U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-KSB
[x] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended September 30, 1996
[ ] Transition Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
Commission file number 0-22388
EIF HOLDINGS, INC.
(Name of small business issuer in its charter)
Hawaii 99-0273889
------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) Number)
475 N. Muller Street
Anaheim, CA 92803
----------- -----
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number: (714) 991-6688
Securities registered under Section 12(b)
of the Exchange Act: None
Securities registered under Section 12(g)
of the Exchange Act: Title of Class:
Common Stock
Check whether the Issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES NO X
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.[ ]
State Issuer's revenues for its most recent fiscal year:
$27,537,589
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60 days: March 7,
1997: $6,786,000 (15,599,485 shares held by persons other than
affiliates) at an average of the high and low bid and high and
low asked price $.435 as reported by the National Quotation
Bureau, Inc.
State the number of shares outstanding of each of the
Issuer's classes of common equity as of the latest practicable
date: Number of shares of Common Stock outstanding at March 25,
1997: 24,663,201
Transitional Small Business Disclosure Format (Check one):
Yes __ No X
--
<PAGE>
PART 1
ITEM 1. DESCRIPTION OF BUSINESS
--------------------------------
Organization and Development of Business
----------------------------------------
EIF Holdings, Inc. (the "Company" or "EIF") is a holding
company formed in the State of Hawaii in 1989. The Company's
primary business is the acquisition and operation of companies
engaged in the environmental construction related industries. To
date, this has consisted of the acquisition and operation of P.W.
Stephens Contractors, Inc., VonGuard Holdings, Inc. and Kelar
Controls Inc.
In January 1993, the Company acquired, in a reverse
acquisition, all of the shares of P.W. Stephens Contractors,
Inc., ("P.W. Stephens"). The Company currently operates its
businesses through various first or second tier subsidiaries.
Through its largest subsidiary, P.W. Stephens, the Company
is engaged as a contractor in the environmental contracting
industry. P.W. Stephens was founded as a California corporation
in 1982, and currently has seven branches, servicing primarily
the states of California, Hawaii, and Nevada. Initially P W.
Stephens' main focus was on the removal of materials containing
asbestos. It also offers lead hazard removal, insulation, and
other hazardous materials cleanup services.
P.W. Stephens conducts certain of its residential work
through P.W. Stephens Residential, Inc., a California
corporation. P.W. Stephens has two subsidiaries Environmental
Supply, Inc. and P.W. Stephens Construction, Inc. which are
inactive and the Company has no current intention to conduct
material activities through these entities.
The Company pursued a strategy of expanding the geographic
reach and service capabilities of its business beginning in 1994.
In August 1994, the Company acquired VonGuard Holdings, Inc.,
("VonGuard") and its subsidiaries. VonGuard was formed as a
Missouri corporation in February 1992, by Kenneth Vonderahe as a
holding company to acquire FCA Services, Inc. ("FCA") and
Remediation Services, Inc. ("RSI"). FCA has been in business
since 1987 and RSI since 1989. P.W. Stephens St. Louis provides
asbestos abatement and lead hazard removal services, as well as
soil and groundwater remediation, hazardous materials management
and clean-up, and industrial cleaning services to clients
primarily in the Midwest. In June 1996, VonGuard and Enstar-
North American, Inc., a subsidiary of VonGuard, were merged into
FCA and the name was changed to P.W. Stephens Services, Inc.
Select Abatement, Inc., a subsidiary of VonGuard, was merged into
RSI and the name was changed to P.W. Stephens Contractors, Inc.,
a Missouri corporation. P.W. Stephens Services, Inc. and P.W.
Stephens Contractors, Inc. are collectively referred to as "P.W.
Stephens St. Louis".
As part of the acquisition strategy, in December 1994, the
Company acquired Kelar Controls, Inc. ("Kelar"), a California
corporation. The Company issued 200,000 shares of its Common
Stock as part of the purchase price. The former Kelar
shareholders are also entitled to an earn out of 28% of Kelar's
pre-tax profits (as defined) each year to be paid in the
Company's Common Stock up to a maximum of $500,000 in value, as
defined, during a period of five years ending September 30, 1999.
No earn out was earned during the fiscal year ended September 30,
1996. The earn-out arrangement is to terminate upon the completion
of a litigation which arose out of the acquisition agreement, see
Item 3. "Legal Proceedings." Kelar primarily installs new lighting
controls and equipment and retrofits and upgrades existing lighting
equipment for large storage and warehouse type facilities. These
projects feature a combination of controls and equipment to
implement various energy and lighting conservation measures.
Typically, energy conservation projects include heating and air
conditioning systems and lighting. Kelar also offers intrusion and
building security devices. Kelar attempts to finance these projects
through long-term financing which is totally or partially funded
out of energy and security savings.
Set forth below is a chart which illustrates the
organization of the Company:
[The chart shows that EIF HOLDINGS, INC., a Hawaii Corporation has the
following subsidiaries: P.W. Stephens Contractors, Inc., a California
Corporation, of which QHI Stephens Contractors, Inc., a California
Corporation is a wholly-owned subsidiary; P.W. Stephens Residential,
Inc., a California Corporation; Kelar Controls, Inc., a California
Corporation; P.W. Stephens Contractors, Inc., a Missouri Corporation;
and P.W. Stephens Services, Inc., a Missouri Corporation.]
-2-
<PAGE>
During the summer of 1995 and during the beginning of fiscal
1996, American Eco Corporation, an Ontario corporation ("American
Eco"), invested in the Company. American Eco provides
construction, project management, maintenance, demolition,
dismantlement and environmental remediation services in the
refining, petrochemical, government, commercial, manufacturing
and utility industries. The common stock of American Eco is
quoted on the NASDAQ National Market under the symbol ECGOF and
is traded on the Toronto Stock Exchange under the symbol ECX.
American Eco agreed to purchase 10,000,000 shares of Common Stock
of the Company and to provide a management team, primarily
comprised of American Eco managers, to assist in the management
of the Company s operations. In connection therewith, Richard
Austin stepped down as Chairman of the Board, director and the
Chief Executive Officer of the Company and Kenneth Vonderahe
resigned as a director of the Company and as President of
VonGuard. On February 1, 1996, the two vacancies on the Board of
Directors were filled by Ronald K. Mann, who assumed the position
as Chairman of the Company, and Michael E. McGinnis, who also
became President and Chief Executive Officer of the Company. Mr.
Mann was a director of American Eco and Mr. McGinnis is a
director and the President and Chief Executive Officer of that
corporation. In August 1996, David Norris was hired as President
and Chief Executive Officer of the Company and replaced Mr. Mann
as a director of the Company. Mr. Norris is also Vice President
and the Chief Financial Officer of American Eco.
The agreement with American Eco to purchase 10,000,000
shares did not close as it is subject to shareholder approval.
In March 1996, American Eco agreed to loan money to the Company
pursuant to a line of credit agreement with a maximum borrowing
of $5,250,000. The total amount borrowed under the agreement
approximated $4,908,000 at September 30, 1996. In a separate
transaction, American Eco acquired 4,000,000 shares of the
Company s Common Stock from Julbin International Ltd.,
("Julbin"), pursuant to a stock purchase agreement which closed
in November 1996. At November 30, 1996, American Eco owned an
aggregate of 8,800,000 shares of the Company's Common Stock. See
ITEM 11 "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" and ITEM 12 "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
NARRATIVE DESCRIPTION OF BUSINESS
---------------------------------
The following discussion, unless indicated to the contrary,
relates to the businesses of P.W. Stephens Contractors, Inc.,
QHI\Stephens Contractors, Inc. and P.W. Stephens Residential,
Inc., all California corporations (collectively "P.W. Stephens"),
P.W. Stephens Services, Inc. and P.W. Stephens Contractors, Inc.,
both Missouri corporations, (collectively "P.W. Stephens St.
Louis") and Kelar Controls, Inc., a California corporation,
("Kelar").
Service Provided by Subsidiaries:
---------------------------------
P.W. Stephens
-------------
P.W. Stephens is primarily engaged in the business of
asbestos removal from commercial and residential buildings. It
also provides lead hazard removal services and insulation
services. The work is generally performed under time and
material contracts and fixed-price contracts. P.W. Stephens
provides these environmental services through its seven branch
offices located in California, Hawaii and Nevada. In 1995, P.W.
Stephens began providing other hazardous material clean-up
services primarily through its Las Vegas branch, but were
discontinued during 1996.
P.W. Stephens St. Louis
-----------------------
P.W. Stephens St. Louis provides its environmental services
through its subsidiaries P.W. Stephens Services, Inc. and P.W.
Stephens Contractors, Inc. P.W. Stephens Services, Inc. provides
asbestos abatement and lead hazard removal for commercial,
industrial, governmental, and residential clients primarily in
the Midwestern states of Illinois, Missouri, Iowa, and Nebraska.
P.W. Stephens Contractors, Inc. provides soil and groundwater
remediation and hazardous material management cleanup for
industrial, commercial, and governmental clients. P.W. Stephens
Services, Inc., through its RSI Hydro Services division, offers
industrial cleaning services primarily for industrial,
commercial, and governmental clients utilizing ultra-high
pressure water technology. The work of P.W. Stephens St. Louis
is generally performed under cost-plus-fee contracts or fixed
price contracts. P.W. Stephens St. Louis provides services to
its clients through its office in St. Louis, Missouri.
-3-
<PAGE>
Kelar Controls, Inc.
--------------------
Kelar installs a combination of controls and equipment to
implement various energy and lighting conservation measures as
well as possible intrusion and building security measures. Some
of these projects are performed under a shared energy savings
arrangement whereby Kelar receives a portion of the client's
future energy savings.
ENVIRONMENTAL REMEDIATION SERVICES:
Asbestos Abatement
------------------
From 1910 until 1978, asbestos was a common ingredient in
building materials due primarily to its ability to retard fire,
absorb heat from friction, provide insulation from heat and cold,
resist corrosion and add tensile strength. The Environmental
Protection Agency, ("EPA"), began to ban the use of asbestos in
construction products in 1973, in response to evidence that
asbestos causes certain forms of cancer and poses other health
hazards. The first Federal regulations requiring the removal of
asbestos, however, did not appear until 1986 when Congress passed
the Asbestos Hazard Emergency Response Act ("AHERA"). This
legislation required all public schools to identify materials
containing asbestos and develop management programs. An increase
in awareness of asbestos hazards led to an increased demand for
abatement. However, since 1990, there has been a trend toward
management in place rather than removal where possible. The EPA
now recommends abatement only when other options, such as
management in place, will not work, or renovation will disturb
the material and cause a potential health risk to workers.
Although there are currently no laws requiring the removal of
asbestos from buildings, there are numerous federal, state and
local regulations which govern the removal or disturbance of
asbestos through demolition, renovation, remodeling, or repairs.
The Company's asbestos abatement services include complete
removal of asbestos-containing materials as well as encapsulation
and enclosure. The Company's workers remove asbestos in
accordance with the regulations promulgated by the EPA, the
Occupational Safety and Health Administration ("OSHA") and
various state and local agencies.
Before any removal can begin, the work area must be sealed
off from other parts of the building as well as from the outdoor
environment. Containment of the work area requires the
construction of barriers on the walls and floors. These barriers
must be made of polyethylene plastic sheeting sealed at the seams
or, in some cases, more permanent materials to provide a
continuous isolation that will prevent fibers from escaping.
Once contained the work area can be accessed only through one
entrance and an air filtration system is required to further
prevent escape of any asbestos fibers. The Company constructs a
three-stage worker decontamination chamber which is generally
comprised of a clean room where workers prepare for the work, a
shower room and a dirty room where contaminated clothing is
discarded. Signs and barricades are posted around the work area,
positioned so that an individual can take protective steps to
avoid exposure.
