, will release the surety.
ARTICLE 8: SUB-SUBCONTRACTS AND PURCHASE ORDERS.
Within thirty (30) days' of the award of this Subcontract, or such
earlier time as the Construction Manager may schedule, the Subcontractor shall
execute all purchase orders, enter into all sub-subcontracts for the Work, and
give to the Construction Manager a complete list of all its sub-subcontractors
and suppliers for all parts of the Work. The Subcontractor shall notify the
Construction Manager in writing of any proposed changes in its
sub-subcontractors or suppliers not less than five (5) days' prior to such
change, which notice shall specify the reasons for such proposed change. Without
limiting, diminishing or otherwise affecting the Subcontractor's obligations
thereunder, any such change shall be subject to the approval of Construction
Manager, which approval shall not be unreasonably withheld or delayed.
ARTICLE 9: CERTAIN WARRANTIES AND GUARANTEES.
9.1 Promptly upon completion of the Work, the Subcontractor shall
deliver to the Construction Manager or the Owner (as the Construction Manager
may direct) all warranties and guarantees from third parties for materials,
equipment and labor incorporated into or used in connection with the Work.
9.2 The Subcontractor warrants to the Construction Manager that all
materials and equipment furnished under this Agreement will be new, unless
otherwise specified, and that all Work will be of good quality, free from liens
and encumbrances, free from improper workmanship and defective materials and in
conformance with the Subcontract Documents.
9.3 Without limitation of the foregoing or any other obligation of the
Subcontractor provided for in the Subcontract Documents (including, without
limitation, Article 8 of the General Conditions), immediately upon the
Construction Manager's demand, the Subcontractor, at its own expense, shall
repair, replace, restore or rebuild, at the Construction Manager's option, any
Work in which defects in materials or workmanship may appear, or which is
otherwise not in conformance with the other warranties of Subcontractor
thereunder, or to which damage may occur because of such defects or lack of
conformance, within one (1) year, or such longer period as required by the
specifications, from the date of the Owner's and Architect's final acceptance of
the Project. Such repair, replacement, restoration or rebuilding, as the case
may be, shall be carried out by the Subcontractor promptly upon such demand by
Construction Manager and shall be performed in accordance with Article 13 of the
General Conditions. If the Subcontractor fails to comply, the Construction
Manager may correct such defect or lack of conformance, as the case may be, and
the Subcontractor shall immediately reimburse the Construction Manager thereof.
9.4 The existence of the foregoing warranties and undertakings by the
Subcontractor shall not relieve the Subcontractor of, or reduce the
Subcontractor's, liability for latent defects and shall be in addition to all of
the Construction Manager's other rights and remedies thereunder, under any other
Subcontract Document or under law, and to any other guarantees or other
warranties, whether express or implied.
ARTICLE 10: INSURANCE.
10.1 The Owner intends to implement a wrap-up insurance program as
described in Schedule "L" to this Agreement. In the event that the Subcontractor
is designated as an Accepted Subcontractor under such program, the Subcontract
Price shall be reduced by $ -0- . The Subcontractor hereby certifies that the
Subcontract Price as so reduced excludes all costs for insurance within the
coverage and limits provided by the Owner's wrap-up program. The Subcontract
shall comply fully with the requirements of Schedule "L," including without
limitation the requirement thereof relating to insurance coverage to be procured
by Accepted Subcontractors or by subcontractors not designated as Accepted
Subcontractors.
10.2 The following provisions shall apply to all insurance coverage to
be procured by the Subcontractor under the terms of Schedule "L" and shall be in
addition to the requirements of Schedule "L." The Subcontractor, at its own
expense, shall obtain and submit to the Construction Manager, before undertaking
any part of the Work, policies and certificates with receipts for the payment of
premiums from the Subcontractor's insurance carriers indicating coverage from
companies, in amounts and on such other terms as provided for hereinafter and in
Schedule "L." Any "deductible" with respect to such coverage shall be submitted
to, and must be approved in writing by, Construction Manager, provided that any
cost not covered by any such approved deductible shall in any event be borne by
the Subcontractor. All such insurance shall be maintained by the Subcontractor,
at its expense, until the Work has been completed and all obligations of the
Subcontractor under the Subcontract Documents have been satisfied. Any policy of
insurance covering the Subcontractor's tools, equipment or facilities against
loss by physical damage, shall provide that the underwriters waive their rights
of subrogation against the Construction Manager, the Owner, and their respective
members, officers, directors, employees, agents and servants. All policies
required of the Subcontractor thereunder shall provide for notice to the
Construction Manager and Owner sixty (60) days before any change in or
cancellation of such insurance, and shall otherwise be acceptable to the
Construction Manager. Upon request, the Subcontractor shall furnish the
Construction Manager with evidence of insurance satisfactory to the Construction
Manager for each sub-subcontractor employed by it. The insurance required herein
shall in any event include blanket (broad form) contractual liability insurance.
The existence of insurance shall not be construed to limit the Subcontractor's
liability under this Agreement.
ARTICLE 11: DEFAULT.
11.1 Any one or more of the following shall constitute an event of
default by the Subcontractor:
A. The Subcontractor shall fail or refuse to perform
or comply with any term, condition or provision of this
Agreement or of any of the other Subcontract Documents.
B. The Subcontractor shall fail or refuse to pay any of its
sub-subcontractors, suppliers, or workers for any materials, labor or
other things incorporated into, or used in connection with, the Work
when such payments are due; provided, however, that if the
Subcontractor disputes the amount due to a worker, sub-subcontractor or
supplier, the Subcontractor, within two (2) days of the due date of
such payment, at its own expense, posts a bond for the disputed payment
in amount and form satisfactory to the Construction Manager as security
for such payments, then such non-payment shall not constitute an event
of default hereunder.
C. The Subcontractor shall abandon the Work or
reduce its labor force to a number insufficient, in the Construction
Manager's opinion, to complete the Work within the scheduled time.
D. Without limitation of the foregoing, any of the
events described in Paragraph 5.B.8 of the General Conditions shall
occur.
11.2 If any event of default described in Section 11.1 above occurs,
then the Construction Manager, at its option, at any time may:
A. Order the Subcontractor immediately to comply
with any term, condition or provision of this Agreement or such other
Subcontract Document;
B. Order the Subcontractor, within a specified time,
to remove any defective work or materials and to replace such work or
materials with satisfactory work or materials;
C. Accept any defective work or materials and reduce
the Subcontract Price accordingly;
D. Perform or arrange to have performed any of
Subcontractor's duties hereunder;
E. Make any payments to satisfy the Subcontractor's
obligations relating to the Work for labor, materials, equipment,
insurance or other items;
F. Refuse to make any payments to the Subcontractor
for Work performed until the event of default is cured to
the satisfaction of Construction Manager; and/or
Upon three (3) days' written notice to the Subcontractor,
terminate this Agreement and take possession of all materials, tools,
equipment, and appliances of the Subcontractor and finish the Work by
whatever means, method or agency which the Construction Manager, in its
sole discretion, may choose, and take any other steps the Construction
Manager, in its sole discretion, may choose to secure any labor,
materials, equipment and services, and, in such event, the Construction
Manager shall have a lien on and may take over all the Subcontractor's
equipment, tools, appliances and materials (whether on or off-site) and
complete the Work; provided, however, that if the default involves any
breach of safety laws, regulations or requirements, only one (1) day's
notice (whether oral or written) shall be required.
If the Construction Manager terminates this Agreement, as aforesaid,
the Construction Manager shall have no obligations to pay for any work performed
after such termination, and will have no obligation to make any further payments
to the Subcontractor for work performed before such termination until the
Project has been completed, accepted by the Owner and the Construction Manager
has received full payment for the Project from the Owner, and the Construction
Manager determines to tis complete satisfaction that potential expenses, charges
and claims relating to the performance of the Work have been satisfied or
satisfactorily bonded over. Such payments to the Subcontractor shall in any
event be reduced by the amount due to the Construction Manager under the terms
of this Agreement or any of the other Contract Documents.
11.3 The Construction Manager's choice of any remedy shall not operate
to waive any rights or remedies provided hereunder, or by law, against the
Subcontractor or its surety. The Construction Manager, at his option, may choose
more than one remedy or choose one or more particular remedies at different
times.
11.4 The Subcontractor shall pay, immediately upon demand therefore,
all costs, losses, damages and expenses, including, without limitation, all
costs and expenses described in Section 11.2 above and all administrative,
management, overhead and other direct or indirect expenses, including reasonable
attorneys' fees (the "Costs") incurred by the Construction Manager in connection
with any default by the Subcontractor or exercise of any right or remedy upon
Subcontractor's default. If the Subcontractor does not pay the Costs
immediately, the Construction Manager may deduct all Costs from any payments of
the Subcontract Price. If payments due to the Subcontractor for completed
portions of the Work are not sufficient to cover the Costs, the Subcontractor
immediately shall pay to Construction Manager the full amount of any such excess
with interest thereon until paid in full at three (3) percentage points in
excess of the rate of interest announced from time to time to Chase Manhattan
Bank as its prime rate or if it is less, at the maximum interest rate permitted
by law. The liability of the Subcontractor hereunder shall extend to and
include, without limitation, the full amount of Costs incurred and obligations
assumed by the Construction Manager in good faith under the reasonable belief
that such Costs or obligations were necessary or required, whether actually
necessary or required or not, (i) in completing the Work and providing labor,
materials, equipment, supplies and other items therefore or resubcontracting the
Work, and/or (ii) in settlement, discharge or compromise of any claims, demands,
suits and judgments pertaining to or arising out of the Work. An itemized
statement of such obligations and payments shall be prima facie evidence of the
Subcontractor's liability.
ARTICLE 12: NO WAIVER EXCEPT IN WRITING.
No action or failure to act by the Construction Manager shall
constitute a waiver of any default in that or any other instance, except to the
extent the Construction Manager specifically states in writing.
ARTICLE 13: MERGER.
All previous orders, proposals, letters, oral or written promises and
understandings relating to the subject matter of this Agreement, are hereby
declared to be null and void. This Agreement is complete and shall not be
interpreted by any reference to any previous letter, proposal, document or
understanding, written or oral, or other document or agreement, except as
specifically provided in this Agreement.
ARTICLE 14: AMENDMENTS.
No amendment to this Agreement shall change or modify this Agreement
unless it is in writing and signed by both the Construction Manager and the
Subcontractor.
ARTICLE 15: ADDITIONAL TERMS AND CONDITIONS.
Additional terms and conditions of, and Schedules to, this Agreement,
if any, are provided for on the "List of Exhibits" attached hereto.
ARTICLE 16: CAPTIONS.
The captions to the provisions of this Agreement are for convenience
only and are not a part of this Agreement.
ARTICLE 17: NOTICES.