The containment areas are equipped to create negative
pressure within the work area. Negative air units are used to
create this negative pressure, which is required to prevent the
exhausting of air from within the containment area except through
the negative air units. Negative air units, equipped with a HEPA
filter, ensure that air is decontaminated before being exhausted
outside the building. Additional pre-filters are used to trap
large particles before they reach the HEPA filter. At certain
times during the abatement process, air samples are taken to
indicate the level of airborne fibers both inside and outside the
work area in order to protect the worker and building occupants.
Prior to removal, workers wet the asbestos containing
material and then remove it in small sections before it dries.
Gross removal is considered complete only when no visible clumps
of asbestos-containing materials remain on the surface. All
surfaces are then thoroughly scrubbed. After cleaning, the
surface is coated with a penetrating encapsulate that locks all
invisible, residual fibers in place. Plastic sheeting on walls
and floors is also covered with a mist of sealant.
Before the isolation barrier is dismantled, a final air
sample is taken. When the level of airborne fibers is equal to
or below 0.01 fibers per cubic centimeter (f/cc), the isolation
barrier can be removed. The surfaces underneath the plastic
sheeting are then vacuumed and/or wiped with an amended water.
-4-
<PAGE>
Every employee of the Company who deals with asbestos is
trained in order to reduce the risk of exposure to himself,
co-workers, family members and the environment. Workers are
required to wear a suitable respirator, a one-piece disposable
suit that contains head and foot covers, and rubber gloves at all
times while working in likely contamination areas. Suits and
gloves are disposed of and replaced after each exit from the
containment work area.
The Company believes that the asbestos abatement market will
continue to offer business opportunities, driven by factors such
as the existence of strict regulation, building renovation and
demolition, catastrophe repairs and restoration, public awareness
and desire for an asbestos free environment, worker demand for
protection, and liability concerns of building owners,
contractors, realtors, lending institutions and insurance
companies.
Lead Abatement
--------------
Lead-based paint is considered the most prevalent source of
lead poisoning in the United States, and it poses a risk to
residents and construction workers. Lead was added to paint used
on the inside and outside of buildings to shorten the drying time
and increase the durability of the paint. The EPA began to
restrict such use of lead during the 1970s. The largest initial
market for lead-based paint abatement is believed to be public
housing. Laws concerning the disclosure, identification and
abatement of lead-based paint already exist in some states.
Federal regulations require the inspection of all Housing and
Urban Development ("HUD") housing built prior to 1978 and
abatement of any existing hazards. The Company believes that,
like asbestos, the lead hazard removal market will be driven by
laws and regulations, liability issues and public awareness.
The Company removes lead removal from various surfaces using
various techniques including wet sanding, stripping or component
replacement depending upon the requirements of each individual
project. Since the acquisition of P.W. Stephens St. Louis, the
Company also has available removal by ultra high pressure water
blasting. See "Industrial Cleaning". The Company also
encapsulates and encloses surfaces coated lead based products.
As with asbestos removal, dust minimization and control of the
environment are required.
In several states lead removal workers and supervisors are
required to complete a training course. The training course
provider must be licensed by the appropriate state agencies and
the course must meet EPA recommended standards. The Company
believes that it has satisfied these training requirements for
its workers.
Soil and Groundwater Remediation and Hazardous Materials Cleanup
----------------------------------------------------------------
P.W. Stephens Contractors, Inc. of P.W. Stephens St. Louis
performs soil and groundwater remediation and hazardous materials
work. The purpose of soil remediation is to repair or contain
environmental damage caused when hazardous materials have been
allowed to leak into the soil. When hazardous materials are
released into the environment, site remediation may be necessary
to eliminate potential health risks and contamination of land,
air, or water. Soil and groundwater remediation services offered
by the Company include underground storage tank cleaning, removal
and installation; soil sampling and analysis; excavation and
disposal; soil stabilization; bioventing; bio-remediation; soil
vapor extraction/air sparging, groundwater remediation and soil
recycling. The Company also offers system installation/operation
and site restoration.
Before a remediation project begins, an environmental
assessment is usually conducted to identify the type and extent
of contamination. The Company will generally perform this
assessment through a joint venture with an independent
environmental engineering firm or it may be conducted by the
client's environmental consultant. Once this is completed, the
Company will then assist in formulating a remediation solution
which meets the client s individual needs.
Underground Storage Tanks
Growing concern over environmental drainage and associated
public health risks has led to the development of regulations
governing underground storage tanks. The release of tank
contents into the environment can contaminate soil, air and
drinking water supplies. Depending upon the product's chemical
makeup and the site geology, contaminants can migrate
-5-
<PAGE>
great distances both laterally and vertically from a storage tank.
In connection with its storage tank removal services, the Company
offers a number of services, including tank and line removal;
tank decontamination; tank disposal; soil sampling and analysis;
bio-remediation; soil excavation, transportation, disposal and
recycling; new tank installation; and storage tank
closure/abandonment in place.
Tank removal is generally the most effective method of
dealing with the closure of underground storage tanks. The
Company will generally isolate the work area, remove and
decommission the tanks, treat soil in-situ or excavate all
accessible contamination and restore the area for reuse. Special
precautions are taken to minimize the release of any contaminated
materials into the environment. If contaminated materials need
to be hauled for disposal, these materials are transported to an
EPA, state, or owner approved disposal site. In certain
circumstances, alternative methods of soil remediation such as
soil vapor extraction and bio-remediation can achieve the
required results at a lower cost. The Company assists in
determining and executing projects which provide the client with
the various methods of resolving underground storage tank
problems.
PCB Cleanup
The Company also addresses sites contaminated with PCB's and
other associated substances. The Company is capable of handling
the various phases of PCB projects, including PCB oil removal,
transformer removal, soil removal, concrete cleaning and removal,
facility decontamination, contaminant transportation and disposal
and site restoration.
The removal of PCB contaminated soil from commercial and
industrial properties may range from the removal of several
inches of top soil to gross excavations. In addition, in many
instances involving the uncontrolled release of PCB's from
transformers or other oil cooled electrical equipment,
surrounding concrete surfaces are contaminated. The Company
addresses this contamination through the use of special purpose
surfactants or, if necessary, the selective removal of affected
material. These projects may require special precautions to
eliminate the migration of contaminated dust particles depending
on whether a dry or wet method is used. In such case, the
Company will install containment systems to prevent the migration
of materials ranging from the construction of completely
encapsulated enclosures to the use of dust suppression agents.
Industrial Cleaning
-------------------
P.W. Stephens St. Louis provides industrial cleaning
services primarily using hydroblasting technology generally
through its division, RSI Hydro Services. Hydroblasting utilizes
high-water pressure ranging from 20,000 pounds per square inch
(psi) to 40,000 psi, at a very low flow rate, to remove
protective coatings and product buildup in industrial and
commercial settings. Hydroblasting is applicable for the removal
of urethane coatings, fiberglass coatings, rubberized coatings,
and lead-base paint from steel and concrete substrates.
Industrial cleaning services are also utilized in cleaning
barges, railroad cars and conveyor systems in plants. Another
hydroblasting ability is the cutting of steel and concrete
through the use of entrained abrasive without the risk of
sparking.
Insulation
----------
The Company also provides for industrial and commercial
insulation services which include the installation of high and
low temperature insulation on pipes, ducts, furnaces, boilers,
and various other types of industrial equipment for industrial
and commercial facilities, as well as for new construction.
Insulation services are provided for maintenance of existing
facilities as well as new construction. Depending upon the size
of the contract, the Company may perform substantially all of the
work required to complete its contracts or subcontract to others.
RAW MATERIALS
The Company obtains its raw materials, primary asbestos
storage bags, suits and tools used in the abatement process, from
multiple sources and believes that they are readily available.
Shortages of supplies may occur in responding to catastrophic
environmental emergencies, but the Company believes it has supply
sources to cover its needs although unforeseen costs and delays
could occur.
-6-
<PAGE>
MARKETING
The Company's primary target markets include general and
specialty contractors, industrial, commercial and large
residential property owners and managers, insurance carriers,
environmental consultants, architects, realtors, mortgage
lenders, federal, state and local governments and agencies,
schools and the military. Prospect lists of customers are
compiled from a variety of sources including directories,
associations, and the Company's own sales staff. Target mailings
are prioritized independently for each division and branch.
Telephone follow-up is conducted on a regular basis. Each of the
Company's subsidiaries has it own sales staff the specializes in
marketing and sales of that subsidiaries services. The sales
staff are trained to cross market the other subsidiaries'
services. P.W. Stephens has approximately 40 sales person and
estimators, P.W. Stephens St. Louis has approximately seven, and
Kelar has approximately four.
An integral part of the marketing strategy is to promote the
concept of quality, and to encourage customers and prospects to
use quality criteria in judging environmental contractors. The
Company's collateral marketing materials contribute to this
effort. With each new marketing program, the Company creates
targeted literature to reach a specific market.
During fiscal 1996, the Company s strategies for generating
new business continued emphasis on personal selling, trade show
participation, association participation, telemarketing, public
relations and some non-yellow pages advertising.
Kelar, in addition to its own marketing and sales staff,
uses marketing representatives that specialize in lighting and
energy reduction products. Sales leads which are generated by
the marketing representative are coordinated with the Kelar home
office in order for an appropriate proposal may be prepared and
quoted to the customer. The marketing representatives are
geographically located through out the United States.
Customers
---------
The Company provides its services for a varied range of
owners and managers of properties. Its customer list includes
commercial and industrial facilities operators, hospitals,
hotels, retailers, school districts and construction companies.
It is involved in the cleanup of properties insured by insurance
companies. A portion of its business comes from regional and
national real estate and property management firms. It provides
services to the United States Navy, the United States Air Force,
the United States Corps of Engineers, several states, the
government of the United States and municipalities and utilities.
Its customers also include various campuses of public and private
university systems and school districts in its market areas.
The Company performs numerous government jobs, however, to
date it has not experienced significant renegotiation of profits
or termination of contracts with governmental agencies prior to
completion.
The Company grants credit for services performed, generally
without collateral, to its customers. Management believes that
its contract acceptance, billing and collection policies are
adequate to minimize potential credit risk.
During the fiscal year ended September 30, 1995, P.W.
Stephens St. Louis revenues from Bechtel Corp. accounted for
$3,476,000 of the Company's consolidated revenues (11.0%). The
revenues related to two specific contracts completed during that
year. During fiscal 1996, no one customer accounted for more
than 10% of the Company s revenues on a consolidated basis.
COMPETITION
The Company provides services throughout the Western and
Midwestern United States, primarily in California, Hawaii,
Nevada, Missouri, Illinois, Iowa, Nebraska and Ohio, which are
competitive markets. In these markets, many companies compete on
the basis of quality, service and price. The Company competes
with numerous other environmental firms, a number of which have
revenues and capital resources exceeding those of the Company.
During the 1997 fiscal year, the Company believes that
competitive pressures will continue as the number of contractors
seeking to enter the environmental
-7-
<PAGE>
remediation industry continues to increase. The Company believes
that its services are competitive because of price, its experience
in the industries and its emphasis on quality assurance. Its
ability to obtain appropriate bonding and insurance is also an
important factor. See "Bonding".
INSURANCE
The Company has obtained commercial general liability
insurance for its non-hazardous materials remediation operations
with an aggregate limit of $5,000,000 and a $5,000,000 per
occurrence limit with an additional amount of up to $10,000,000
of coverage available on a job-by-job basis. The Company also
has pollution coverage of $2,000,000 aggregate per occurrence.
The Company is subject to general risks inherent in the
construction industry, and may also be exposed to liability from
delays, fires or breaches in the enclosure or "containment" of a
work area that results from its acts or the acts of the
subcontractors or other contractors on a work site which is
covered under the current insuring agreements.
BONDING
Commercial and industrial projects involving environmental
cleanup or demolition often require contractors to post both
performance and payment bonds at the execution of a contract.