Any notice required to be given by the terms and provisions of this
Agreement or by any law or governmental regulation, either by the Construction
Manager or the Subcontractor (or which either party may desire to give
hereunder), shall be in writing and shall be personally delivered or forwarded
by registered or certified mail, return receipt requested, and shall be
addressed to the party hereto to whom directed, at its address, as herein stated
to the attention of JOHN L. BABIERRACKI for Construction Manager with a copy to
Executive Vice President of Finance and Administration, Morse Diesel
International, Inc., 1633 Broadway, New York, NY 10019; notice to AMEC plc shall
be addressed attention of Group Secretary, AMEC plc, Sandiway House, Hartford,
Norwich, Cheshire CW8 2YA England, or FLOYD WARKOL, CHAIRMAN/CEO for the
Subcontractor. Copies of notices relating to default to termination shall be
sent to the Ehasz Giacalone Associates, 431 Conklin Street, Farmingdale, NY
11735 addressed to the attention of the Principal Louis P. Giacalone. Either
party may change the address to which any notice referred to herein is to be
sent by giving written notice of such change of address to the other party in
the manner provided above. Notice personally delivered pursuant to this Article
17 shall be effective on the date of delivery. Notice given by mail shall be
effective on the date of receipt appearing on the return receipt, or, in the
absence of a return receipt, the date of attempted delivery.
ARTICLE 18: MISCELLANEOUS.
Each of the Exhibits attached hereto is hereby made a part hereof. If
any provision of this Agreement or the application thereof any person or
situation, to any extent shall be held invalid or unenforceable, the remainder
of said Agreement, and the application of such provision to persons or
situations other than those to which it shall have been held invalid or
unenforceable, shall not be affected thereby, but shall continue valid and
enforceable to the fullest extent permitted by law. All provisions of this
Agreement which by their terms require performance by either party hereto after
termination of this Agreement shall survive any such termination.
ARTICLE 19: NO THIRD PARTY BENEFICIARY.
Except as otherwise provided herein, no provision of this Agreement
shall in any way inure to the benefit of any third person (including the public
at large) so as to constitute any such person a third party beneficiary of this
Agreement or of any one or more of the terms hereof or otherwise give rise to
any cause of action in any person not a party hereto.
ARTICLE 20: TERMINATION.
20.1 Except to the extent provided for in Section 20.2 below and
without limitation of any provision of the General Conditions, if the CM
Agreement is terminated for any reason whatsoever, the Construction Manager may
(by notice to the Subcontractor) terminate this Agreement and in such event,
even though the Subcontractor may not be in default hereunder, the Construction
Manager shall only be liable to pay the Subcontractor such amount as shall be
due for that portion of the Work satisfactorily performed by the Subcontractor
prior to the date of termination, reduced, however, by an amount determined by
the Construction Manager to be appropriate compensation for any damages suffered
by reason of any default by the Subcontractor.
20.2(a) Subcontractor shall not assign this Agreement in whole or in
part, or hypothecate, pledge or assign any payments due it under this Agreement,
without the Construction Manager's prior approval. Any such attempted
unauthorized assignment shall be null and void. In any event, no subcontract or
approved assignment shall relieve or release in any way the Subcontractor from
its obligations hereunder or under the other Subcontract Documents.
This Agreement may, with written notice, be assigned to another entity
designated by the Construction Manager without the need for any action by the
Construction Manager or approval by Subcontractor and in such event the
Subcontractor agrees to and shall continue to be bound by this Agreement, and in
the event of such an assignment, Subcontractor shall continue to look solely to
the Owner and assignee for payment and performance hereunder.
In the event of default by Construction Manager or its assignee,
Subcontractor shall provide a minimum of thirty (30) days prior written notice
to Construction Manager, assignee, and AMEC plc of the default and shall provide
Construction Manager, assignee, and AMEC plc with the ability to cure any such
default before taking any further action with respect to such default.
20.2(b) In the event any such assignment of this Agreement is not
accepted or is rejected outright, then upon written notice from Owner that the
Construction Management Agreement has been terminated by reason of a default by
Construction Manager thereunder and that the Owner has elected to accept this
Agreement, this Agreement shall be assigned to and assumed by the Owner or
another person or entity designated by the Owner without the need for any action
by the Construction Manager or Subcontractor and in such event the Subcontractor
agrees to and shall continue to be bound by this Agreement and, in the event of
such an assignment, Subcontractor shall look solely to the Owner for payment and
performance hereunder. Upon request of the Owner, the Subcontractor further
agrees that it shall enter into an agreement directly with the Owner
acknowledging the foregoing conditional assignment of this Agreement to the
Owner and agreeing to be bound thereby.
20.3 This Agreement may be terminated by the Construction Manager
without cause upon ten (10) days prior written notice. In the event of such
termination, Subcontractor shall be reimbursed such amount as shall be due the
Subcontractor for (1) that portion of the Work satisfactorily performed prior to
the effective date of termination, and (2) reasonable costs directly incurred
(but specifically excluding lost overhead, profits and consequential damages or
other lost opportunity costs) as directed result of such termination.
ARTICLE 21: DISPUTES.
21.1 The disputes procedure set forth in Section 7 "Disputes" of the
Prime Contract and set forth below is specifically incorporated herein and made
a part of this Subcontract Agreement. Subcontractor agrees to pursue and exhaust
first said procedure before commencing any other action for claims it may have
arising out of its performance of the Work herein. Upon Subcontractor's written
request, Construction Manager agrees to pass on to the Owner all proper claims
submitted by Subcontractor under the disputes procedure of the Prime Contract on
behalf of and to the extend required by the Subcontractor. Subcontractor agrees
to be responsible for preparation and active prosecution of the claims to the
extent permitted and shall reimburse Construction Manager all expenses and
costs, including attorneys' fees, incurred by Construction Manager on behalf of
Subcontractor. Construction Manager agrees to pay Subcontractor whatever amount
it receives from the Owner for the Subcontractor's claim(s) less a ZERO percent
(0%) markup. Subcontractor agrees that Construction Manager's liability herein
is strictly limited to the amount(s) Construction Manager receives from the
Owner, less the above noted markup. Construction Manager shall have no liability
or obligation to the Subcontractor beyond what is recovered from the Owner on
behalf of the Subcontractor (less the markup and costs referred to above)
pursuant to this provision.
ARTICLE 22: ASSIGNMENT.
The Agreement between Construction Manager and Subcontractor may, upon
written notice by Owner, be assigned by Construction Manager to Owner without
the need for any action by Construction Manager and Subcontractor and in such
event the Subcontractor agrees to and shall continue to be bound by this
Agreement and shall continue to look to the Owner for payment and performance
hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
CONSTRUCTION MANAGER: MORSE DIESEL INTERNATIONAL, INC.
a Delaware Corporation
By: -----------------------------
John Babieracki
Title: Executive Vice
President
Date: ________ _________________________
Witness
SUBCONTRACTOR: KSW MECHANICAL SERVICES, INC.
a Delaware Corporation
By:-----------------------------
Floyd Warkol
Title: Chairman/CEO
Date: ________ ---------------------------------
Witness
BROOKLYN RENAISSANCE PLAZA
PROJECT #: 2271400
TRADE CODE #: 15050
KSW MECHANICAL SERVICES, INC.
H.V.A.C.
SUBCONTRACT
CONSTRUCTION MANAGER: MORSE DIESEL INTERNATIONAL, INC.
408 JAY STREET - 5TH FLOOR
BROOKLYN, NY 11201
PROJECT FIELD OFFICE
<PAGE>
I N D E X
PAGE
ARTICLE 1. Subcontract Price; Scope of the Work 1
ARTICLE 2. Certain Obligations of the Subcontractor to
the Construction Manager and Architect 2
ARTICLE 3. Terms of Payment 3
ARTICLE 4. Scheduling 5
ARTICLE 5. Progress 7
ARTICLE 6. Timing 7
ARTICLE 7. Bonds 8
ARTICLE 8. Sub-Subcontracts and Purchase Orders 9
ARTICLE 9. Certain Warranties and Guarantees 9
ARTICLE 10. Insurance 10
ARTICLE 11. Default 11
ARTICLE 12. No Waiver Except in Writing 13
ARTICLE 13. Merger 13
ARTICLE 14. Amendments 13
ARTICLE 15. Additional Terms and Conditions 13
ARTICLE 16. Captions 13
ARTICLE 17. Notices 13
ARTICLE 18. Miscellaneous 14
ARTICLE 19. No Third Party Beneficiary 14
ARTICLE 20. Termination and Assignment 14
LIST OF EXHIBITS 15
ARCHITECT: WILLIAM B. TABLER ARCHITECTS
333 SEVENTH AVENUE
NEW YORK, NY 10001
<PAGE>
SUBCONTRACT
THIS SUBCONTRACT AGREEMENT is entered into as of the 21st day of November, 1996
by and between KSW Mechanical Services, Inc. a New York corporation, as an
independent contractor (the "Subcontractor")., and MORSE DIESEL INTERNATIONAL,
INC., a Delaware corporation (the "Construction Manager").
WHEREAS, the Construction Manager has entered into a Construction
Management Agreement dated April 30, 1996 (the "Construction Management
Agreement") with Brooklyn Renaissance Plaza, LCC, a limited liability company
(the "Owner"), to provide general contracting services in connection with the
construction of a new mixed-use office building and hotel of approximately
1,322,000 square feet at a site located at 350 Jay Street, Kings County, New
York City (the "Project"); and
WHEREAS, the Construction Manager has awarded this subcontract for the
Work, as hereinafter defined, to the Subcontractor and the Subcontractor has
agreed to enter into this Agreement and to perform such Work;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, the Subcontractor and the Construction Manager agree
as follows:
ARTICLE 1. SUBCONTRACT PRICE; SCOPE OF THE WORK.
1.1 Subject to all of the terms and conditions herein contained, the
Subcontractor shall receive the total subcontract price of Eleven Million Eight
Hundred Fifty Thousand dollars ($11,850,000) (the "Subcontract Price") (which
price is firm, not subject to escalation, and includes all applicable federal,
state and municipal taxes) for the full and faithful performance and completion
of all of its obligations under this Agreement, including but not limited to the
performance and completion of all construction contemplated by the Subcontract
Documents, as hereinafter defined, including all labor necessary to complete
such construction, all materials and equipment (whether for temporary or
permanent use) incorporated or to be incorporated in such construction and all
other services, facilities, tools and equipment necessary to complete such
construction (the "Work"), all of the foregoing necessary to complete the
following: Heating, Ventilating, and Air Conditioning Work.
1.2 The foregoing Work shall include, without limitation, the
preparation, delivery and installation or erection, as the case may be, of
materials and machinery, scaffolding, tools, equipment, and all transportation,
cartage, loading and hoisting, patterns, models, surveys, field measurements or
other measurements, shop drawings, temporary light, protection of work and labor
from winter conditions, and payment of royalties. Without limitation of any
provision of the General Conditions, as hereinafter defined, any Work shown on
drawings and not mentioned in specifications, or described in specifications and
not shown on drawings, shall be included in the Work. The Subcontractor shall
faithfully and diligently undertake and complete the Work to comply in every
respect with this Agreement and the other Subcontract Documents.
1.3 For purposes of this Agreement, the "Subcontract Documents" shall
consist of the drawings and specifications listed on Exhibit A attached hereto
and any addenda or modifications thereto hereafter issued (the "drawings and
specifications") and this Agreement including the Addendum hereto the Schedule B
attached hereto as Exhibit B, the "General Conditions" attached hereto as
Exhibit C, and any supplementary General Conditions or Special Conditions
hereafter issued, and all other schedules and documents attached hereto as
exhibits. For purposes of this Agreement, any reference in the General
Conditions to the "Contract Documents" shall mean the Subcontract Documents as
defined herein and reference therein to the "Contractor" shall mean the
Construction Manager as defined herein.
1.4 If the Subcontract Documents provide for allowance(s) for
specified item(s) of Work, the Subcontract Price shall be adjusted to reflect
the actual cost of such item(s), it being agreed that all mark-ups and other
costs relating to such item(s) are otherwise included in the Subcontract Price.
ARTICLE 2. CERTAIN OBLIGATIONS OF THE SUBCONTRACTOR TO THE CONTRACTOR AND
ARCHITECT.
2.1 The Subcontractor affirms that it has visited the Project site and
has become familiar with all conditions at the site, and the conditions of all
premises and buildings adjoining or in close proximity to the site (including,
for the purposes hereof, park areas, municipal garage, streets and sidewalks),
has ascertained the depth of cellars, materials and construction of the
buildings and all existing conditions of such premises and the buildings
thereon, and shall be governed thereby for the necessary, thorough, safe and
satisfactory execution and performance of the Work whether or not indicated in
the Subcontract Documents, and shall take those protective measures necessary to
maintain such premises and buildings in the same condition as they were before
commencing the Work. Wherever any portions of the adjoining buildings interfere
with or are interfered with by the Work, the Subcontractor shall make whatever
changes are deemed necessary by the Construction Manager and the Owner, whether
or not indicated in the Subcontract Documents. Without limitation of any other
provision hereof, the Subcontractor shall perform the Work and its obligations
under this Agreement in accordance with and subject to each of the provisions of
the General Conditions to the fullest extent that each such provision is
applicable to the Work, it being intended that the General Conditions supplement
the terms and provisions of this Agreement. In the event of any inconsistency
between the terms and conditions of this Agreement and such General Conditions,
the more restrictive provision, as applied to the Subcontractor, shall govern.
2.2 The Subcontractor shall undertake and complete the Work under the
direction and supervision of, and to the entire satisfaction of the Construction
Manager and the Architect. The Construction Manager shall provide the
Subcontractor with one (1) set of drawings and specifications for the Work.
Additional copies of drawings and specifications will be provided at the
Subcontractor's expense. The Architect may provide additional drawings, details
and explanations detailing and illustrating the Work, and the Subcontractor
shall conform to and abide by any such drawings, details and explanations.
2.3 The Subcontractor, if it subcontracts any part of the Work, shall
enter into agreements substantially similar to this Agreement with each sub-tier
subcontractor and shall require that each sub-tier subcontractor read and
expressly agree in writing to be bound by all provisions of the General
Conditions applicable to its work.
ARTICLE 3. TERMS OF PAYMENT.
3.1 (a) If the Subcontractor is making satisfactory progress with the
Work (in the Construction Manager's reasonable opinion), is not in default under
this Agreement or under any other Subcontract Document, and is in compliance
with all the documentation requirements of this Agreement and the General
Conditions, the Construction Manager will, subject to the Sections 3.1(b) and
3.2 below, make monthly payments to the Subcontractor of ninety percent 90% of
the value of Work performed during such month. After the Work is fifty percent
(50%) complete, no further or additional retention of payments shall thereafter
be withheld and the Construction Manager shall make payments of one hundred
percent (100%) of the value of Work thereafter performed, unless the
Construction Manager in the exercise if its reasonable business judgment has
good cause to withhold additional retainage.
(b) (i) It is specifically understood and agreed that the
Subcontractor and Construction Manager acknowledge that there is a risk that the
Owner, in breach of the Construction Management Agreement, may make late
payments or may, under certain circumstances such as insolvency, not make
required payments to the Construction Manager. The parties furthermore
acknowledge their agreement that they shall share the risk of same in proportion
to their entitlement to such portion of the payments due from the Owner to the
Construction Manager for their respective work and fees together with that of
all Subcontractors on the Project and that the Subcontract Price established by
this Agreement, shall be adjusted accordingly when all efforts at collecting
same by the Construction Manager and Subcontractor, independently or in
collaboration, are finally resolved. The Subcontractor agrees to cooperate with
the Construction Manager to achieve payment of the Subcontract Price, or portion
thereof, to the Construction Manager by the Owner including by way of
negotiation, mediation, arbitration, litigation or enforcement of the
Construction Manager's mechanic's lien, if any. Failure to cooperate shall be
deemed a material breach of this Agreement which disentitles the Subcontractor
from any right to payment from the Construction Manager. The Subcontractor
further acknowledges and agrees that the liability of the Owner for the Owner's
obligations under the Construction Management Agreement shall be limited to the
Owner's then equity interest in the Project, and the Subcontractor shall not
look to any of the Owner's other assets seeking to recover payment on account of
the Work.
(ii) As a consequence of the foregoing understanding and consistent
with that allocation of risk, the Subcontractor agrees that the Construction
Manager's receipt of payment from the Owner on behalf of the Subcontractor's
applications for payment (whether interim applications or final application,
including retainage) shall be, to the fullest extent provided by law, a
condition precedent to the right of the Subcontractor to receive payment from
the Construction Manager. Therefore, the Subcontractor agrees that it shall wait
to receive payment until such time as the Construction Manager is able to obtain
payment from the Owner and that the Subcontractor shall not be entitled to
receive any payment from the Construction Manager which the Construction Manager
has not received from the Owner on behalf of the Work performed by the
Subcontractor.
(iii) In the event that the Construction Manager is not receiving
proper payment from the Owner on account of the Work of the Subcontractor such
that the Construction Manager is not required to make payment to the
Subcontractor hereunder, the Construction Manager may, in its sole discretion
and to the extent it is legally able to do so, formally and in writing assign to
the Subcontractor the rights of the Construction Manager to pursue claims
against the Owner for the payment due to the Construction Manager on behalf of
the Subcontractor's entitlement under the terms of this Subcontract, which
assignment the Subcontractor shall be obliged to accept in full and complete
liquidation of the payment obligations of the Construction Manager to the
Subcontractor hereunder.
(iv) The parties further acknowledge that the Subcontractor is
entitled to pursue any and all such rights to which it-may be entitled under the
New York Lien Law in the event that the Construction Manager does not pay the
Subcontractor amounts due hereunder, including non-payment resulting from
delayed payments or non-payment by the Owner to the Construction Manager. In
that regard, the parties agree that this paragraph (b) shall not limit or
restrict the Subcontractor's lien rights or rights to enforce a lien and, to the
extent that this paragraph (b) is inconsistent with such lien rights, this
paragraph is deemed waived for such purpose only. In the event that the
Construction Manager advises the Subcontractor that the Construction Manager is
unable to pay the Subcontractor by reason of the Owner's non-payment to
Construction Manager and that, pursuant to this paragraph (b), the Subcontract
Price shall be adjusted by reason of the Owner's non-payment to the Construction
Manager, the Subcontractor agrees that its filing of a lien in full accordance
with the Lien Law and the complete prosecution of that lien claim to finality in
the courts, and collection therefrom, for the amount due to it shall be a
condition precedent to the right of the Subcontractor to execute upon any
judgment it may obtain against the Construction Manager in connection with the
lien foreclosure action or otherwise.
(v) Nothing herein is intended to limit or preclude the rights of the
Construction Manager under other terms of this Subcontract to backcharges,
set-offs or other claims against the Subcontractor in regard to the matters
addressed in this paragraph (b) or otherwise. Retention shall be paid to the
Subcontractor in accordance with Paragraph K of Article 15 of the General
Conditions, less in any event any amounts the Construction Manager has applied
to cure any default by the Subcontractor under the Subcontract Documents.
3.2 In order to receive any payment for the Work, the Subcontractor
must comply with the terms and conditions of Article 15 of the General
Conditions and must furnish such other documentation or information as may be
required by the Construction Manager.
3.3 Notwithstanding anything to the contrary in this Agreement or the
existence of any performance or labor and material payment bond but without
limitation of the provisions of Article 15 of the General Conditions, the
Construction Manager is hereby empowered but not required at any time to
withhold from the Subcontractor an amount or amounts equal in the opinion of the
Construction Manager to the amounts necessary to complete the entire Work, or
any part thereof, and to pay and fully discharge any claims or liens arising out
of the Work performed under this Agreement that may arise and be unpaid, for
which, if established, the Construction Manager or the Owner may become liable.
Without limitation of any other rights or remedies of the Construction Manager,
the amount of all such payments of the Subcontractor's obligations by the
Construction Manager shall be deducted from the Subcontract Price then unpaid.
If any such obligations, claims or liens exceed the amount of the Subcontract
Price then unpaid, or arise after the Construction Manager has paid or otherwise
satisfied the full Subcontract Price in accordance with and subject to the terms
and conditions hereof, the Subcontractor, immediately upon demand, shall pay to
the Construction Manager all monies that the Construction Manager may have paid
to discharge such obligations, liens or claims with respect to the Project.
3.4 The Subcontractor expressly agrees that said Subcontract Price
includes (a) all Work provided for in the drawings and specifications, together
with all work reasonably inferable therefrom (consistent with the scope of the
Project described in the General Conditions), and (b) all increases in cost,
foreseen or unforeseen, including, without limiting the generality of the
foregoing, taxes, labor and materials, the cost of all of which is to be borne
solely by the Subcontractor. All loss or damage arising from any of the Work
through unforeseen or unusual obstructions, difficulties or delays which may be
encountered in the prosecution of same or through the action of the elements
shall be borne by the Subcontractor. It is mutually agreed between the parties
hereto that no payment made under this Agreement shall be conclusive evidence of
the performance of this Agreement by the Subcontractor, either wholly or in
part, nor shall it be construed to be an acceptance of defective Work or
materials, or an approval of any of the items in any requisitions made or
invoice rendered. All invoices or requests for payments must be presented in
writing in such form as may be required by the Construction Manager. Provided
payments are made to the Subcontractor as provided for hereunder, the
Subcontractor shall pay all costs necessary for the satisfactory completion of
the Work in accordance with the Subcontract Documents.
3.5 The Subcontractor shall use the sums advanced to it pursuant to
this Article 3 solely for the purpose of performance of the Work and the
construction, furnishing, and equipping of the Project in accordance with the
Subcontract Documents. Any and all funds paid to the Subcontractor hereunder are
hereby declared to constitute trust funds in the hands of the Subcontractor, to
be applied before application to any other purpose to the payment of (a) claims
of sub-subcontractors, sub-laborers, materialmen or other persons arising out of
the Work and employed by the Subcontractor, (b) to claims for utilities
furnished and taxes imposed, and to the payment of premiums on surety bonds and
other bonds filed and premiums on insurance accruing during the construction of
the Work, and (c) any indemnity obligations of the Subcontractor hereunder.