Performance bonds guarantee that the project will be completed
and payment bonds guarantee that vendors will be paid for
equipment and other purchases.
The bonding program in effect at September 30, 1996 did not
require the Company to provide collateral for individual
projects. On January 19, 1996, the bonding company suspended the
Company's bonding until additional information could be presented
regarding the Company s financial position. In May 1996, the
Company was able to obtain bonding from a new bonding company.
However, there can be no assurance that the Company will not lose
its bonding in the future.
GOVERNMENT REGULATION
The Company's operations are strictly regulated by statutes
and regulations administered by several federal, state and local
agencies. These statutes and regulations cover all aspects of
the environmental health and safety industry and the construction
industry in general. The Company's operations and compliance
with statutes and regulations are reviewed by various
governmental agencies, which from time to time may make requests
for information or issue citations for noncompliance.
Asbestos and Lead
-----------------
Federal Regulation
Asbestos abatement operations are subject to regulation by
federal, state, and local governmental authorities, including
OSHA, EPA and the United States Department of Transportation
("DOT"). In general, OSHA regulations set the maximum asbestos
fiber exposure levels applicable to employees and the EPA
regulations provide asbestos fiber emission control standards.
The EPA requires use of accredited persons for both inspection
and abatement. OSHA has promulgated regulations specifying
airborne asbestos fiber exposure standards for workers,
engineering and administrative controls, workplace practices, and
medical surveillance and worker protection requirements. OSHA's
construction standards require companies removing asbestos fibers
to conduct air monitoring, to provide decontamination units and
to appropriately supervise the operations. Transportation and
disposal activities are also regulated. The DOT sets standards
for management of the packaging and transportation of asbestos.
Lead hazard removal is currently regulated at the federal
level by OSHA and the EPA. In general, OSHA regulations set the
permissible lead exposure level for construction workers and EPA
regulates emission of lead into the air and soil. Disposal of
lead containing material is regulated under the Resource
Conservation Recovery Act (RCRA). The EPA has been mandated by
Title X (the Residential Housing Act of 1992) to have contractor
training and certification requirements in place during 1994.
These interim training guidelines were implemented on November 1,
1994.
-8-
<PAGE>
During the year ended September 30, 1996 and 1995, the
Company incurred approximately $65,000 and $47,000 respectively
of worker training expense.
State and Local Regulations
EIF conducts most of its business in California, Hawaii and
Missouri, and also operates in Nevada, Ohio, Illinois, Iowa and
Nebraska. Each state has its own local laws and regulations to
supplement the federal laws. A number of states have promulgated
regulations setting forth such requirements as registration or
licensing of asbestos abatement contractors, training courses and
licensing for workers, notification of intent to undertake
abatement projects and requires approvals from certain state
agencies. Management believes the Company holds all necessary
licenses and permits required by these states for the conduct of
its business.
Currently, some states where the Company conducts its
business have enacted lead related regulations applicable to the
removal or disturbance of lead. The California counties of San
Francisco and Alameda have passed lead-based paint ordinances
which regulate removal practices. States and other counties are
expected to comply with EPA recommended training requirements.
Management does not expect such regulations to have a significant
financial impact on the Company.
Soil and Groundwater Remediation and Hazardous Waste Management
---------------------------------------------------------------
The Company and its customers are subject to extensive and
evolving environmental regulations administered by the EPA, OSHA
and various other federal, state and local environmental, safety
and health agencies relating to its soil and groundwater
remediation services as well as its hazardous waste management
services. Although the Company's customers remain responsible by
law for their environmental problems, the Company must itself
comply with the requirements of those laws applicable to its
services. Because the field of environmental protection is both
relatively new and rapidly developing, the Company cannot predict
the extent to which its operations may be affected by future
enforcement policies as applied to existing laws or by the
enactment of new environmental laws and regulations. Moreover,
any predictions regarding possible liability are further
complicated by the fact that under current environmental laws the
Company could be jointly and severally liable for certain
activities of third parties over whom the Company has little or
no control. Although management believes that the Company is
currently in substantial compliance with all applicable laws and
regulations, the Company could be subject to fines, penalties or
other liabilities or otherwise adversely affected by existing or
subsequently enacted laws or regulations. The principal
environmental laws affecting the Company and its customers in
these areas are briefly discussed below.
The Resource Conservation and Recovery Act of 1976, as
amended ("RCRA"), and the regulations promulgated by the EPA
thereunder establish a strict and comprehensive regulatory
program governing the handling and treatment of hazardous waste.
The EPA has promulgated regulations under RCRA for new and
existing treatment, storage and disposal facilities including
incinerators, storage and treatments tanks, storage containers,
storage and treatment surface impoundment s, waste piles and
landfills. RCRA defines solid and hazardous waste, regulates the
preparation of wastes for shipment, record keeping and reporting
requirements. Specific approved disposal methods are also defined
for different waste streams.
The Safe Drinking Water Act ("SDWA"), was established to
protect groundwater and drinking water sources. Two types of
drinking water standards were established to limit the amount of
contamination that may be in drinking water: primary standards
with a maximum contaminant level (MCL) to protect human health,
and, secondary standards that involve the color, taste, smell or
other physical characteristics of a drinking water source.
The Clean Water Act (CWA), controls the discharge of toxic
materials discharged into surface streams and other navigable
waters. The EPA has established effluent standards covering 129
toxic pollutants. Toxic and hazardous waste are generated
primarily from industries and farmlands. Industries discharging
directly into surface streams and other navigable waters are
regulated by a NPDES (National Pollutant Discharge Elimination
System) permit. Discharges into municipal sewer plants are
required to meet pretreatment requirements.
-9-
<PAGE>
The Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA", also referred to as the
"Superfund Act"). CERCLA governs the clean-up of sites at which
hazardous substances are located or at which hazardous substances
have been released or are threatened to be released into the
environment. CERCLA authorizes the EPA to compel responsible
parties to clean up sites and provides for punitive damages for
noncompliance. CERCLA imposes joint and several liability for the
costs of clean-up and damages to natural resources.
Health and Safety Regulations. The operation of the
Company's environmental activities are subject to the
requirements of the OSHA and comparable state laws. Regulations
promulgated under OSHA by the Department of Labor require
employers of persons in the transportation and environmental
industries, including independent contractors, to implement
hazard communications, work practices and personnel protection
programs in order to protect employees from equipment safety
hazards and exposure to hazardous chemicals.
Other Laws
----------
The Company's activities are subject to various federal
environmental protection and similar laws, including, without
limitation, the Clean Air Act, the Hazardous Materials
Transportation Act and the Toxic Substances Control Act. Many
states, also have adopted laws for the protection of the
environment which may affect the Company, including laws
governing the generation, handling, transportation and
disposition of hazardous substances and laws governing the
investigation and clean-up of, and liability for, contaminated
sites. Some of these state provisions are broader and more
stringent than existing federal laws and regulations. The failure
of the Company to conform its services to the requirements of any
of these other applicable federal or state laws could subject the
Company to substantial liabilities which could have a material
adverse affect on the Company, its operations and financial
condition. The Company cannot predict the extent to which it may
be affected by any law or rule that may be enacted or enforced in
the future, or any new or different interpretations of existing
laws or rules.
Compliance
----------
The Company believes that it is in substantial compliance
with all local, state and federal regulations relating to its
operations. To insure such compliance the Company has developed
and maintains its own quality control program. As one aspect of
this program, the Company's quality control officers inspect
projects randomly before, during, and after abatement operations.
Categories of inspection include isolation barriers,
decontamination units, protective equipment, negative pressure,
work practices, general housekeeping, air monitoring, disposal,
detail and final clean-up, demobilization and enforcement of
state regulations.
Research and Development
------------------------
Research and development activities for the fiscal years
ended September 30, 1996 and 1995 have not been material. The
Company estimates that it spent less than $10,000 on research and
development expenses and had no customer sponsored research
activities during each of these periods.
EMPLOYEES
As of December 20, 1996, P.W. Stephens employed
approximately 91 managerial and administrative personnel and
project supervisors, including sales estimators, project
managers, and safety directors (all on a full-time or permanent
part time basis). The remainder of the labor force, principally
field personnel, varies throughout the year depending upon the
amount of business. In fiscal 1996, P.W. Stephens employed
between approximately 185 and 315 additional field personnel
full-time at any given time, with approximately 253 employed as
of December 20, 1996 (all on a full-time basis). None of the
administrative force is represented by a labor union under any
form of collective bargaining agreement. P.W. Stephens has labor
agreements for the field force in Southern and Northern
California, as well as Las Vegas, Nevada. QHI/Stephens has a
labor agreement in Northern California but not in Southern
California. P.W. Stephens Residential laborers are not covered
by any labor union. P.W. Stephens believes that its relations
with its employees are good and has not experienced any work
stoppages or slowdowns.
-10-
<PAGE>
As of December, 20 1996, P.W. Stephens St. Louis employed 26
managerial and administrative personnel and project supervisors,
including sales estimators, project managers, and safety director
(all on a full-time basis). The remainder of the labor force,
principally field personnel, varies throughout the year depending
upon the amount of business. In fiscal 1996, between 25 and 100
additional field personnel were employed full time at any given
time, with 56 employed as of December 20, 1996 (all on a full
time basis). None of the administrative force is represented by a
labor union under any form of collective bargaining agreement.
P.W. Stephens St. Louis has labor agreements for the field force
in St. Louis, Missouri, Michigan and Ohio which are in force
until 1997. The P.W. Stephens St. Louis believes that its
relations with its employees are good and has not experienced any
work stoppages or slowdowns.
As of December 20, 1996, Kelar employed 9 managerial and
administrative personnel and project supervisors, including sales
estimators and project managers (all on a full time basis). The
remainder of the labor force, principally field personnel, varies
throughout the year depending upon the amount of business. In
fiscal 1996, between 4 and 14 additional field personnel were
employed full time at any given time, with 7 employed as of
December 20, 1996 (all on a full-time basis). No administrative
or field personnel are represented by a labor union. Kelar
believes that its relations with its employees are good and has
not experienced any work stoppages or slowdowns.
SEASONALITY
The Company's business is subject to variations in revenues
and results of operations for interim periods and from year to
year, and increased revenues may not always result in a
corresponding increase in results of operations. These conditions
are due to a number of characteristics shared by the Company to
varying degrees with most other members of the industry,
including the following: (1) its business is affected by the
scheduling of work at commercial properties and outages at
utilities and other industrial facilities; (2) its business is
labor intensive; (3) its performance on a given project is often
dependent on the performance of other contractors, who are
working on the same job, over which the Company has no control;
and (4) costs ultimately incurred by the Company on a job may be
materially affected by such risks as technical problems, labor
shortages and disputes, time extensions, weather, delays caused
by external timing of large contracts, especially if all or a
substantial part of the performance of such contracts occurs
within one or two quarters. Additionally, weather conditions in
the Midwest adversely affect P.W. Stephens St. Louis revenues
and profit margins during the winter months. Accordingly,
quarterly results or other interim results should not be
considered indicative of results to be expected for any other
quarter or for the full fiscal year.
ROYALTIES, PATENTS AND TRADEMARKS
The Company does not have any patents, royalties,
trademarks, licenses, franchises or concessions which are
material to its business.
GLOSSARY
Amended water: Water which has had a detergent compound added
for the purpose of lowering surface tension to allow more liquid
to come in contact with the surface.
Air sparging: Forcing air through groundwater to essentially
strip volatile hydrocarbons from liquid phase to gaseous phase.
Bio-remediation: Utilizing aerobic and facultative metabolic
pathways that are available through a microbial consortium.
Capable of biologically degrading a myriad of organic compounds.
(Example - Petroleum)
Bioventing: Using a vacuum system to ventilate soils in order to
augment biodegration of petroleum contaminant in soil.
Contaminate plume: The zone of contamination as it migrates
through soil and/or groundwater.