ARTICLE 4. SCHEDULING
4.1 Concurrently with the execution of this Subcontract, the
Subcontractor shall give the Construction Manager a proposed detailed time and
manpower schedule, providing for completion of the Work within the durations set
forth in Schedule B (Exhibit B hereto) taking into account the work of all other
Subcontractors. The Subcontractor also shall furnish, upon request by the
Construction Manager from time to time, cash flow projections, on a month by
month basis, including, without limitation, an estimate of its total
expenditures for labor for its Work (which shall include the estimated payroll
for each of the trades it will employ by subcontract). At the Construction
Manager's request, the Subcontractor shall revise the schedule and such
projections until same are satisfactory to the Construction Manager. The
Construction Manager intends to and shall use the above referenced schedule in
preparing the master Project Schedule to list the dates for completion of the
various segments of the Work. Without limitation of any provision of the General
Conditions, the Subcontractor shall complete the Work in accordance with the
Project Schedule, including any revisions thereto provided by the Construction
Manager. The Construction Manager exclusively shall control scheduling,
including the periodic updating thereof, if any, and the Subcontractor shall
comply therewith. The Construction Manager shall have the right to schedule
other work at the same time and in the same areas as the Subcontractor's Work.
The Subcontractor shall coordinate its Work with any other Subcontractors' work
in such manner as the Construction Manager may direct to avoid conflict or
interference with such work of others, shall participate in the preparation of
coordinated drawings of congested areas and shall conform the Work to the work
of other Subcontractors to prevent discrepancies (and to avoid unnecessary
cutting or patching) with contiguous work. At its sole discretion, the
Construction Manager may schedule Work during a time of, and from time to time
during, winter conditions. The determination of when winter conditions exist
shall rest exclusively with the Construction Manager.
4.2 (a) The Subcontractor acknowledges that in addition to the Work to
be performed by other Subcontractors, the Construction Manager, the Owner and
Tenants of the Project have the right to perform, or cause to be performed on
their behalf, improvements to the interior portion of the Project and also that
the Project's Central Energy Plant will be constructed by another contractor
hired by the Owner (all persons performing such other work being hereafter
referred to as "Other Contractors"). The Subcontractor shall cooperate with all
Other Contractors and afford them a reasonable opportunity to perform their
work.
(b) The Subcontractor acknowledges that some of the Other
Contractors will need access to the floors of the Project before substantial
completion thereof and that permanent and temporary building services such as
heating, ventilating, cooling, water, lighting, power, telephones, elevators,
hoists and security will need to be provided to the Other Contractors. The
Subcontractor further acknowledges that the Owner and Tenants may use or occupy
completed or partially completed floors or other portions of the Project before
the Work on such floors or such portions of the Project has been substantially
completed. The Subcontractor shall cooperate fully with the Construction Manager
in providing Other Contractors with access to the floors of the Project and with
such services and in providing the Owner and Tenants with such use and
occupancy.
(c) The Subcontractor shall provide such assistance as may be
necessary in the initial utilization of any equipment or systems provided and/or
installed as part of the Work, such as start-up or testing, adjusting and
balancing (including without limitation, the testing and start-up of the Central
Energy Plant and cogeneration facility) and shall provide qualified
manufactures' representatives for purposes of training the Owner's personnel for
the operation and maintenance thereof.
ARTICLE 5. PROGRESS.
5.1 The Subcontractor shall keep itself informed at all times of the
progress of the Project, and of the progress of others whose work may affect, or
who may be affected by, the Subcontractor's progress. At the Construction
Manager's request, the Subcontractor shall inform the Construction Manager about
materials on hand, progress made in the manufacturing and fabricating of
materials for the Work, or any other matters relating to the condition or
progress of the Work. The Construction Manager, the Owner's representatives, and
the Architect at all times shall have free access to the office, shops and yards
of the Subcontractor to verify any information about the Work given by the
Subcontractor.
5.2 The Subcontractor, upon twenty-four (24) hours' notice, in person
or by duly authorized representative having power to act and acceptable to
Construction Manager, shall attend, at its own expense, all meetings or
conferences that the Owner, Architect or Construction Manager may call, at the
Project site or elsewhere, for the purpose of discussing progress of the Work,
safety at the site, or ways to expedite the completion of the Project.
ARTICLE 6. TIMING.
6.1 TIME IS OF THE ESSENCE OF THIS AGREEMENT. The Construction Manager
and/or Owner may sustain financial loss if the whole Project or any part thereof
is delayed because the Subcontractor fails to perform any part of the Work in
accordance with the Subcontract Documents, including, without limitation, a
failure to comply with the Construction Manager's directions or the Project
Schedule. The Subcontractor shall begin the Work at the time directed by the
Construction Manager shall complete the Work within the durations set forth in
Schedule B and shall perform its obligations under this Agreement with diligence
and with sufficient manpower to maintain the progress of the Work as scheduled,
without delaying other trades or areas of work. At the request of the
Construction Manager, the Subcontractor shall perform certain parts of the Work
before other parts, add extra manpower, or order overtime labor in order to
comply with the Project Schedule, all without any increase in the Subcontract
Price (unless otherwise specifically provided in the General Conditions). The
Subcontractor shall be liable to the Construction Manager for all increased
costs and damages resulting from the Subcontractor's failure to complete the
Work within the durations set forth in Schedule B and as provided in the Project
Schedule, including without limitation all liquidated damages for which the
Construction Manager may be liable to the Owner.
6.2 The Subcontractor shall provide the Construction Manager with
forty-eight (48) hours' advance notice of any activities that will interrupt any
utility service to any portion of the Project site, or any activities that will
significantly disrupt the normal or planned use and occupancy of the Project
including without limitation Tenant fit-out work and hotel space finish work,
and such notice shall include an estimate of the length of time of such
interruption or disruption. The Subcontractor shall cooperate with the
Construction Manager and Owner in rescheduling and considering alternative
actions that may be less disruptive to the use and occupancy of the Project than
those planned by the Subcontractor.
6.3 (a) If the performance of the Work has not progressed in
accordance with the Project Schedule or reached the level of completion required
by the durations set forth in Schedule B, the Construction Manager shall have
the right, but not the obligation, to order the Subcontractor to take corrective
measures necessary to expedite the progress of the Work, including without
limitation (i) working additional shifts or overtime, (ii) supplying additional
manpower, equipment and facilities and (iii) other similar measures
(collectively "Extraordinary Measures"). Such Extraordinary Measures shall
continue until the progress of the Work complies with the Project Schedule and
the level of completion required by Schedule B. It is further agreed that: (i)
subject to clause (iii) below, the Subcontractor shall not be entitled to an
adjustment in the Subcontract Price in connection with Extraordinary Measures
required by the Construction Manager under or pursuant to this Section 6.3; (ii)
the Construction Manager may exercise its rights pursuant to this Section 6.3 as
frequently as necessary to ensure that the Subcontractor's performance of the
Work will comply with the Project Schedule and the durations set forth in
Schedule B; and (iii) whether or not the progress of the Work has complied with
the Project Schedule and reached the level of completion required by the
durations set forth in Schedule B shall take into account any extensions of time
to which the Subcontractor is entitled pursuant to the terms hereof.
ARTICLE 7. BONDS.
The Subcontractor shall furnish a performance bond and a labor and
material payment bond, within five (5) days after execution of this Agreement,
at its own expense. Such bonds shall be with a corporate surety licensed the
State of New York, rated by Best's Key Rating Guide as B + or better and
acceptable to the Construction Manager and Owner, in the amount of the
Subcontract Price and shall name Construction Manager, AMEC Holdings, Inc., AMEC
plc, Brooklyn Renaissance Plaza, LLC, the City of New York and Empire Insurance
Company as co-obligees thereunder. Such bonds shall conform with the bond forms
annexed hereto as Exhibits F-G and shall include provisions to the effect that
the Subcontractor shall faithfully, promptly and with due diligence (i) perform
all of the terms and provisions of this Agreement on its part to be performed,
(ii) pay all of the Subcontractor's obligations to its employees, agents, all
subcontractors, materialmen, suppliers or others relating to the Work, and (iii)
complete the various portions of the Work in accordance with the terms of the
Subcontract Documents, and such bonds shall otherwise be in form and substance
mutually satisfactory to the Construction Manager and Owner. To the extent, if
any, that the Subcontract Price is increased in accordance with the Subcontract
Documents, the Subcontractor shall, upon request of the Owner or Construction
Manager, cause the amount of such bonds to be increased accordingly and shall
promptly deliver satisfactory evidence of such increase to the Construction
Manager. The bonds shall further provide that no change or alteration of this
Agreement (including, without limitation, an increase in the Subcontract Price,
as aforesaid), extensions of time, premature payment or overpayment to the
Subcontractor, will release the surety.
ARTICLE 8. SUB-SUBCONTRACTS AND PURCHASE ORDERS.
Within thirty (30) days of the award of this Subcontract, or such
earlier time as the Construction Manager may schedule, Subcontractor shall
execute all purchase orders, enter into all sub-subcontracts for the Work, and
give to the Construction Manager a complete list of all its sub-subcontractors
and suppliers for all parts of the Work. The Subcontractor shall notify the
Construction Manager in writing of any proposed changes in its
sub-subcontractors or suppliers not less than five (5) days prior to such
change, which notice shall specify the reasons for such proposed change. Without
limiting, diminishing or otherwise affecting the Subcontractor's obligations
hereunder, any such change shall be subject to the approval of the Construction
Manager, which approval shall not be unreasonably withheld or delayed.
ARTICLE 9. CERTAIN WARRANTIES AND GUARANTEES.
9.1 Promptly upon completion of the Work, the Subcontractor shall
deliver to the Construction Manager or the Owner (as the Construction Manager
may direct) all warranties and guarantees from third parties for materials,
equipment and labor incorporated into or used in connection with the Work.
9.2 The Subcontractor warrants to the Construction Manager that all
materials and equipment furnished under this Agreement will be new, unless
otherwise specified, and that all Work will be of good quality, free from
improper workmanship and defective materials and in conformance with the
Subcontract Documents.
9.3 All warranties and guarantees provided by the Subcontractor shall
insure to the benefit of the Construction Manager and Owner and their successors
and assigns and to such Tenants as the Owner may designate and shall be
assignable to the Owner and its assignees (including without limitation Empire
Insurance Company, The City of New York and any lender to the Owner). Warranties
for portions of the Project leased to the Kings County District Attorney of The
City of New York shall extend through full heating and cooling seasons following
occupancy by such Tenant.
9.4 Without limitation of the foregoing or any other obligation of
Subcontractor provided for in the Subcontract Documents (including, without
limitation, Article 8 of the General Conditions), immediately upon the
Construction Manager's demand, the Subcontractor, at its own expense, shall
repair, replace, restore or rebuild, at the Construction Manager's option, any
Work in which defects in materials or workmanship may appear, or which is
otherwise not in conformance with the other warranties of Subcontractor
hereunder, or to which damage may occur because of such defects or lack of
conformance, within one (1) year, or such longer period as required by the
specifications, from the date of the Owner's and Architect's final acceptance of
the Project. Such repair, replacement, restoration or rebuilding, as the case
may be, shall be carried out by the Subcontractor promptly upon such demand by
the Construction Manager and shall be performed in accordance with Article 13 of
the General Conditions. If the Subcontractor fails to comply, the Construction
Manager may correct such defect or lack of conformance, as the case may be, and
the Subcontractor shall immediately reimburse the Construction Manager therefor.
9.5 The existence of the foregoing warranties, guarantees and
undertakings by the Subcontractor shall not relieve the Subcontractor of, or
reduce the Subcontractor's liability, for any defects in the Work and shall be
in addition to all of the Construction Manager's other rights and remedies
hereunder, under any other Subcontract Document or under law, and to any other
warranties and or guarantees, whether express or implied.
ARTICLE 10. INSURANCE.
10.1 Except as set forth in the Owner Controlled Insurance Program
described in Exhibit I hereto, if such program is provided by the Owner, the
Subcontractor, at its own expense, shall obtain and submit to the Construction
Manager, before undertaking any part of the Work, policies and certificates with
receipts for the payment of premiums from Subcontractor's insurance carriers
indicating coverage from companies, in amounts and on such other terms as
provided for hereinafter and in the "Insurance Schedule" attached to this
Agreement as Exhibit I. Any "deductible" with respect to such coverage shall be
submitted to, and must be approved in writing by, the Construction Manager,
provided that any costs not covered by any such approved deductible shall in any
event be borne by the Subcontractor. All such insurance shall be maintained by
the Subcontractor, at its expense, until the Work has been completed and all
obligations of the Subcontractor under the Subcontract Documents have been
satisfied. Any policy of insurance covering the Subcontractor's tools, equipment
or facilities against loss by physical damage, shall provide that the
underwriters waive their rights of subrogation against the Construction Manager,
the Owner, and their respective members, officers, directors, employees, agents
and servants.
10.2 All policies required of the Subcontractor hereunder shall
provide for notice to the Construction Manager thirty (30) days before any
change in or cancellation of such insurance, and shall otherwise be acceptable
to the Construction Manager. Upon request, the Subcontractor shall furnish the
Construction Manager with evidence of insurance satisfactory to the Construction
Manager for each sub-subcontractor employed by it. The insurance required herein
shall in any event include blanket (broad form) contractual liability insurance.
The existence of insurance shall not be construed to limit Subcontractor's
liability under this Agreement.
10.3 The Owner is providing the Owner Controlled Insurance Program
described in Exhibit I hereto. Additional insurance credits may be taken against
the Subcontract Price pursuant to the Owner Controlled Insurance Program to the
extent provided in Exhibit I.
ARTICLE 11. DEFAULT.
11.1 Any one or more of the following shall constitute an event of
default by the Subcontractor:
A. The Subcontractor shall fail or refuse to perform
or comply with any term, condition or provision of
this Agreement or of any of the other Subcontract
Documents.
B. The Subcontractor shall fail or refuse to pay any
of its sub-subcontractors, suppliers, or workers
for any materials, labor or other things
incorporated into, or used in connection with, the
Work when such payments are due; provided,
however, that if the Subcontractor disputes the
amount due to a worker, sub-subcontractor or
supplier, the Subcontractor, within two (2) days of
the due date of such payment, at its own expense,
posts a bond for the disputed payment in amount
and form satisfactory to the Construction Manager
as security for such payments, then such
non-payment shall not constitute an event of
default hereunder.
C. The Subcontractor shall abandon the Work or reduce
its labor force to a number insufficient, in the
Construction Manager's opinion, to complete the
Work within the scheduled time.
D. Without limitation of the foregoing, any of the
events described in Paragraph 5.B.8 of the General
Conditions shall occur.
11.2. If any event of default described in Section 11.1 above occurs,
then the Construction Manager, at its option, at any time may:
A. Order the Subcontractor immediately to comply with
any term, condition or provision of this Agreement
or such other Subcontract Document;
B. Order the Subcontractor, within a specified time,
to remove any defective work or materials and to
replace such work or materials with satisfactory
work or materials;
C. Accept any defective work or materials and reduce
the Subcontract Price accordingly;
D. Perform or arrange to have performed any of
Subcontractor's duties hereunder;
E. Make any payments to satisfy the Subcontractor's
obligations relating to the Work for labor,
materials, equipment, insurance or other items;
F. Refuse to make any payments to the Subcontractor
for Work performed until the event of default is
cured to the satisfaction of the Construction
Manager; and/or
G. Upon three (3) days' written notice to the Subcontractor,
terminate this Agreement and take possession of all
materials, tools, equipment, and appliances of the
Subcontractor and finish the Work by whatever means,
method or agency which the Construction Manager, in its
sole discretion, may choose, and take any other steps the
Construction Manager, in its sole discretion, may choose
to secure any labor, materials, equipment and services,
and, in such event, the Construction Manager shall have a
lien on and may take over all Subcontractor's equipment,
tools, appliances and materials (whether on or off-site)
and complete the Work; provided, however, that if the
default involves any breach of safety laws, regulations or
requirements, only one (1) day's notice (whether oral or
written) shall be required.
If the Construction Manager terminates this Agreement, as aforesaid,
the Construction Manager shall have no obligations to pay for any work performed
after such termination, and will have no obligation to make any further payments
to the Subcontractor for work performed before such termination until the
Project has been completed, accepted by the Owner and the Construction Manager
has received full payment for the Project from the Owner, and the Construction
Manager determines to its complete satisfaction that potential expenses, charges
and claims relating to the performance of the Work have been satisfied or
satisfactorily bonded over. Such payments to the Subcontractor shall in any
event be reduced by the amount due to the Construction Manager under the terms
of this Agreement or any of the other Contract Documents.
11.3. The Construction Manager's choice of any remedy shall not
operate to waive any rights or remedies provided hereunder, or by law, against
the Subcontractor or its surety. The Construction Manager, at his option, may
choose more than one remedy or choose one or more particular remedies at
different times.
11.4. The Subcontractor shall pay, immediately upon demand therefor,
all costs, losses, damages and expenses, including, without limitation, all
costs and expenses described in Section 11.2 above and all administrative,
management, overhead and other direct or indirect expenses, including reasonable
attorneys' fees (the "Costs") incurred by the Construction Manager in connection
with any default by the Subcontractor or exercise of any right or remedy upon
the Subcontractor's default. If the Subcontractor does not pay the Costs
immediately, the Construction Manager may deduct all Costs from any payments of
the Subcontract Price. If payments due to the Subcontractor for completed
portions of the Work are not sufficient to cover the Costs, the Subcontractor
immediately shall pay to the Construction Manager the full amount of any such
excess with interest thereon until paid in full at four (4) percentage points in
excess of the rate of interest announced from time to time by Chase Manhattan
Bank (or its successor) as its prime rate or if it is less, at the maximum
interest rate permitted by law. The liability of the Subcontractor hereunder
shall extend to and include, without limitation, the full amount of Costs
incurred and obligations assumed by the Construction Manager in good faith under
the reasonable belief that such Costs or obligations were necessary or required,
whether actually necessary or required or not, (i) in completing the Work and
providing labor, materials, equipment, supplies and other items therefor or
resubcontracting the Work, and/or (ii) in settlement, discharge or compromise of
any claims, demands, suits and judgments pertaining to or arising out of the
Work. An itemized statement of such obligations and payments shall be prima
facie evidence of the Subcontractor's liability.
ARTICLE 12. NO WAIVER EXCEPT IN WRITING.
No action or failure to act by the Construction Manager shall
constitute a waiver of any default in that or any other instance, except to the
extent the Construction Manager specifically states in writing
ARTICLE 13. MERGER.
All previous orders, proposals, letters, oral or written promises and
understandings relating to the subject matter of this Agreement, are hereby
declared to be null and void. This Agreement is complete and shall not be
interpreted by any reference to any previous letter, proposal, document or
understanding, written or oral, or other document or agreement, except as
specifically provided in this Agreement.
ARTICLE 14. AMENDMENTS.
No amendment to this Agreement shall change or modify this Agreement
unless it is in writing and signed by both the CONSTRUCTION MANAGER and the
Subcontractor.
ARTICLE 15. ADDITIONAL TERMS AND CONDITIONS.
Additional terms and conditions of, and Schedules to, this Agreement,
if any, are provided for on the "List of Exhibits" attached hereto.
ARTICLE 16. CAPTIONS.
The captions to the provisions of this Agreement are for convenience
only and are not a part of this Agreement.
ARTICLE 17. NOTICES.
Any notice required to be given by the terms and provisions of this
Agreement or by any law or governmental regulation, either by the Construction
Manager or Subcontractor (or which either party may desire to give hereunder),
shall be in writing and shall be personally delivered or forwarded by registered
or certified mail, return receipt requested, and shall be addressed to the party
hereto to whom directed, at its address, as herein stated to the attention of
John Babieracki, Executive Vice President for the Construction Manager with a
copy to Executive Vice President of Finance and Administration, Morse Diesel
International, Inc., 1633 Broadway, New York, NY 10019; or Floyd Warkol,
Chairman/CEO for the Subcontractor. Either party may change the address to which
any notice referred to herein is to be sent by giving written notice of such
change of address to the other party in the manner provided above. Notice
personally delivered pursuant to this Article 17 shall be effective on the date
of delivery. Notice given by mail shall be effective on the date of receipt
appearing on the return receipt, or, in the absence of a return receipt, the
date of attempted delivery.
ARTICLE 18. MISCELLANEOUS.
Each of the Exhibits attached hereto is hereby made a part hereof. If
any provision of this Agreement or the application thereof to any person or
situation, to any extent shall be held invalid or unenforceable, the remainder
of said Agreement, and the application of such provision to persons or
situations other than those to which it shall have been held invalid or
unenforceable, shall not be affected thereby, but shall continue valid and
enforceable to the fullest extent permitted by law. All provisions of this
Agreement which by their terms require performance by either party hereto after
termination of this Agreement shall survive any such termination.
ARTICLE 19. NO THIRD PARTY BENEFICIARY.
Except as otherwise provided herein, no provision of this Agreement
shall in any way inure to the benefit of any third person (including the public
at large) so as to constitute any such person a third party beneficiary of this
Agreement or of any one or more of the terms hereof or otherwise give rise to
any cause of action in any person not a party hereto.
ARTICLE 20. TERMINATION AND ASSIGNMENT.
Except to the extent provided for in Section 20.2 below and without
limitation of any provision of the General Conditions, if the Construction
Management Agreement is terminated for any reason whatsoever, the Construction
Manager may (by notice to the Subcontractor) terminate this Agreement and in
such event, even though the Subcontractor may not be in default hereunder, the
Construction Manager shall only be liable to pay the Subcontractor such amount
as shall be due for that portion of the Work satisfactorily performed by the
Subcontractor prior to the date of termination, reduced, however, by an amount
determined by the Construction Manager to be appropriate compensation for any
damages suffered by reason of any default by the Subcontractor.
20.1 (a) The Subcontractor shall not assign this Agreement, in whole
or in part, or hypothecate, pledge or assign any payments due it under this
Agreement, without the Construction Manager's prior written approval. Any such
attempted unauthorized assignment shall be null and void. In any event, no
subcontract or approved assignment shall relieve or release the Subcontractor in
any way from its obligations hereunder or under the other Contract Documents.
(b) This Agreement may, with written notice, be assigned to another
entity designated by the Construction Manager without the need for any further
action by the Construction Manager or approval by the Subcontractor and in such
event the Subcontractor agrees to and shall continue to be bound by this
Agreement and shall look solely to the Owner and to any assignee for payment and
performance hereunder.