DOT: Refers to the Department of Transportation.
-11-
<PAGE>
Dry or wet method: Refers to whether an asbestos containing
material is removed wet or dry.
Dust suppression agents: Example - Water used to reduce airborne
migration of dust.
EPA: Refers to the Environmental Protection Agency.
Groundwater remediation: Refers to numerous technologies used to
decontaminate groundwater.
HEPA Filter: High Efficient Particulate Air filter.
In-Situ: Indicates that a particular method of remediation is
conducted on site without removing soil or groundwater for
treatment.
Manifesting: The act of documenting pathways of waste
transportation.
OSHA: Refers to the Occupational Safety and Health
Administration.
PCB: Polychloronated biphenyls.
RCRA: Refers to the Resource Conservation and Recovery Act of
1976, as amended.
Soil excavation: Removing soil with heavy equipment.
Soil sampling and analysis: Collecting small quantities of soil
for laboratory analysis to verify the presence/quantity or
absence of a particular chemical constituent.
Soil stabilization: Amending soil with a fixative that binds a
contaminant minimizing the leachability of a constituent.
Soil vapor extraction: Removing volatile organic constituents
from soil by vacuum and vertical or horizontal well systems.
Substrates: A general term denoting what a chemical, i.e.
asbestos, coal tar, etc., is attached to.
Surfactants: Chemicals which reduce the surface tension of water
enabling it to saturate materials more easily.
Tank decontamination: Removing residual tank contents through
mechanical chemical or hydro-mechanical methods.
ITEM 2. DESCRIPTION OF PROPERTY
P.W. Stephens
-------------
P.W. Stephens leases its headquarters, administrative
offices and warehouse space at 475 N. Muller Street, Anaheim, CA
92801. The leased property consists of approximately 15,000
square feet at a monthly rent of $8,500 expiring on July 31,
2002. The space is being used approximately 8,000 square feet for
office space and approximately 7,000 square feet for warehouse
space.
Branch offices of P.W. Stephens are identified by location
below. All branches have their own field offices for efficient
mobilization. All properties are leased office space at market
rates for that locale. The current offices, which range from
approximately 1,500 square feet to approximately 2,500 square
feet, used primarily for administration and clerical office
space, are considered by the management to be suitable and
adequate for their current needs.
-12-
<PAGE>
SOUTHERN CALIFORNIA: ORANGE COUNTY:
475 N. Muller Street 15201 Pipeline, Unit B
Anaheim, CA 92801 Huntington Beach, CA 92649
(included in
description above)
SAN FRANCISCO/ SAN DIEGO:
Oakland Bay Area: 8130 Commercial St.
14676 Doolittle Drive La Mesa, CA 91942
San Leandro, CA 94577
SACRAMENTO: LAS VEGAS:
5802 Robertson Ave. 4215 Bertos
Carmichael, CA 95608 Las Vegas, NV 89103
HONOLULU/HAWAII:
2959 Koapaka Street
Honolulu, Hawaii 96819
During fiscal 1996, P.W. Stephens closed its Ventura/Simi
Valley California branch at 2320 Shasta Way, Simi Valley,
California. P.W. Stephens will be required to pay the monthly
rent of $3,040 through March of 1997, when the lease expires.
EIF Holdings, Inc. uses P.W. Stephens' office space in
Anaheim, California.
P.W. Stephens St. Louis
-----------------------
During 1996, P.W. Stephens St. Louis moved its headquarters
and administrative offices to 1525 S. 8th Street, in St. Louis,
Missouri. The leased property consists of approximately 7,000
square feet at a monthly rent of $2,950 expiring on April 30,
1999. The facilities are considered by management to be suitable
and adequate for their current needs.
P.W. Stephens St. Louis terminated its lease of office and
warehouse space at 11401 Moog Drive, St. Louis, Missouri in June
1996. The leased property consisted of approximately 17,600
square feet at a monthly rent of $6,700 plus maintenance costs
and increases in real estate taxes.
There is also an office at 3660 Dixie Highway, Cincinnati,
Ohio which is provided without charge to support a multi-year
FUSRAP contract which is administered by the Department of
Energy. The facilities are considered by management to be
suitable and adequate for their current needs.
Kelar
-----
Kelar leases its administrative, manufacturing and warehouse
facilities at 404-C Umbarger Road, San Jose, California. The
leased property consists of approximately 3,600 square feet at a
monthly rent of $2,700 plus maintenance and real property taxes.
This facility is leased from Kelly McMahon and Larry Thomas, the
President and Vice President respectively, of Kelar and former
shareholders of Kelar. See Item 12. "Certain Relationships and
Related Transactions". The initial period of the lease expires
on December 1, 1999 with one five-year renewal option at a
monthly rental equal to the base rent adjusted for any increases
in the landlord's monthly mortgage payment. This facility is
considered by management to be suitable and adequate for Kelar's
current business needs.
-13-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On October 31, 1996, a supplier of P.W. Stephens filed a
lawsuit in Los Angeles County Superior Court naming both the
Company and P.W. Stephens as defendants. The complaint seeks
damages for unpaid invoices in the amount of $706,000, plus
interest charges and legal costs. The Company has responded to
the lawsuit and settlement discussions are ongoing.
In June 1996, pursuant to a settlement agreement of April
1996 between the Company and other defendants with Kelly McMahon,
President of Kelar, and Larry Thomas, Vice President of Kelar,
the lawsuit filed in United States District Court for the
Northern District of California in December 1995 was settled.
The complaint had alleged misrepresentation, fraud, breach of
contract resulting from the transaction whereby the Company had
acquired all the outstanding stock of Kelar from Mr. McMahon and
Mr. Thomas pursuant to a stock sale agreement in December of
1994, ("Stock Agreement"). The essential terms of the settlement
agreement called for (i) American Eco to deliver 25,000 shares of
its common stock to each of Mr. McMahon and Mr. Thomas in
exchange for 200,000 shares of the Company s Common Stock
acquired by them pursuant to the Stock Agreement, (ii) the
Company to deliver 339,147 shares of Common Stock to each of Mr.
McMahon and Mr. Thomas in exchange for the relinquishment of
their earn out provision of the Stock Agreement, and (iii) the
Company to provide three year stock options for the purchase of
approximately 60,000 shares each.
In June 1996, the lawsuit filed by Alan Stone against the
Company and other defendants was settled. The settlement was
paid by the other defendants and no amount was paid by the
Company.
On July 1, 1996, Richard B. Austin filed suit in Los Angeles
County Superior Court against the Company, American Eco, Julbin,
P.W. Stephens, QHI\Stephens Contractors, Inc. and Michael
McGinnis, seeking unspecified damages and specific performance.
Mr. Austin s claims arose out of series of transactions pursuant
to which Mr. Austin had sold his controlling interest in the
Company to Julbin. The defendants answered the complaint denying
the allegations therein and filed a cross complaint against Mr.
Austin, and others for fraudulent misrepresentation and similar
claims alleging that Mr. Austin had induced American Eco to
invest in the Company by making material misrepresentations to
American Eco and its representatives about the financial and
operating condition of the Company and P.W. Stephens. On
November 8 , 1996, the Company, P.W. Stephens, American Eco, and
other named defendant entered into a settlement agreement with
Mr. Austin and the other cross-defendants. The essential terms
of the agreement called for the resignation of Mr. Austin from
all positions with the Company or its subsidiaries and
termination of his employment agreement and all options to
purchase shares of Common Stock effective July 16, 1996, payment
of $35,000 to Mr. Austin for costs and delivery of 300,000 shares
of American Eco common stock in exchange for mutual general
release by all parties. No payments were made by the Company or
P.W. Stephens as part of the settlement.
The Company is engaged in various other legal proceedings
incidental to its normal business activities, including
collection of the Company s subsidiaries receivables and workers
compensations claims. Additionally, the Company is subject to
other legal claims and liabilities, including labor union
matters, which arise in the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the last fiscal quarter.
-14-
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is traded in the
over-the-counter market and has had limited trading activity.
Quotations are published in the National Quotation Bureau "Pink
Sheets" and the NASDAQ OTC Bulletin Board. The following table
sets forth for the periods indicated the range of high and low
representative bid quotations for the Company's Common Stock
which were obtained from the National Quotation Bureau, Inc. and
are between broker-dealers, do not include retail mark-up,
mark-downs, or other fees or commission, and may not necessarily
represent actual transactions.
Common Stock
Fiscal Year ended September 30, 1995: High/Bid Low/Bid
--------- ---------
Quarter ended December 31, 1994 1 3/16 1/4
Quarter ended March 31, 1995 15/16 3/32
Quarter ended June 30, 1995 13/32 3/32
Quarter ended September 30, 1995 1/4 3/32
Fiscal Year ended September 30, 1996:
Quarter ended December 31, 1995 5/32 1/32
Quarter ended March 31, 1996 15/16 11/16
Quarter ended June 30, 1996 5/8 1/2
Quarter ended September 30, 1996 1/2 1/2
Stockholders and Dividends
--------------------------
As of January 24, 1997, the Company had 224 record holders
of its Common Stock, as reflected on the books of the Company's
transfer agent. Significant number of shares are held in street
name and as such the Company believes the actual number of
beneficial owners is higher.
The Company has not paid any dividends on its Common Stock
to date. Any payment of dividends in the future will be
determined by the Board of Directors in light of conditions then
existing, including the Company's earnings, financial condition
and capital requirements.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
---------------------
Year ended September 30 1996 vs. Year ended September 30, 1995
---------------------------------------------------------------
Overall results of operations:
For the year ended September 30, 1996, the Company reported
a net loss of $5,210,000 on revenues of $27,538,000 compared to a
net loss of $3,037,000 on revenues of $31,692,000 for the year
ended September 30, 1995. The decline in profitability was due to
several factors. First, P.W. Stephens incurred losses on two
large asbestos abatement projects and
-15-
<PAGE>
had significantly lower gross profit margins than had been expected.
Second, there were no meaningful reductions in selling, general and
administrative expenses during the year. Lastly, the Company
incurred substantial legal and administrative expenses associated
with the removal of an officer/director.
Revenues:
P.W. Stephens had revenues of $20,525,000 during the year
ended September 30, 1996, compared to $22,960,000 for the year
ended September 30, 1995, or a 11% decrease in revenues. Part of
the revenue reduction can be attributable to reduced residential
work associated with earthquake damages which occurred in 1994.
For the year ended September 30, 1996, P.W. Stephens St.
Louis reported revenues of $6,038,000, compared to $7,715,000 for
the year ended September 30, 1995, or a 22% decrease in revenues.
Part of this decrease is attributed to a nonrecurring job
performed in 1995 for a specific customer which accounted for 45%
of its revenue in 1995 and which customer accounted for less than
10% of its revenues in 1996.
Effective January 1, 1995, the Company acquired Kelar. For
the year ended September 30, 1996, Kelar reported revenues of
$659,000 compared to $l,017,000 for the nine months ended
September 30, 1995. Much of Kelar's revenues come from a few
large projects that, depending on timing, can cause annual
revenue, to fluctuate.
Gross profit:
During the year ended September 30, 1996, P.W. Stephens
achieved a gross profit margin of 24.8% compared to 32.8% during
the year ended September 30, 1995. Profit margins during 1996
were negatively impacted as two projects experienced losses of
approximately $500,000, in the aggregate. Management has
obtained additional revenues from these jobs through change
orders; however, the ultimate outcome of such change orders and
impact on the jobs ultimate gross profit cannot be determined at
this time. If P.W. Stephens is successful in obtaining
supplemental billings, such billings will be included in future
periods when, and if, collected.
P.W. Stephens St. Louis achieved a gross profit margin of
23.7% during the year ended September 30, 1996 compared to 20.6%
during the year ended September 30, 1995. During 1995, gross
profit margins were hurt as one job which represented
approximately $360,000 in revenues, achieved a gross profit
margin of 2%. Due to the competitive market in the P.W. Stephens
St. Louis area, the gross profit margins are generally lower than
those achieved by P.W. Stephens.
Kelar achieved a gross profit margin for the year ended
September 30, 1996 of 42.5% compared to 37.3% for the nine months
ended September 30, 1995. Prior to being acquired by EIF, Kelar
completed a project for a Northern California school district.
Pursuant to the terms of the contract, Kelar is entitled to a
percentage of energy savings generated by the project. Kelar
recognized $305,000 and $151,000 of income related to these
energy savings for the year ended September 30, 1996 and the nine
months ended September 30, 1995, respectively. Since all of the
costs of this project were completed prior to EIF's acquisition
of Kelar, there were no expenses associated with this revenue.
The total amount of future energy savings to be shared by Kelar
cannot be determined. However, the agreement with the school
district caps Kelar's share of future energy savings at $970,000
of which $456,000 has been received. Without this revenue,
Kelar's gross profit would have been a negative 7.0% and 22.5%
for the year ended September 30, 1996 and the nine months ended
September 30, 1995, respectively.
Selling, general and administrative expenses:
P.W. Stephens' expenses in this category were $7,472,000 and
$8,090,000 for the years ended September 30, 1996 and 1995,
respectively. This reduction in expenses is a result of the
reduction in staff, specifically salespersons and estimators.
This planned reduction had commenced in 1995, following the slow
down in revenue associated with the 1994 Los Angeles/Northridge
earthquake. These reductions were completed in 1996. P.W.
Stephens added some estimators in fiscal
-16-
<PAGE>
1996 when it took over certain project from a bankrupt competitor
in May of 1996. During fiscal 1996, P.W. Stephens reduced expenses
by closing its residential branch in Simi Valley, California branch.
P.W. Stephens St. Louis selling, general and administrative
expenses were $2,058,000 and $l,814,000 for the years ended
September 30, 1996 and 1995, respectively. P.W. Stephens St.
Louis continues to take steps to reduce overhead. These cost
reductions include the consolidation of administrative offices
and the elimination of certain administrative staff. Because of
the cost of terminating the lease the cost savings effects of
closing of the Moog Street offices and warehouse will not
included until fiscal 1997.
Kelar's general and administrative expenses were $809,000
and $429,000 for the years ended September 30, 1996 and for the
nine months ended September 30, 1995, respectively. This increase
was mainly due to Kelar s expanded marketing effort. Kelar does
not expect to make any reductions in its overhead as it is
attempting to build its customer and revenue base.
EIF administrative expenses for the year ended September 30,
1996, increased 36 % to $1,260,000 from $927,000 for the year
ended September 30, 1995. The increase in EIF s administrative
expenses are associated with dispute and litigation associated
with a former officer and director, Richard Austin. This
included additional legal expense of approximately $200,000 and
other administrative expense relating to change in management.
Other income and expenses:
For the year ended September 30, 1996, the net of other
income and expenses for the Company equaled income of $67,000,
mostly associated with a gain on sale of equipment and
miscellaneous income. For the year ended September 30, 1995 the
net was other expense of $1,189,000. For the year ended September
30, 1995, this category primarily includes expenses associated
with the resignation of the former officer/director, Grant
Kindani. Expenses associated with the former officer/director
and his removal include the write-off of a note receivable in the
amount of $105,000; legal fees of approximately $108,000; and
unreimbursed payments on a note assumed by the former
officer/director of approximately $49,000. The Company does not
expect to incur any significant additional expenses related to
this matter. As a result of the losses incurred by P.W. Stephens
St. Louis during 1995, the Company concluded that the goodwill
recorded at acquisition was impaired. Accordingly, the Company
recognized $745,000 of expenses related to the impairment of
goodwill, in 1995.
Interest expense:
For the year ended September 30, 1996, the Company incurred
interest expense of $477,000 compared to $384,000 for the year
ended September 30, 1995. The Company incurred substantial
borrowings under its line of credit with one of its shareholder
to fund current period losses. See Item 12. "Certain
Relationships and Related Transactions". Additionally, interest
expense for 1996 includes interest incurred on P.W. Stephens St.
Louis line of credit and notes payable.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
During fiscal 1996, due to the continuation of losses and
dispute with prior officers and directors of the Company, P.W.
Stephens St. Louis lines of credit which matured on February 16,
1996, was not renewed with its bank. At approximately the same
time, P.W. Stephens bank line of credit was terminated. The
Company was able to secure a line of credit from American Eco
with a maximum borrowing amount of $5,250,000, which has been the
main source of capital. This line of credit has been drawn upon
to fund the Company s losses and principal reduction of other
bank lines of credit.
During fiscal 1996, the Company paid approximately
$2,300,000 in principal reductions on P.W. Stephens and P.W.
Stephens St. Louis lines of credit. This has been funded mainly
by the shareholder line of credit. At September 30, 1996, the
Company had entered into a factoring agreement with a finance
company. This has been set up for the P.W. Stephens St. Louis
receivables. The agreement allows for the advancing of 65% of
the face amount of the receivables up to a total of $600,000. As
of September 30, 1996, approximately $200,000 of receivables had
been factored. The factoring agreement
-17-
<PAGE>
requires the repurchase of the receivables by the Company should
payment not be received after 90 days from the invoice date. The
annualized interest rate is approximately 28%.
The Company is currently exploring replacement lines of
credits for the bank lines of credit that have been terminated.
As of December 30, 1996, the Company had been unable to obtain a
commitment for such a line of credit. The Company anticipates
that if it is able to obtain a line of credit, that it will be
secured by its receivables and possibly guaranteed by a
shareholder. The Company has entered into an factoring agreement
as of March 15, 1997, for P.W. Stephens, similar to the one for
P.W. Stephens St. Louis. The agreement allows for the advancing
of 65% of the face amount of the receivable up to a total of
$1,200,000.
The Company is currently negotiating with American Eco to
convert all or part of its line of credit to equity. There can
be no assurance this can be accomplished. In addition to
American Eco agreeing to convert the outstanding debt into
equity, the price and other terms would have to be agreed upon.
This would also require the shareholders to approve an increase
in the authorized number of shares for the Company at the next
shareholders meeting.
-18-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
EIF HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
-19-
<PAGE>
[letterhead of Karlins, Fuller Arnold & Klodosky]
To the Stockholders and Directors of
EIF HOLDINGS, INC.
Independent Auditor's Report
----------------------------
We have audited the accompanying consolidated balance sheet of
EIF HOLDINGS, INC. as of September 30, 1996 and 1995 and the
related consolidated statements of operations, stockholders'
equity and cash flows for the years 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.
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 financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of EIF HOLDINGS, INC. at September 30, 1996 and 1995, and the
results of its operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.
/s/ Karlins, Fuller, Arnold & Klodosky, P.C.
--------------------------------------------
(Successors to the practice of Karlins, Patrick & Co., P.C.
who audited the financial statements for the year ended
September 30, 1995)
Houston, Texas
January 6, 1997
-20-
<PAGE>
EIF HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 AND 1995
Notes 1996 1995
---- ----
ASSETS
------
CURRENT ASSETS
Cash $ 178,231 $ 70,775
Contract receivables 2 7,299,059 5,579,506
Costs and estimated 3 326,343 349,512
earnings in excess of
billings on jobs in
progress
Inventory 478,370 529,954
Refundable income taxes -- 265,916
Prepaid expenses and 85,816 701,485
other current assets ---------- -----------
TOTAL CURRENT ASSETS 8,367,819 7,497,148
---------- -----------
MACHINERY AND EQUIPMENT, net 4 1,275,087 1,679,957
---------- -----------
OTHER ASSETS
Goodwill, net of 881,680 933,493
accumulated
amortization of $413,921
and $847,516
Other assets 50,917 34,693
---------- -----------
932,597 968,186
---------- -----------
TOTAL ASSETS $10,575,503 $10,145,291
----------- -----------
The accompanying notes are an integral part of these financial
statements.
-21-
<PAGE>
EIF HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $ 6,428,112 $ 4,046,137
Notes payable 6 1,825,538 1,710,504
Billings in excess of costs
and estimated earnings on jobs in
progress 3 737,476 516,871
Cash overdraft - 478,696
Current portion of long-term debt 7 31,213 56,679
Current portion of obligations
under capital leases 8 144,311 162,634
4,908,317 -
Note payable due to shareholder 11 ----------- -----------
TOTAL CURRENT LIABILITIES 14,074,967 6,971,521
----------- -----------
LONG-TERM LIABILITIES
Long-term debt 7 22,929 2,424,126
Obligations under capital leases 8 50,953 113,270
---------- ----------
73,882 2,537,396
----------- -----------
TOTAL LIABILITIES 14,148,849 9,508,917
----------- -----------
COMMITMENTS 10
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value,
25,000,000 shares authorized,
24,618,201 and 14,618,201 issued
and outstanding at September 30,
1996 and 1995, respectively 3,019,246 2,019,246
Additional paid-in capital 804,696 804,696
(7,397,288) (2,187,568)
Retained (deficit) ----------- -----------
(3,573,346) 636,374
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' $10,575,503 $10,145,291
EQUITY (DEFICIT) =========== ===========
The accompanying notes are an integral part of these financial
statements.
-22-
<PAGE>
EIF HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
NOTES 1996 1995
-------- -----
Revenue 1 $27,537,589 $ 31,692,328
Cost of revenue 20,785,194 22,183,759
----------- ------------
Gross Profit 6,752,395 9,508,569
Selling, general and 11,551,845 11,310,269
administrative expenses ----------- ------------
(Loss) from operations (4,799,450) (1,801,700)
----------- ------------
Other income(expense)
Interest expense (477,320) (384,114)
Other income(expense), net 15 67,017 (1,188,718)
----------- ------------
(410,303) (1,572,832)
(Loss) before provision (5,209,720) (3,374,532)
(benefit) for income taxes ----------- ------------
Provision (benefit) for 14 -0- (287,200)
income taxes ----------- ------------
Net (loss) $(5,209,720) $(3,087,332)
============ ============
(Loss) per common share:
Net (loss) $(.25) $(.21)
============ ============
Weighted average number of
shares used in computing 20,692,130 $ 14,938,654
(loss) per common share ============ ============
The accompanying notes are an integral part of
these financial statements
-23-
<PAGE>
EIF HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
Common Stock
------------
Shares Dollar Additional
outstanding amount paid-in capital
----------- ------ ---------------
Balances, $14,947,890 $2,157,065 $804,696
September 30, 1994
Common stock issued 200,000 71,200 -
in acquisition of
Kelar Controls, Inc.
Shares returned by
major stockholder (630,139) (220,035) -
Shares issued for 100,450 11,016 -
services
Net loss - -
---------- ---------- ----------
Balances, 14,618,201 2,019,246 804,696
September 30, 1995
Issuance of common 10,000,000 1,000,000 -
stock
Net loss - -
---------- ---------- ----------
Balance September 24,618,201 $3,019,246 $804,696
30, 1996 ========== ========== ==========
Retained
earnings
(deficit) Total
--------- ----------
Balances, $899,764 $3,861,525
September 30, 1994
Common stock issued - 71,200
in acquisition of
Kelar Controls, Inc.