(c) Upon written notice from the Owner that the Construction
Management Agreement has been terminated by reason of a default by the
Construction Manager thereunder and that the Owner has elected to accept this
Agreement, this Agreement shall be assigned to and assumed by the Owner or
another person or entity designated by the Owner without the need for any action
by the Construction Manager or Subcontractor and in such event the Subcontractor
agrees to and shall continue to be bound by this Agreement and, in the event of
such an assignment, the Subcontractor shall look solely to the Owner for payment
and performance hereunder. Upon request of the Owner, the Subcontractor further
agrees that it shall enter into an agreement directly with the Owner
acknowledging the foregoing conditional assignment of this Agreement to the
Owner and agreeing to be bound thereby.
(d) The Subcontractor shall promptly execute and deliver an Attornment
Letter in the form attached hereto as Exhibit M or such other form that the
Owner may request, in a manner suitable for recording if so requested, and shall
require its sub-subcontractors promptly to execute and deliver similar letters.
This Agreement may be terminated by the Construction Manager without
cause upon ten (10) days' prior written notice. In the event of such
termination, the Subcontractor shall be reimbursed such amount as shall be due
the Subcontractor for that portion of the Work satisfactorily performed prior to
the effective date of termination.
20.4 If (a) the Construction Manager fails for thirty-five (35) days
after payment is due hereunder to make any material payment as provided herein
and not disputed in good faith, or (b) the Construction Manager otherwise fails
for seventy (70) days to perform any material obligations as herein provided
which have a material adverse financial consequence to the Subcontractor
(including, without limitations, the failure to approve or disapprove requests
for Change Orders within a reasonable time after submission thereof), or (c) the
Project is abandoned, discontinued or otherwise stops for more than one hundred
twenty (120) consecutive days through no fault of the subcontractor, then, upon
giving the Construction manager thirty- five (35) days to cure by written
notice, and if the Construction Manager does not cure within said thirty-five
(35) days period, the Subcontractor may terminate this Agreement. If, however,
the stoppage or discontinuance of work described in subparagraph (c) above is
caused by any strike, riot, government order, act of God, or other cause beyond
the control of the Construction Manager or Owner, the Subcontractor shall not be
entitled to terminate this Agreement but shall be entitled to an extension of
the durations set forth in Schedule B.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Subcontract
Agreement as of the day and year first above written.
CONSTRUCTION MANAGER: MORSE DIESEL INTERNATIONAL, INC.
a Delaware corporation
By:
John Babieracki
Executive Vice President
- -------------------------------
Witness
- -------------------------------
Date
SUBCONSTRUCTION: KSW MECHANICAL, INC.
a New York corporation
By: ------------------------------
Floyd Warkol,
Chairman
Witness
- -------------------------------
Date
<PAGE>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
-------------------------
1996 1995
-------- ------
A S S E T S
Current assets:
Cash and cash equivalents $ 4,464 $ 5,124
Accounts receivable, (net of allowance
for doubtful accounts of 1996: $170;
1995: $300) 11,705 4,783
Retainage receivable 5,552 3,355
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,640 1,513
Deferred income taxes 126 68
Prepaid expenses and other receivables 290 387
---------- ----------
Total current assets 23,777 15,230
Property and equipment, (net of accumulated
depreciation and amortization of 1996 $752;
1995 $464) 651 733
Other assets:
Goodwill, (net of accumulated amortization
of 1996: $712; 1995: $559) 4,278 4,431
Other 28 37
----------- -----------
Total assets $28,734 $20,431
========== ===========
1996 1995
-------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,602 $ 3,561
Retainage payable 3,472 3,335
Accrued payroll and benefits 916 971
Accrued expenses 345 539
Due to contractor - 1,264
Billings in excess of costs and estimated
earnings on uncompleted contracts 4,860 632
--------- ---------
Total current liabilities 18,195 10,302
========== ===========
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 25,000,000
shares authorized, 5,542,978 and 5,200,000
shares issued and outstanding, at 1996
and 1995, respectively 55 52
Additional paid-in capital 9,961 9,450
Retained earnings 523 627
---------- ----------
Total stockholders' equity 10,539 10,129
---------- ------------
Total liabilities and stockholders'
equity $28,734 $20,431
========= ============
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
-----------------------------------
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Revenues:
Contracts $ 45,511 $ 41,189 $ 28,775
Fees from seller 783 2,795 7,197
Interest 100 192 159
------ --------- --------
Total revenues 46,394 44,176 36,131
Direct costs 42,600 38,990 30,046
---------- ---------- ----------
Gross profit 3,794 5,186 6,085
Selling, general and administrative expenses 3,956 4,115 4,453
Interest expense 14 - 70
---------- ---------- --------
Income (loss) before income taxes (176) 1,071 1,562
Income tax expense (benefit) (72) 500 956
--------- ---------- --------
Net income (loss) $ (104) 571 606
=========== ========== =========
Net income (loss) per common share $ (.02) .07 .08
=========== ========== ==========
Weighted average common shares outstanding 5,568,429 7,785,754 7,800,000
outstanding
See notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(CONCLUDED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
---------------------------
Additional
DIVISIONAL COMMON STOCK Paid-In Retained
EQUITY SHARES AMOUNT CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 - 5,200,000 52 9,450 627 10,129
Sale of common stock to an
investment banking firm
and its managing partner - 300,000 3 447 - 450
Repurchase of common stock - (42,022) (1) (126) - (127)
Issuance of common stock
to executives and consultants - 85,000 1 190 - 191
Net loss - - - - (104) (104)
------- --------- -------- ------- ----- -----
Balances, December 31, 1996 $ - 5,542,978 $ 55 $9,961 $ 52 $10,539
=======
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KSW, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
-------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net income (loss)
to net cash provided by (used in)
operating activities:
Net income (loss) $ (104) $ 571 $ 606
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Compensation expense paid through issuance of common stock 191 - 607
Depreciation and amortization 441 383 545
Deferred income taxes (72) - -
Reduction in allowance for (130) - -
doubtful accounts
Changes in assets (increase) decrease:
Accounts receivable (6,792) (627) 1,033
Retainage receivable (2,197) (1,617) (281)
Costs and estimated
earnings in excess of billings on (127) (1,244) 1,468
uncompleted contracts
Receivable from sellers - 894 (475)
Prepaid expenses and other receivables 100 (87) (329)
Other assets 23 43 (45)
Changes in liabilities increase (decrease):
Accounts payable 5,041 938 111
Retainage payable 137 2,410 925
Accrued payroll and benefits (114) 164 (492)
Accrued expenses (138) 383 (1)
Due to contractor (1,264) (776) (297)
Billings in excess of costs
and estimated earnings on 4,228 (122) 297
uncompleted contracts ------- -------- --------
See notes to consolidated financial statements
Net cash provided by (used in) operating
activities (777) 1,313 3,672
-------- -------- --------
Cash flows from investing activities:
Receivable from Helionetics - (167) (486)
Cash paid in business acquisition - (25) -
Purchase of property and equipment (206) (287) (28)
-------- ---------- ---------
Net cash used in investing activties (206) (479) (514)
-------- ----------- ---------
Cash flows from financing activities:
Payable to Helionetics $ - $ - $ 956
Capital contribution - - 2,000
Repayment of debt to sellers - - (1,706)
Payment of dividend - (550) -
Issuance of common stock 450 - -
Repurchase of common stock (127) - -
-------- ---------- --------
Net cash provided by (used in financing
activities 323 (550) 1,250
------- ---------- ---------
Net increase (decrease) in cash and cash equivalents (660) 284 4,408
Cash and cash equivalents, beginning of year 5,124 4,840 432
------- --------- ----------
Cash and cash equivalents, end of year $4,464 $5,124 $ 4,840
======== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 14 $ - $ 70
====== =========== ============
Income taxes $ 65 $ 765 $ -
====== =========== ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON CASH FINANCING ACTIVITIES:
On December 20, 1996, the Board of Directors approved the issuance of
up to 85,000 shares of common stock of which 50,000 shares of stock were
allocated to company executives as year end 1996 bonuses and 35,000 shares of
stock were allocated as payments to consultants. The fair market value of the
additional 85,000 shares to be issued was approximately $191 at December 31,
1996.
See Notes 6B and 13A for other non cash financing activities during 1995 and
1994.
See notes to consolidated financial statements
<PAGE>
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
-----------------
(1) PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS:
The consolidated financial statements for the years ended December 31,
1996, 1995 and 1994 include the accounts of KSW, Inc. and its
wholly-owned subsidiary, KSW Mechanical Services, Inc., collectively
"the Company." All material intercompany accounts and transactions have
been eliminated in consolidation.
The Company furnishes and installs heating, ventilating and air
conditioning systems and processes piping systems for institutional,
industrial, commercial, high-rise residential and public works
projects, primarily in the State of New York. The Company also serves
as a mechanical trade manager, performing project management services
relating to the mechanical trades and as a constructability consultant.
Effective November 1, 1993, KSW, Inc. (then a subsidiary of
Helionetics, Inc., a California corporation ("Helionetics")), acquired
certain assets and rights, and assumed certain liabilities associated
with the mechanical contracting business conducted by Kerby
Saunders-Warkol, Inc. and AFGO Engineering Corp, both subsidiaries of
JWP Mechanical/Electrical Services East, Inc., itself a subsidiary of
JWP, Inc. (the "Sellers"), pursuant to an asset purchase agreement
dated as of October 31, 1993. In connection with this acquisition, the
Company, for fees, also assumed the responsibility for the management
of certain contracts of the Seller not acquired by the Company. Through
January 20, 1994, all transactions of the acquired business were
recorded through a division of Helionetics (the "KSW Division") on
behalf of the Company. Helionetics contributed the net assets of the
KSW Division to the Company on January 20, 1994. The contribution was
accounted for as a transfer at historical basis in a manner similar to
a pooling of interests. The accompanying consolidated financial
statements reflect the operations of the KSW Division of Helionetics
from January 1, 1994 to January 20, 1994. Such division had no separate
legal status or existence.
The acquisition price, as amended in 1995, consisted of $3,314
including a note of $2,314 (net of discount of $86) payable in 24 equal
monthly installments commencing in April 1994. Direct acquisition costs
incurred of $5,076 were comprised of 366,000 shares of Helionetics
common stock (unregistered, but subject to immediate registration
rights) valued at $1,863 (approximately $5.00 per share, the estimated
fair value at the date of acquisition), 128,700 shares of Company's
common stock owned by a shareholder of Helionetics at the date of
Distribution valued at $260 and cash of $2,953 (including
<PAGE>
(1) PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS - CONT'D:
finders fees and professional fees incurred in connection with the
acquisition). The net effect of the final 1995 amendment was a net
purchase price reduction of $277 and a reduction in the "push-down"
value of the securities of $302. The final purchase price amounted to
$8,390.
The acquisition was accounted for by Helionetics using the purchase
method of accounting with the purchase price allocated among the assets
acquired and liabilities assumed on the basis of their estimated fair
values as follows:
Current assets $6,364
Property 879
Other assets 44
--------
7,287
Current liabilities (3,887)
----------
----------
Estimated fair market value of net assets $3,400
===========
The excess of $4,990 of the total acquisition price over the estimated
fair market value of net assets acquired was allocated to goodwill. In
accordance with Staff Accounting Bulletin No. 54, the accompanying
financial statements have been adjusted to "push-down" Helionetics'
cost of acquisition.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) CASH AND CASH EQUIVALENTS:
The Company considers highly liquid instruments with remaining
maturities of 90 days or less when purchased to be cash
equivalents. At December 31, 1996 and l995, all such
investments had original maturities of less than seven days.