Shares returned by
major stockholder - (220,035)
Shares issued for - 11,016
services
Net loss (3,087,332) (3,087,332)
------------ ------------
Balances, (2,187,568) 636,374
September 30, 1995
Issuance of common - 1,000,000
stock
Net loss (5,209,720) (5,209,720)
------------ ------------
Balance $(7,397,288) $(3,573,346)
September 30, 1996 ============ ============
The accompanying notes are an integral part of
these financial statements
-24
<PAGE>
EIF HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) $(5,209,720) $(3,087,332)
Adjustments to reconcile net
(loss) to net cash (used in)
operating activities:
Depreciation and amortization 584,016 684,686
Impairment of goodwill -- 744,751
Allowance for doubtful accounts 637,064 --
Change in deferred income taxes -- (204,000)
Loss on disposal of machinery 46,332 68,347
and equipment
Loss on sale of marketable -- 138,875
securities
Common stock issued for -- 11,016
services rendered
Change in contract receivables (2,356,616) 1,201,342
Change in other receivables -- 808,504
Change in costs and estimated
earnings in excess of 23,169 103,837
billings on jobs in progress
Change in inventory 51,584 191,404
Change in refundable income 265,916 (234,608)
taxes
Change in prepaid expenses and 615,669 (338,477)
other current assets
Change in other assets (16,225) 304,100
Change in accounts payable and 2,381,974 (832,075)
accrued liabilities
Change in billings in excess of 220,605 195,991
costs and estimated earnings
on jobs in progress
Proceeds from sale of -- 35,340
marketable securities ----------- -----------
Net cash (used in) operating (2,756,232) (208,299)
activities ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of machinery 184,799 69,992
and equipment
Capital expenditures (358,464) (347,304)
Payment for Kelar Controls, net - (7,913)
of cash acquired ----------- -----------
Net cash (used in) investing (173,665) (285,225)
activities ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Change in cash overdraft (478,696) (8,826)
Net proceeds from notes payable 115,034 854,400
Principal payments on notes (43,788) (62,789)
payable
Principal payments on long-term (2,463,514) (246,823)
debt
Proceeds from shareholder line of 4,908,317 --
credit
Issuance of common stock 1,000,000 --
----------- -----------
Net cash provided by 3,037,353 535,962
financing activities ----------- -----------
NET INCREASE IN CASH 107,456 42,438
CASH AT BEGINNING OF PERIOD 70,775 28,337
----------- -----------
CASH AT END OF PERIOD $178,231 $70,775
=========== ===========
The accompanying notes are an integral part of
these financial statements.
-25-
<PAGE>
EIF HOLDINGS, INC
NOTES TO CONSOLIDATED STATEMENTS
SEPTEMBER 30, 1996 AND 1995
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------
Line of Business - The Company is engaged in the business of
----------------
asbestos abatement, lead abatement, soil remediation and
hazardous waste abatement from commercial, industrial, and
residential buildings. Work is performed under time and
materials, and fixed-price contracts. The Company grants credit,
generally without collateral, to its customers, who are located
primarily in the West Coast, Midwest and Hawaii. Management
believes that its contract acceptance, billing and collection
policies are adequate to minimize potential credit risk.
Principles of Consolidation - EIF Holdings, Inc. was incorporated
---------------------------
on July 25, 1989 and is the holding company for P.W. Stephens
Contractors, Inc., P.W. Stephens Residential, Inc., QHI\Stephens,
Inc. P.W. Stephens Services, Inc., (formerly VonGuard Holdings,
Inc. and subsidiaries), Kelar Controls, Inc., NY Star Financial,
Inc., and Richards Enterprises . All significant intercompany
balances and transactions have been eliminated.
Revenue Recognition The Company recognizes revenues and profits
-------------------
on contracts using the percentage-of-completion method. Under
the percentage-of-completion method, contract revenues are
accrued based upon the percentage that accrued costs to date bear
to total estimated costs. As contracts can extend over more than
one accounting period, revisions in estimated total costs and
profits during the course of work are reflected during the period
in which the facts requiring the revisions become known. Losses
on contracts are charged to income in the period in which such
losses are first determined.
The percentage-of-completion method of accounting can result in
the recognition of either costs and estimated profits in excess
of billings or billings in excess of costs and estimated profits
on uncompleted contracts, which are classified as current assets
and liabilities, respectively, in the accompanying consolidated
balance sheet. The current asset account represents costs
incurred and profits earned that have not been billed to the
customer on uncompleted construction contracts. The current
liability account represents deferred income on uncompleted
construction contracts. Generally accepted accounting principles
for percentage-of-completion accounting require the
classifications as current assets and liabilities.
Machinery and Equipment - Machinery and equipment are stated at
-----------------------
cost. Depreciation of machinery and equipment is provided over
the estimated useful lives of the respective assets using the
straight-line method, generally from three to five years.
Expenditures for additions, major renewals and betterments are
capitalized and expenditures for maintenance and repairs are
charged to earnings as incurred.
When machinery and equipment are retired or otherwise disposed
of, the cost thereof and the applicable accumulated depreciation
are removed from the respective accounts and the resulting gain
or loss is reflected in earnings.
Inventory - Inventory is stated at the lower of cost, determined
---------
using the first-in, first-out method, or market.
Uses of Estimates - The preparation of financial statements in
-----------------
conformity with generally accepted accounting principles require
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
these estimates.
-26-
<PAGE>
EIF HOLDINGS, INC
NOTES TO CONSOLIDATED STATEMENTS
SEPTEMBER 30, 1996 AND 1995
Income Taxes - The Company utilizes SFAS No. 109, Accounting for
------------
Income Taxes, which requires an asset and liability approach to
financial accounting and reporting for income taxes. The
difference between the financial statement and tax bases of
assets and liabilities is determined annually. Deferred income
tax assets and liabilities are computed for those differences
that have future tax consequences using the currently enacted tax
laws and rates that apply to the periods in which they are
expected to affect taxable income. Valuation allowances are
established, if necessary, to reduce the deferred tax asset to
the amount that will more likely than not be realized. Income
tax expense is the current tax payable or refundable for the
period plus or minus the net change in the deferred tax assets
and liabilities.
Income tax expense includes federal and state taxes currently
payable and the change in deferred taxes arising from temporary
differences between income for financial reporting and income tax
purposes.
Net Income (Loss) Per Share Net income (loss) per share amounts
are based on the weighted average number of shares outstanding
each period. The shares to be issued upon exercise of
outstanding stock options and warrants are not included as common
stock equivalents as they are antidilutive.
Major customers - During the year ended September 30, 1996 ,no
---------------
customer accounted for more than 10% of revenue. During the year
ended September 30, 1995, one customer accounted for
approximately 11% of revenue.
Surety bonds - The Company, as a condition for entering into
------------
construction contracts has purchased surety bonds totaling
approximately $42,000. The bonds are collateralized by contract
receivables.
Amortization - The cost in excess of net assets of businesses
------------
acquired ("goodwill") at their respective acquisition dates are
amortized on a straight-line basis over 20 years. On an annual
basis, the Company assesses the carrying value of goodwill in
order to determine whether an impairment has occurred, taking
into account both historical and forecasted results of
operations.
NOTE 2 CONTRACT RECEIVABLES
Contract receivables consist of the following:
1996 1995
---- ----
Billed completed contracts $4,861,695 $4,067,125
Billed contracts in progress 3,022,206 1,323,274
Unbilled retention 202,481 339,107
---------- ----------
8,086,382 5,729,506
Less allowance for doubtful (787,323) (150,000)
accounts ---------- ----------
$7,299,059 $5,579,506
========== ==========
-27-
<PAGE>
EIF HOLDINGS, INC
NOTES TO CONSOLIDATED STATEMENTS
SEPTEMBER 30, 1996 AND 1995
NOTE 3 COSTS AND ESTIMATED EARNINGS ON JOBS IN PROGRESS
Costs and estimated earnings on uncompleted contracts consist of
the following:
1996 1995
----- -----
Costs incurred on jobs in $6,841,353 6,958,726
progress
Estimated earnings 514,020 1,722,667
---------- ---------
7,355,373 8,681,393
Less billings to date 7,766,506 8,848,752
---------- ---------
$(411,133) $(167,359)
========== =========
The amounts above are included in the accompanying balance sheet
under the following captions:
Costs and estimated earnings in
excess of billings on jobs in $326,343 $349,512
progress
Billings in excess of costs and
estimated earnings on jobs in (737,476) (516,871)
progress
$(411,133) $(167,359)
NOTE 4 MACHINERY AND EQUIPMENT
Machinery and equipment consisted of the following:
1996 1995
---- ----
Equipment $2,283,788 $2,134,365
Leasehold improvements 647,696 700,607
Furniture, fixtures and
office equipment 888,228 865,658
Vehicles 238,477 251,102
Vehicles and equipment 1,260,447 1,337,475
under capitalized leases ---------- ----------
5,318,636 5,289,207
Accumulated depreciation
(including $1,076,435 and
$1,003,161, at September
30, 1996 and 1995,
respectively, attributable to 4,043,549 3,609,250
capitalized leases) ---------- ----------
$1,275,087 $1,679,957
========== ==========
Fully depreciated assets still in service amounted to $2,655,341
at September 30, 1996 and $2,585,205 at September 30, 1995.
-28-
<PAGE>
EIF HOLDINGS, INC
NOTES TO CONSOLIDATED STATEMENTS
SEPTEMBER 30, 1996 AND 1995
NOTE 5 ACQUISITIONS
Kelar Controls, Inc. - On December 30, 1994, the Company
--------------------
purchased all of the outstanding common stock of Kelar Controls,
Inc. (Kelar). Kelar is primarily engaged in the energy
conservation and lighting business. The purchase price was
$373,000, consisting of direct acquisition costs of $25,000,
200,000 shares of the Company's common stock valued at $71,200,
and the assumption of $276,800 of Kelar s liabilities. The
excess of the total purchase price over the fair value of net
assets acquired ("Goodwill"), in the amount of $94,401, is being
amortized on the straight-line basis over twenty years. The
operations of Kelar are included in the accompanying financial
statements from January 1, 1995. Kelar's acquisition would not
have a material impact on a pro forma basis, and thus those pro
forma results are not included.
VonGuard Holdings, Inc. - On August 1, 1994 the Company purchased
-----------------------
all of the common stock of VonGuard Holdings, Inc. and
subsidiaries. The excess of the total acquisition cost over the
fair value of net assets acquired ("Goodwill") in the amount of
$1,686,609. During the fourth quarter of the fiscal year ended
September 30, 1995, management determined that the net carrying
value of the goodwill was in excess of its estimated realizable
value and reduced goodwill by $744,751. The remain balance of
$941,858 is being amortized on the straight line basis over
twenty years.
NOTE 6 NOTES PAYABLE
Notes payable consists of the following:
1996 1995
---- -----
Bank line of credit secured by
certain contracts, receivables,
inventory and equipment. The note
matured on February 10, 1996 and
was in default as of September 30,
1996. Interest is payable at the
rate of prime plus .75%. The note
is guaranteed by a major
shareholder. $130,162 $1,496,400
Notes payable, secured by certain
contracts receivable pledged as
collateral. The company may
borrow up to 65% of the contract
receivable. The Note must be
repaid to the extent the contract
receivable is collected or is no
longer eligible. The annual
interest rate is 55.5%. The note
is guaranteed by a major
shareholder. 130,000 -
Note payable, bank, payable on
April 2, 1997. Interest payable
monthly at prime plus 2%. The
Company may borrow up to 70% of
its legible contracts receivables
with a maximum availability of
$1,200,000 at September 30, 1996.
Maximum available decreases by
$200,000 each month until the line
of credit is paid off. Secured
by accounts receivables,
inventory and guarantee of major
shareholder. 1,200,000 See Note 7
-29-
<PAGE>
EIF HOLDINGS, INC
NOTES TO CONSOLIDATED STATEMENTS
SEPTEMBER 30, 1996 AND 1995
Notes payable, due to related
party, due December 1996, at 10%
rate of interest. 60 ,000 -
Note payable, shareholder,
unsecured, noninterest bearing,
due on demand. 225,000 31,186
Note payable, bank, due on January
10, 1996, payable interest only at
the prime rate plus 1 per annum.
This note is unsecured. This note
was nonrenewed and was in default
at September 30, 1995. - 147,500
Miscellaneous notes payable. 80,376 35,418
---------- -----------
$1,825,538 $1,710,504
=========== ===========
NOTE 7 LONG-TERM DEBT
1996 1995
---- ----
Note payable, bank, payable on See Note 6 $2,370,000
April 2, 1997. Interest
payable monthly at prime plus
2%. The Company may borrow up
to 70% of its eligible
contracts receivables with a
maximum availability of
$1,200,000 at September 30,
1996. Maximum available
decreases by $200,000 each
month until the line of credit
is paid off. Secured by
accounts receivables,
inventory and guarantee of
major shareholder.
Note payable, bank, due in 16,334 44,333
monthly installments of $2,333
plus interest at prime plus 1%
per annum.
Notes payable, bank for
transportation equipment,
interest varying from 7.25%
9.00%. Secured by
transportation equipment. 37,808 66,472
-------- ----------
54,142 2,480,805
Less current portion 31,213 56,679
--------- ----------
Long-term debt $22,929 $2,424,126
========= ===========
The aggregate principal payments on long-term debt during the
years subsequent to September 30, 1996 are: 1997 $31,213; 1998
$14,491; 1999 $8,438.
-30-
<PAGE>
EIF HOLDINGS, INC
NOTES TO CONSOLIDATED STATEMENTS
SEPTEMBER 30, 1996 AND 1995
NOTE 8 LEASES
The Company leases equipment and office and warehouse space under
capital and operating leases that expire at various times through
2000.
Future minimum payments, by year and in the aggregate, under
these capital and operating leases, consisted of the following at
September 30, 1996.
Capital Operating
Leases Leases
------ ------
1997 $152,185 $270,447
1998 53,535 87,008
1999 -- 48,972
2000 -- 6,543
------- --------
Total minimum lease 205,720 $412,970
payments ======= ========
Amounts representing
interest and executory 10,456
costs
-------
Present value of future 195,264
minimum lease payments
Current portion 144,311
-------
Long-term portion $50,953
=======
Rent expense for the years ended September 30, 1996 and September
30,1995 amounted to $521,500 and $567,000, respectively. Refer
to Note 11 for related party transactions.
-31-
<PAGE>
EIF HOLDINGS, INC
NOTES TO CONSOLIDATED STATEMENTS
SEPTEMBER 30, 1996 AND 1995
NOTE 9 CASH FLOW INFORMATION
For purposes of the Statement of Cash Flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
1996 1995
---- ----
Supplemental disclosures
of cash flow information:
Cash paid (refunded) for:
Interest 225,523 $384,114
Income taxes (163,322) $ 45,979
Supplemental schedule of
noncash investing and
financing activities:
Machinery and equipment 150,212 $ 78,886
acquired through
capitalized lease
obligations
Machinery and equipment -- $ 35,324
acquired through long term
debt
On June 14, 1995, an officer/director returned 630,139 shares of
Company stock in exchange for the cancellation of $220,135 of
indebtedness to the Company.
In December, 1994, the Company purchased all of the common stock
of Kelar Controls, Inc. The assets acquired and liabilities
assumed were as follows:
Fair value of assets acquired $355,913
Liabilities assumed (276,800)
Common stock issued (71,200)
---------
Net cash paid $7,913
=========
NOTE 10 COMMITMENTS AND CONTINGENCIES
Litigation
----------
The Company has been notified of a claim for an outstanding
amount due approximately $700,000 relating to a worker's
compensation insurance premium for a subsidiary relating to a
period prior to its acquisition. Although the claim is in the
initial investigation stage, the Company does not believe that
any amount is due.
The Company has also in litigation with a supplier of materials
for an amount of $800,000 for unpaid invoices, finance charges
and legal expenses. The Company has recorded the unpaid invoices
as a liability and disputes the finance charges and legal
expenses.
The Company does not believe that an unfavorable outcome from the
above lawsuits is possible, and accordingly, no liability has
been recorded in the accompanying financial statements.
-32-
<PAGE>
EIF HOLDINGS, INC
NOTES TO CONSOLIDATED STATEMENTS
SEPTEMBER 30, 1996 AND 1995
The Company is also engaged in various legal proceedings
incidental to its normal business activities. Management of the
Company does not believe that the outcome of each such proceeding
or claim or all of them combined will have a material adverse
effect on the Company's consolidated financial position.
Employment Agreement - The Company has an employment agreement
--------------------
with the Chief Executive officer of the Company. The terms of
the agreement provide the CEO with an annual salary of $150,000,
the granting of 25,000 options. The Chief Financial Officer of
the Company was hired after September 30, 1996, pursuant to an
employment agreement. The terms of the agreement provide for an
annual salary of $100,000 and the granting of 50,00 options. Both
of these agreements are also guaranteed by a major shareholder.
Certain subsidiaries president are under employment agreements.
NOTE 11 RELATED PARTY TRANSACTIONS
The Company is involved in various related party transactions.
These transactions are summarized as follows:
An officer and director provided legal services to the Company
during 1995. For the year ended September 30, 1995, the Company
incurred legal expense to this person of $12,687. During the
year ended September 30, 1995 the Company wrote-off a receivable
due from this person in the amount of $105,000. This person
resigned from his position as an officer and director in 1995.
During 1995 and 1996 the Company leases equipment under
capitalized leases from an entity that is 100% owned by a
stockholder, officer and director, with interest rates of
approximately 13% per annum. The Company incurred interest
expense to this related party of approximately $116,675 and
$44,000 for the years ended September 30, 1996 and September 30,
1995, respectively. The relevant amounts are as follows:
Accumulated Capital
Lease
Cost Depreciation Obligation
---- ------------ ----------
September 30, $1,203,202 $1,022,476 $93,782
1996
September 30, $1,280,230 $952,885 $271,249
1995
The Company also leases warehouse and office facilities under an
operating lease from an entity that is owned by this same person.
The Company incurred rent expense of $156,313 and $182,400 for
the years ended September 30, 1996 and September 30, 1995,
respectively. On July 16, 1996, this person terminated his
relationship as an officer and director with the Company.
During 1996, the Company entered into a line of credit with a
major shareholder. The line of credit maximum amount is
$5,250,000 and bears interest at the prime rate plus 2% per
annum. The line is unsecured and matures on July 31, 1997.
Total interest expensed and accrued on this line of credit
amounted to $160,326 as of September 30, 1996. This same
shareholder has guaranteed certain notes payables and long term
debt as indicated in Notes 6 and 7.
-33-
<PAGE>
EIF HOLDINGS, INC
NOTES TO CONSOLIDATED STATEMENTS
SEPTEMBER 30, 1996 AND 1995
NOTE 12 WARRANTS AND OPTIONS
From the Company's initial public offering, the Company has
800,000 each of "B", "C" and "D" warrants outstanding which are
exercisable through 1996. The "B", "C" and "D" warrants are
exercisable at $.80, $1.25 and $1.50 per share, respectively.
In connection with a non registered offering of the Company s
common stock in 1994, 714,286 warrants were issued. The warrants
have an exercise price of $1.40 per share and expire in June
1997.
The Company has granted 1,000,000 options to certain officers and
employees subject to the shareholders approving the increase in
the authorized shares of common stock. The options will have
exercise prices set at or above, the market price at the date of
issuance. The options expire through 2006.
The Company follows the guidelines established by Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its
employee stock options. In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, " Accounting and
Disclosure of Stock Based Compensation." which established an
alternative method of expense recognition for stock-based
compensation awards to employees based on fair values. The
Company is currently evaluating the provision of SFAS No. 123 and
has not yet determined whether it will adopt the statement for
expense recognition purposes.
NOTE 13 RETIREMENT PLAN
The Company, through it's collective bargaining agreements with
various unions, contributes to the unions' retirement plans. For
the years ended September 30, 1996 and 1995, an expense of
$151,396 and $616,343 was incurred for these retirement plans,
respectively.
-34-
<PAGE>
EIF HOLDINGS, INC
NOTES TO CONSOLIDATED STATEMENTS
SEPTEMBER 30, 1996 AND 1995
NOTE 14 PROVISION FOR INCOME TAXES
A summary of the provision for income taxes and the components of
the deferred income tax provision are as follows:
1996 1995
---- ----
Provision (benefit) for income
taxes:
Current $- $(189,000)
Deferred - ( 98,200)
---------- ----------
$- $ (287,200)
========== =========
Deferred income tax expense
components:
Accelerated depreciation $5,000 $39,000
Allowance for doubtful 176,000 34,000)
accounts
Loss on construction in 139,000 (72,000)
process
Other 45,000 (31,200)
Valuation allowance (365,000) -
---------- ----------
$- $ (98,200)
========== ==========
A reconciliation of income tax at the statutory rate to the
Company s effective rate is as follows:
% %
Statutory federal income tax (34) (34)
rate
State income taxes (1) (1)
Amortization and write down
of goodwill not deductible - 26
Unultilized net operating 35 -
loss carryforward
Other non-deductible - 1
expenses
Other - (1)
------ ------
- (9)
====== ======
The components of deferred income taxes are as follows:
1996 1995
-------- ----------
Current:
Allowance for doubtful $176,000 $68,000
accounts
Accrued vacation pay 28,000 26,000
Loss on construction in 139,000
process
Net operating loss carry 1,550,000 498,000
forward
Valuation allowance (1,893,000) (592,000)
----------- ----------
$- $-
=========== ==========
Non-current:
Accelerated depreciation $5,000 $65,000
Valuation allowance (5,000) (65,000)
---------- ----------
$- $-
========== ==========
The liability method of accounting for deferred income taxes
requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be
realized. The Company established a valuation allowance
-35-
<PAGE>
EIF HOLDINGS, INC
NOTES TO CONSOLIDATED STATEMENTS
SEPTEMBER 30, 1996 AND 1995
against deferred tax assets of $1,898,000 and $657,000 at
September 30, 1996 and 1995, respectively
The Company has net operating loss carryforwards of approximately
$4,277,000 and $1,465,000 at September 30, 1996 and 1995
respectively, for federal income tax purposes available to offset
future financial income, expiring, if not used, periodically
through the year 2011. A portion of the net operating loss carry
forwards are subject to an annual limitation of approximately
$350,000.
NOTE 15 OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
1996 1995
---- ----
Revaluation of goodwill (b) $-- $(744,751)
Loss on marketable securities -- (137,876)
Note receivable from former -- (105,000)
officers not collected
Loss on machinery and equipment -- (21,031)
Costs incurred in connection
with matters referred to in -- (130,444)
(a)
Other income (expense), net 67,017 (49,616)
---------- ------------
$67,017 $(1,188,718)
========== ============
(a) During 1994 and 1995 aggregate payments of $262,250 were
made by the Company on behalf of then two officers/directors.
One officer/director has agreed to reimburse the Company for his
one-half share of these payments. The Company does not expect the
other officer/director to reimburse the Company for his one-half
share of these payments. Accordingly, the Company has expensed
all amounts advanced on behalf of this officer/director.
(b) During the year ended September 30, 1995, the Company
reviewed the goodwill associated with its acquisition of VonGuard
Holdings, Inc. Based upon the September 30, 1995 results,
management of the Company determined that the goodwill associated
with several of the operating companies for VonGuard Holdings,
Inc. was impaired. Accordingly, for the year ended September 30,
1995, a $744,751 charge to income was recorded.
NOTE 16 FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of fiscal 1996, the Company recorded
the following adjustments:
* Recognized approximately $400,000 of legal fees associated
with a former stockholder and officer.
* Additional reserves for allowance for doubtful accounts in
the amount of approximately $600,000.
* Recognized approximately $400,000 for losses incurred on
work in progress.
-36-
<PAGE>
EIF HOLDINGS, INC
NOTES TO CONSOLIDATED STATEMENTS
SEPTEMBER 30, 1996 AND 1995
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On November 17, 1995, the Company's former auditor (Singer,
Lewak, Greenbaum and Goldstein, LLP) declined to stand for re-
election.