(B) REVENUE AND COST RECOGNITION:
Revenue is primarily recognized on the "percentage of
completion" method for reporting revenue on long-term
construction contracts not yet completed, measured by the
percentage of total costs incurred-to-date to estimated total
costs at completion for each contract. This method is utilized
because management considers the cost-to-cost method the best
method available to measure progress on these contracts.
Revenues and estimated total costs at completion are adjusted
monthly as additional information becomes available and based
upon the Company's internal tracking systems.
Contract costs include all direct material and labor costs and
those other indirect costs related to contract performance
including, but not limited to, indirect labor, subcontract
costs and supplies. General and administrative costs are
charged to expense as incurred.
The Company has contracts that may extend over more than one
year, therefore, revisions in cost and profit estimates during
the course of the work are reflected in the accounting period
in which the facts, which require the revisions, become known.
Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
Revenues recognized in excess of amounts billed are recorded
as a current asset under the caption "Costs and estimated
earnings in excess of billings on uncompleted contracts."
Billings in excess of revenues recognized are recorded as a
current liability under the caption "Billings in excess of
costs and estimated earnings on uncompleted contracts."
In accordance with construction industry practice, the Company
reports in current assets and liabilities those amounts
relating to construction contracts realizable and payable over
a period in excess of one year.
Fees for the management of certain contracts are recognized
when services are provided. Continuation of management fees is
dependent upon the Company obtaining new consulting agreements
from unrelated entities.
(C) PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Depreciation is
computed over the estimated useful lives, generally five
years, of the assets using the straight-line method. Leasehold
improvements are amortized over the lesser of the estimated
useful lives of the assets to which they apply or the related
lease term. Repairs and maintenance are charged to operations
in the period incurred.
(D) GOODWILL:
Goodwill, which represents the excess of cost over the fair
value of net assets acquired, is amortized using the
straight-line method over 30 years.
Effective January 1, 1995, management revised the amortization
period for goodwill from 15 years to 30 years, the effects of
which have been adjusted prospectively beginning January 1,
1995. Unaudited pro forma effects on net income and net income
per share of this change in estimate from 15 years to 30 years
for the year ended December 31, 1994 are presented in Note
13F.
Amortization expense for the years ended December 31, 1996,
1995 and 1994 amounted to approximately $153, $153 and $348,
respectively.
(E) INCOME TAXES:
The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes. " Under Statement 109, the asset and liability method
is used in accounting for income taxes. Deferred taxes are
recognized for temporary differences between the bases of
assets and liabilities for financial statement and income tax
purposes. The temporary differences relate primarily to
different accounting methods used for depreciation and
amortization of property and equipment, goodwill, allowance
for doubtful accounts and net operating loss carryforwards. A
valuation allowance is recorded for deferred tax assets when
it is more likely than not that some or all of the deferred
tax assets will not be realized through future operations.
(F) NET INCOME (LOSS) PER SHARE:
Net income (loss) per share is computed based on the weighted
average number of shares of common stock and common stock
equivalents outstanding during the year. Common stock
equivalents do not have a significant dilutive effect. Per
share information presented has been retroactively restated
for the 7,800 for 1 stock split (see Note 13C).
(G) USE OF ESTIMATES:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(H) STOCK-BASED COMPENSATION:
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). Under
SFAS 123, companies are encouraged, but not required, to adopt
a fair value based method of accounting for stock compensation
awards. As permitted by SFAS 123, the Company has elected to
continue to measure compensation cost using the intrinsic
value based method as prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and to provide the disclosures required by SFAS
123.
(3) RETAINAGE RECEIVABLE:
At December 31, 1996, approximately $914 of the retainage receivable is
not collectible within one year.
(4) CONTRACTS IN PROGRESS:
Information with respect to contracts in progress at December 31, 1996
and 1995 is as follows:
1996 1995
Expenditures on uncompleted contracts $75,790 $33,955
Estimated earnings thereon 5,632 2,021
-------- ---------
81,422 35,976
Less billings applicable thereto 84,642 35,095
--------- ---------
$(3,220) $ 881
Included in the accompanying consolidate
balance sheets under the following captions:
Costs and estimated earnings in excess of $ 1,640 $ 1,513
billings on uncompleted contracts
Billings in excess of costs and estimated (4,860) (632)
earnings on uncompleted contracts
$(3,220) $ 881
(5) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 consist of the
following:
1996 1995
------- -------
Machinery and equipment $365 $231
Furniture and fixtures 300 265
Leasehold improvements 738 701
------- --------
1,403 1,197
Less accumulated depreciation and amortization 752 464
Net property and equipment $651 $733
======== ========
Depreciation and amortization expense relating to property and
equipment was approximately $288, $230 and $197, respectively, for the
years ended December 31, 1996, 1995 and 1994, respectively.
(6) TRANSACTIONS WITH HELIONETICS:
(A) TAX SHARING AGREEMENT:
The Company had an agreement with Helionetics whereby the
Company agreed to pay a share of Helionetics' tax liability
due on consolidated tax returns but such payment was not to
exceed the tax liability which the Company would have had on a
stand-alone basis. For the years ended December 31, 1995 and
1994, Helionetics forgave debt of $335 and $343, respectively,
relating to income taxes. Such forgiveness is reflected in the
accompanying consolidated financial statements as capital
contributions. The tax-sharing agreement terminated upon the
conclusion of the Distribution, except with respect to the tax
liability accrued through the Distribution (see Note 13C).
(B) RECEIVABLE FROM HELIONETICS:
At December 31, 1994, the Company had a noninterest bearing
receivable of $498. During 1995, the Company had paid certain
state and local taxes on behalf of Helionetics, as well as
certain other costs which, as of December 29, 1995, aggregated
$1,098. On December 29, 1995, Helionetics tendered 2,600,000
of the Company's common shares in satisfaction of $1,000 in
such advances and paid the Company the remaining balance of
$98 (see Note 13C).
(7) TRANSACTION WITH SELLER:
(A) DUE TO CONTRACTOR:
In connection with the acquisition described in Note 1, the
Company assumed a joint venture subcontract agreement with a
subsidiary of the Seller to provide services on a specific
contract. At December 31, 1995, the Company had $1,264 due to
contractor under this agreement. This liability was satisfied
during 1996.
(B) RECEIVABLE FROM SELLER:
At December 31, 1996 and 1995, the Company had an aggregate
receivable from the Seller for contract services provided in
the ordinary course of business which amounted to $147 and
$1,537, respectively. These amounts are included in accounts
and retainage receivable in the accompanying consolidated
balance sheet.
(C) MANAGEMENT FEES:
Fees from the Seller for the management of certain contracts
not acquired total approximately $783, $2,795 and $7,197, and
represented approximately 2%, 6% and 20% of consolidated
revenues for the years ended December 31, 1996, 1995 and 1994,
respectively.
(D) NOTE PAYABLE TO SELLER:
In connection with the acquisition, the Company issued a note
of $2,314 (net of a discount of $86), payable in 24 equal
monthly commencing in April 1994 and bearing interest
beginning January 1, 1995. During 1994, such note was paid in
full.
(8) INCOME TAXES:
The components of income tax expense (benefit) are as follows:
1996 1995 1994
Current
Federal $ - $335 $459
State and local - 233 497
------ ---------- -------
- 568 956
------- ---------- --------
Deferred
Federal (40) (40) -
State and local (32) (28) -
-------- ---------- --------
(72) (68) -
Total $(72) $500 $956
========= ========== ========
A reconciliation of the statutory Federal income tax rate to the provision for
income taxes is as follows:
1996 1995 1994
Statutory Federal income tax (34)% 34% 34%
rate (benefit)
Compensation expense not
deductible for - - 10
income tax purposes
State and local taxes, net of
Federal tax benefit (12) 13 17
Other 5 - -
(41)% 47% 61%
===== ==== =====
The provision for income taxes for the years ended December 31, 1995
and 1994 represents the Federal, state and local income tax expense
based on the assumption that separate income tax returns would be
filed, and the KSW Division or the Company would not be included in
Helionetics' consolidated tax returns.
The details of deferred tax assets and liabilities are as follows:
Deferred income tax asset:
1996 1995
---- ----
Property, plant and equipment $135 $ -
Allowance for doubtful accounts 68 140
Net operating loss/credit carryforward
and other 58 -
----- ---
Total deferred income tax assets 261 140
Valuation allowance - -
------ ---
Net deferred income tax asset 261 140
Deferred income tax liabilities:
Amortization of goodwill 121 72
Total net income tax asset $140 $ 68
====== ======
At December 31, 1996, the long-term portion of the net deferred tax
assets totalling $14 is included with other assets in the accompanying
balance sheet.
At the December 31, 1996, the Company has a net operating loss
carryforward of approximately $78 expiring through 2012.
(9) COMMITMENTS AND CONTINGENCIES:
(A) PERFORMANCE BONDS:
The Company is contingently liable to a surety under a general
indemnity agreement. The Company agrees to indemnify the surety
for any payments made on contracts of suretyship, guaranty or
indemnity. Management believes that all contingent liabilities
will be satisfied by performance on the specific bonded
contracts involved.
(B) OPERATING LEASES:
The company is obligated under noncancelable operating leases,
including a lease with its chief executive officer, for office
space and transportation equipment with future rental payments
at December 31, 1996 as follows:
Year ending Amount
------------------------------------------------------------
December 31, NONAFFILIATED RELATED PARTY TOTAL
1997 $264 $103 $367
1998 95 103 198
$359 $206 $565
====== ====== =======
Rent expense for the years ended December 31, 1996, 1995 and
1994 amounted to approximately $351, $345 and $339,
respectively, including $103 to a related party in each year.
(C) EMPLOYMENT AGREEMENTS:
KSW Mechanical Services, Inc. has entered into employment
agreements with two of its officers for the period January
1994 through December 1998. These agreements provide for
aggregate base annual compensation of $775 increasing by $37
in 1995 and 1996 and by $50 in 1997 and 1998. The officers are
also entitled to medical insurance, disability insurance, life
insurance, club dues and bonuses, if, and when, declared by a
two-thirds vote of the Company's Board of Directors.
(D) ENVIRONMENTAL REGULATION:
The Company must comply with certain Federal, state and local
regulations involving contract compliance as well as the
disposal of certain toxins. In management's opinion, there
have been no violation of laws which could have a material
adverse impact on the financial condition of the company.
Employees of the Company have occasion to work in the vicinity
of hazardous materials, such as lead. The Company has
purchased a $5,000 Contractor's Pollution insurance policy
insuring against losses resulting from exposure to hazardous
materials.
(E) CONSULTING AGREEMENTS:
The Company has entered into two agreements for independent
advisory and consulting services. The term of the first
agreement is from June 1994 through December 1997 with annual
payments totalling $95. The second agreement was entered into
on January 1, 1996 and expires in December 1998 with annual
payments totalling $75. This agreement also provides the
consultant with 15,000 options to purchase shares of the
Company's common stock at $1.50 per share. The options were
issued pursuant to the 1995 Stock Option Plan (see Note 13E).
During December 1996, under a Board of Directors Resolution,
the Company approved the issuance of 85,000 shares of common
stock of which 35,000 shares are to be issued to these
consultants in lieu of cash payments with a fair market value
of approximately $79. This transaction has been reflected in
the Company's consolidated financial statements for the year
ended December 31, 1996 (see Note 13D).
(F) HELIONETICS' LITIGATION:
Helionetics is defendant in a class action lawsuit seeking
substantial damages allegedly resulting from the purported
violation of Federal securities laws. KSW, Inc. is not a party
to this action. The ultimate outcome of this action is not
presently determinaable; however, in the opinion of management
of KSW, Inc., the ultimate outcome of this action will not
have a material adverse impact on the Company's consolidated
financial statements.
The wife of the Chairman of the Board of Helionetics has
irrevocably pledged 500,000 of the shares of stock she
received in the Distribution to the Company as collateral for
any payment of any claims by KSW, Inc. against Helionetics in
connection with the December 28, 1995 distribution of KSW,
Inc. stock by Helionetics, Inc.
(10) CONCENTRATION RISKS:
(A) CREDIT RISK:
Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of cash and
cash equivalents and trade accounts and retainage receivables.
The Company maintains its cash and cash equivalents accounts
at balances which exceed Federally insured limits for such
accounts. The Company limits its credit risk by selecting
financial institutions considered to be highly creditworthy.
At December 31, 1996, such excess amounted to approximately
$4,467.
Trade accounts and retainage receivables are due from
government agencies, municipalities and private owners located
in the New York metropolitan area. The Company does not
require collateral in most cases, but may file statutory liens
against the construction projects if a default in payment
occurs.
(B) LABOR CONCENTRATIONS:
The Company's direct labor is supplied primarily by unions
through collective bargaining agreements expiring primarily
during June 1999. Although the Company's past experience was
favorable with respect to resolving conflicting demands with
these unions, it is always possible that a protracted conflict
may occur which will impact the renewal of the collective
bargaining agreements
(C) CONTRACT REVENUE/SIGNIFICANT CUSTOMER:
The Company earned approximately 53%, 16% and 12% of its
contract revenue during the year ended December 31, 1996 from
three customers. Accounts receivable and retainage receivable
from these respective customers totaled approximately $13,037
as of December 31, 1996. Revenues from one contract accounted
for 61% of consolidated revenues during 1995. A different
contract accounted for 52% of consolidated revenues for 1994.
Accounts receivable and retainage receivable from the
respective contracts were $3,573 and $2,306 as of December 31,
1995 and 1994, respectively.
(11) RETIREMENT PLANS:
(A) PROFIT-SHARING/401(K) PLAN:
The Company sponsors a profit-sharing/401(k) plan covering
employees not covered under collective bargaining agreements
who meet the age and length of service requirements of the
plan. The Company may make discretionary contributions to the
plan. The total of employee contributions may not exceed
Federal government limits. The Company accrued approximately
$51 as a discretionary contribution for the year ended
December 31, 1996.
(B) MULTIEMPLOYER PENSION PLANS:
The Company has made contributions to multiemployer pension
plans that cover its various union employees. These plans
provide benefits based on union members' earnings and periods
of coverage under the respective plans. It is not cost
effective to accumulate information regarding the pension
expense under these plans.
(12) LINE OF CREDIT - BANK
Effective July 1, 1996, the Company obtained an uncommitted line of
credit with a bank, which provides borrowings of up to $2,500 with
interest at the bank's prime lending rate
plus 1% expiring May 31, 1997. The line requires the Company to meet
certain financial covenants and ratios. At December 31, 1996, there are
no outstanding borrowings on the line of credit.
(13) COMMON STOCK:
(A) ISSUANCE OF COMMON STOCK:
In January 1994, the Company issued 780,000 shares of its
common stock to two officers for no consideration. Prior to
the Distribution discussed below, under the terms of a
stockholders' agreement, if either officer received a bona
fide offer from a third party to purchase all of such shares,
Helionetics had an option to purchase the shares at a price
equal to 25% of the Tangible Book Value (as defined) of such
shares. The Company determined the value of the shares to be
$607 based on the purchase price paid by Helionetics and a
discount for minority ownership. Such amount has been recorded
as compensation expense for the year ended December 31, 1994.
In 1994, Helionetics contributed $2,000 in cash to the Company
as reflected in the accompany consolidated statement of
stockholders' equity.
On January 31, 1996, the Company sold 300,000 shares
of its common stock for $1.50 per share to an
investment banking firm and its managing partner. (See
Note 13C)
(B) REPURCHASE OF COMMON STOCK:
During April 1996, the Company purchased 42,022 shares of its
common stock as a result of a tender offer to shareholders
whom held under 50 shares of stock. These shares were
purchased at a cost of $3 per share.
(C) THE DISTRIBUTION:
Effective December 29, 1995, the Company filed a Registration
Statement on Form 10 with the Securities and Exchange
Commission, under the provisions of the Securities and
Exchange Act of 1934, as amended, for the purpose of
distributing up to 4,189,900 shares of common stock (the
"Distribution"). The Distribution was to the shareholders of
record as of December 4, 1995 of Helionetics at a rate of one
share of the Company's common stock for every twelve shares of
Helionetics stock held. The purpose of the Distribution was to
separate the Company from Helionetics and to enable the
Company to gain independent access to equity markets to fund
future operations. Subsequent to the Distribution, Helionetics
has no ownership interest in the Company. Neither Helionetics
nor the Company received any cash or other proceeds upon
execution of the Distribution. There are no material pro forma
adjustments necessary to the accompanying statements of
operations as a result of the Distribution because the Company
was operated as an autonomous entity for all periods
presented.
In connection with the Distribution, the following occurred:
. The Board of Directors of the Company
approved a 7,800-for 1 stock split of issued
and outstanding common shares, increased its
authorized shares to 25,000,000 and
authorized the issuance of 1,000,000 shares
of preferred stock.
. The Company declared and paid a cash
dividend of $550 to shareholders of record
on December 4, 1995.
. The Company acquired and retired 2,600,000
shares of its common stock from Helionetics
in exchange for forgiveness by the Company
of $1,000 due from Helionetics.
. The Board of Directors of the Company
adopted the 1995 Stock Option Plan (the
Plan). The Plan enabled the Company to offer
an incentive-based compensation system to
its employees, officers, directors and
consultants.
. Bonuses totaling $375 for two officers of
the Company were accrued at December 31,
1995.
. Immediately following the Distribution, the
Company issued and sold a total of 300,000
shares of common stock for $1.50 per share
to an investment banking firm and its
managing partner during 1996. (See Note
13A)
. Pursuant to the Distribution Agreement,
Helionetics agreed to the following: (i)
payment of $98 to the Company in repayment
for sums previously advanced by KSW, Inc.
to a Helionetics consultant; (ii) transfer
128,700 and 101,400 shares of the Company's
common stock in satisfaction of agreements;
and (iii) Helionetics documented the
account receivable due and owing from AIM
Energy, Inc. (AIM) with respect to advances
from the Company to AIM in the form of a
note receivable for $50. The note will be
payable upon receipt by Helionetics or AIM
of cash as a result of any transaction
involving AIM.
(D) ISSUANCE OF COMMON STOCK - EXECUTIVES AND CONSULTANTS:
On December 20, 1996, under a Board of Directors Resolution,
the Company was authorized to issue 35,000 shares of stock to
two consultants in lieu of cash payments (see Note 9(E)) and
50,000 shares to executives as year end bonuses. The
consolidated financial statements reflect the effect of 85,000
shares to be issued per this resolution. The fair market value
of these shares at December 31, 1996 was approximately $ 191.
(E) STOCK OPTION PLAN:
The Board of Directors of the Company adopted the 1995 Stock
Option Plan (the Plan). The Plan enabled the Company to offer
an incentive-based compensation system to its employees,
officers, directors and consultants.
A total of 750,000 shares were authorized for issuance under
the Plan. Options to purchase 610,000 shares at $1.50 per
share were issued (of which, 535,000 shares were issued to
officers and directors of the Company and its subsidiary). The
Plan requires that the exercise price of options be set at not
less than the fair market value of the common stock on the
date of grants. In the case of the initial options, the price
of $1.50 was determined to be in excess of the fair market
value in light of the contingencies facing the Company prior
to completion of this Distribution. Options awarded vest
one-third on each anniversary of the date of grant and are
fully vested three years after grant and expire ten years from
the date of the grant. Additional credit towards vesting is
given in the event of death (six months) or disability (three
months). Any shares which are subject to an award but are not
used because the terms and conditions of the award are not
met, or any shares which are used by participants to pay all
or part of the purchase price of any option may again be used
for awards under the Plan. The Plan provides that no shares
may be issued to officers or directors in excess of the
750,000 shares originally planned to be authorized unless the
Company's shareholders approve an increase in the number of
shares which may be used for that purpose.
Holders of shares issued pursuant to the Plan are
entitled to registration of such shares annually,
subject to restrictions in any underwriting agreement.
During 1996, no options under the Plan were granted or
exercised.
The Corporation has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for the stock option
plan. Had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant date
consistent with the provisions of SFAS No. 123, the
Corporation's net loss and net loss per common share would
have been increased to the pro forma amounts indicated below:
1995
Net income - as reported $ 571
Net income - pro forma $ 386
Net income per common share - as reported $ .07
Net income per common share - pro forma $ .05
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in
1996: dividend yield of 0.%; expected volatility of 0.3720%;
risk-free interest rate of 7.68%; and expected lives of 6
years.
(F) PRO FORMA NET INCOME PER SHARE:
Pro forma net income per share after giving effect to the
2,600,000 shares acquired by the Company for the note
receivable, and the effects of changing the estimated periods
to be benefited for goodwill from 15 years in 1994 to 30 years
in 1995 is as follows:
1995 1994
Weighted average common shares 7,785,754 7,800,000
Shares acquired from Helionetics (2,600,000) (2,600,000)
----------- -----------
Pro forma weighted average 5,185,754 5,200,000
common shares ========== ==========
Net income as reported $ 571 $ 606
========== ===========
<PAGE>
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
-----------------
KSW, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONCLUDED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands, except share and per share data)
(F) PRO FORMA NET INCOME PER SHARE - CONT'D:
1995 1994
Pro forma net income per share $ 0.11 $ 0.12
---------- ----------
Net income as reported $ 606
Pro forma weighted average 174
common shares ---------
Pro forma net income $ 780
=========
Pro forma net income $ 0.15
----------
(14) RECLASSIFICATIONS:
Certain amounts in the 1995 and 1994 consolidated financial statements
have been reclassified for comparative purposes to conform with the
1996 presentation. These reclassifications did not affect net income or
working capital, as previously reported.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 1004125
<NAME> KSW, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,464
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<ALLOWANCES> 170
<INVENTORY> 0
<CURRENT-ASSETS> 23,777
<PP&E> 1,403
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0
0
<COMMON> 55
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<SALES> 46,294
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<TOTAL-COSTS> 46,556
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</TABLE>