Singer, Lewak. Greenbaum and Goldstein, LLP was engaged as
auditors on December 13, 1993, and audited the consolidated
balance sheet of the Company as of December 31, 1993, and the
related consolidated statement of operations, stockholders'
equity and cash flows for the year then ended. They also audited
the consolidated balance sheet as of September 30, 1994, and the
related consolidated statements of income, stockholders' equity
and cash flows for the nine months then ended. Singer, Lewak,
Greenbaum and Goldstein, LLP's audit reports contained no adverse
opinions or disclaimer of opinions and were not qualified as to
uncertainty, audit scope or accounting principles.
Singer, Lewak, Greenbaum and Goldstein, LLP has cited the
disclosures made in the 8-K filings of March 7, 1995, and June
14, 1995, as their principal reasons for not standing for
re-election. Additionally, Singer, Lewak, Greenbaum and
Goldstein, LLP has indicated that the consolidated balance sheet
of September 30, 1994, and the related consolidated statements of
income, stockholders' equity and cash flows for the nine months
then ended should be amended to reflect the disclosures contained
in the aforementioned 8-K filings resulting in an increase in net
income and retained earnings of $37,000. In connection with its
audit for these years, and through November 10, 1995, there have
been no disagreements with Singer, Lewak, Greenbaum and
Goldstein, LLP on any matters of accounting principles or
practices, financial statement disclosures, or auditing scope or
procedure, which if not resolved to their satisfaction would have
caused them to make reference to the subject matter of the
disagreement in connection with their report except as disclosed
herein.
The consolidated balance sheet as of September 30, 1994, and
the related consolidated statements of income, stockholders'
equity and cash flows for the nine months then ended were amended
and Singer, Lewak, Greenbaum and Goldstein, LLP's report on the
amended financial statements contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles.
On December 6, 1995, the Company's Board of Directors
engaged Karlins, Patrick & Co. P.C. as its new independent
accountants.
-37-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The names, ages and positions of the directors, executive
officers and certain significant employees of the Company as of
March 1, 1997 are as follows:
Name Age Position
---- --- --------
Michael McGinnis 47 Chairman of the Board and director of the
Company
David L. Norris 47 President and director of the Company
Andreas O. Tobler 46 Director of the Company
Joseph E. Miller 56 Executive Vice President of the Company
and
Chief Executive Officer of P.W. Stephens.
Joel J. Thomas 39 Chief Financial Officer, Treasurer and
Secretary of the Company
Jerry Hendrickson 57 President of P.W. Stephens & QHI Stephens
Normand Couturier 55 Chief Operations Officer of P.W. Stephens
Scott Johnson 35 President of P.W. Stephens Residential
William Hladick 36 President of P.W. Stephens Contractors,
Inc., & P.W. Stephens Services, Inc., St.
Louis
Kelly McMahon 38 President of Kelar Controls
Directors are elected at the Annual Meeting of Shareholders
and serve until their successors have been elected and qualified.
Officers are elected by and serve at the discretion of the Board
of Directors and serve until their successors are elected and
qualified.
Resumes of Officers and Directors:
---------------------------------
MICHAEL E. MCGINNIS, CHAIRMAN OF THE BOARD. Mr. McGinnis
assumed his position as Director and Chairman of the Board of EIF
in June 1996, and from March 1996 until August 1996, he was
President of EIF. Mr. McGinnis has been the Chief Executive
Officer and President of American Eco Corporation since 1993,
when it acquired Eco Environmental, Inc. of which Mr. McGinnis
had been President and Chief Executive Officer since 1992. For
the 27 years prior thereto he was employed in various operational
and administrative capacities by The Brand Companies, Inc., a
large asbestos abatement contractor in the United States. He is
a director of American Eco Corporation (Nasdaq NMS and Toronto
Stock Exchange).
DAVID L. NORRIS, PRESIDENT AND DIRECTOR. Mr. Norris has
been President and a director of EIF since August 1996, and also
Vice President and Chief Financial Officer of American Eco since
March 1997. Prior thereto, Mr. Norris was the President of
Tonopah Resources International, Inc. and Citadel
Environmental Group, Inc., which owned and operated several
abatement and remediation companies in the environmental
industry. From 1994 to 1996, Mr. Norris was the President and
Managing Member of WNH Investments, L.L.C., which is a private
investment banking company investing principally in companies in
the environmental and energy industries. From 1992 to 1994, Mr.
Norris was the President and Chief Operating Officer of North
American Recycling Systems, Inc. Prior thereto, from 1972 to
1992, Mr. Norris was employed by Evergren Bancorp, Inc, most
recently as Executive Vice President in charge of corporate banking.
ANDREAS O. TOBLER, VICE PRESIDENT AND DIRECTOR. Mr. Tobler
was elected a director of EIF in November 1993. He was Treasurer
from November 1993 to January 1995, and from April 1993 to
November 1993, he was a Vice President EIF. From 1980 to 1982,
he was a corporate and tax lawyer in Switzerland with Staehelin,
Hafter & Partners. From 1982 to 1987, he was an investment
banker with Credit Suisse, serving as head of Capital Markets for
Credit Suisse in North America from 1985 to 1987. He was head
-38-
<PAGE>
of Corporate Finance for Citibank in Switzerland from 1987 to 1988.
He was also Managing Partner of Royal Trust Bank (Switzerland)
from 1989 to 1991. From 1991 to December 1992, Mr. Tobler had
been an officer and director of EIF. Mr. Tobler holds a law
degree from the University of Zurich and a Masters degree from
New York University. Mr. Tobler is a Swiss citizen.
JOSEPH E. MILLER, EXECUTIVE VICE PRESIDENT AND CHIEF
EXECUTIVE OFFICER OF P.W. STEPHENS COMPANIES Mr. Miller has been
Executive Vice President of the Company and Chief Executive
Officer of P.W. Stephens and P.W. Stephens St. Louis since
February 1996. Mr. Miller was formerly associated with American
Eco and joined the Company as part of the change in management
during 1996. Mr. Miller was part of American Eco mergers and
acquisitions group prior to working for the Company. For the
prior 21 years Mr. Miller has owned and operated his own
companies primarily in the mechanical contracting and mining
industries. Mr. Miller graduated from Wichita State University
with a Bachelors of Business Administration degree.
JOEL J. THOMAS, TREASURER, CHIEF FINANCIAL OFFICER AND
CORPORATE SECRETARY. Mr. Thomas was appointed Chief Financial
Officer and Corporate Secretary of EIF in October 1996. Prior to
this in 1996, Mr. Thomas was Chief Financial Officer for Citadel
Environmental Group, Inc. From 1992 to 1996, Mr. Thomas had been
a partner in DWCR and Thomas Consulting Associates, a receivable
collections firm and financial consulting firm. From 1982 to
1992, Mr. Thomas had been Chief Financial Officer for several
public and privately held corporations, mainly in the merchant
banking and energy industries. Prior thereto, Mr. Thomas had
spent seven year with public accounting firms. Mr. Thomas is a
Certified Public Accountant in California and holds a law degree
from Western States University, College of Law and a MBA from the
University of Southern California.
JERRY HENDRICKSON, PRESIDENT P.W. STEPHENS CONTRACTORS, INC.
Mr. Hendrickson became President of P.W. Stephens Contractors,
Inc. and QHI/Stephens Contractors, Inc. in December 1996. Mr.
Hendrickson joined P.W. Stephens in April 1996 as Manager of the
Commercial divisions. Prior to joining the Company, Mr.
Hendrickson was President and founder of QHI, Inc. a west coast
asbestos lead abatement contractor from 1976 until he joined the
Company. Prior thereto, Mr. Hendrickson had owned several
franchise restaurants.
NORMAND COUTURIER, CHIEF OPERATIONS OFFICER P.W. STEPHENS
CONTRACTORS, INC. Mr. Couturier has been employed by P.W.
Stephens since 1983. He was named manager of the P.W. Stephens
Honolulu office in 1986. In 1992, he was appointed Chief
Operations Officer of PW. Stephens.
SCOTT JOHNSON, PRESIDENT OF P.W. STEPHENS RESIDENTIAL, INC.
Mr. Johnson became President of P.W. Stephens Residential, Inc.
in December 1996. Prior thereto, Mr. Johnson was General Manager
of the Residential division of P.W. Stephens and has worked as a
salesperson since 1986. Prior to his employment with the
Company, Mr. Johnson was employed with Merrill, Lynch, Pierce,
Fenner and Smith at the Regional Operations Center in both New
York City and Los Angeles. Mr. Johnson received his Bachelor of
Science degree in Economics from California State University at
Long Beach.
WILLIAM HLADICK, PRESIDENT OF P.W. STEPHENS CONTRACTORS,
INC. ST. LOUIS
Mr. Hladick became President of P.W. Stephens St. Louis in
December 1996. Prior to this Mr. Hladick was the general manager
from March 1996 and was the President of the remediation
subsidiary. Mr. Hladick has been employed by P.W. Stephens St.
Louis since 1990. Mr. Hladick previously was employed by Brand
Companies and Chemical Waste Management in various environmental
fields. Mr. Hladick received his Bachelor of Science degree in
Biochemistry and Biology from the University of Illinois at
Urbana.
-39-
<PAGE>
KELLY MCMAHON, PRESIDENT KELAR CONTROLS, INC. Mr. McMahon
has been the President of Kelar since its co-founding in 1988.
From 1983 to 1988, Mr. McMahon served as Executive Vice President
and General Manager of Encon Systems, Inc. were he was primarily
responsible for transforming that company from equipment
manufacturer to a full service turn-key provider of energy
management systems. Mr. McMahon's prior experience includes
management of energy sales system with Leland Energy Corp.
P.W. Stephens Contractors, Inc., P.W. Stephens Residential,
Inc. P.W. Stephens Contractors, Inc. (St. Louis) and Kelar
Controls, Inc. are wholly owned subsidiaries of EIF Holdings,
Inc.
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
Messrs. McGinnis, Norris and Miller were late in filing
their Forms 3 and one Form 4. American Eco was late in filing
two Forms 4.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth compensation paid or accrued
by the Company or its subsidiaries during the last three fiscal
years to or in respect of its Chief Executive Officer and its
most highly compensated executive officers whose total annual
salary and bonus exceeded $100,000 (the Named Executive
Officers).
-40-
<PAGE>
SUMMARY COMPENSATION TABLE
Annual compensation
-------------------
(a) (b) (c) (d) (e)
Other
Name and Annual
Principal Salary Bonus Compensation
Position Year ($) ($) ($)
-------- ---- ------- ------ -----------
Michael 1996 $-0(1) -0- -0-
McGinnis,
Chairman
David L. 1996 $12,500(2)* -0- -0-
Norris,
President *
Richard R. 1996 $100,000(3) -0- $15,000(4)
Austin 1995 $166,437 -0- $15,000(4)
Chairman 1994** $150,000 -0- $24,000(4)
Normand 1996 $125,000 -0- $5,000(5)
Couturier 1995 $125,500 -0- $5,000(5)
Exec. Officer 1994** $ 93,750 -0- $5,000(5)
of P.W.
Stephens
Annual Long term compensation
compensation -----------------------
------------
(a) (b) (f) (g) (h) (i)
Restricted All
Name and Stock Options/ LTIP other
Principal Awards SAR's Payouts compen-
Position Year ($) (#) ($) sation
($)
--------- ------- --------- ------- --------- ------------
Michael 1996 -0- 300,000 -0- -0-
McGinnis,
Chairman
David L. 1996 -0- 300,000 -0- -0-
Norris,
President*
Richard 1996 -0- -0- -0- -0-
R. Austin 1995 -0- 500,000* -0- -0-
Chairman 1994** -0- -0- -0- -0-
Normand 1996 -0- -0- -0- -0-
Couturier 1995 -0- -0- -0- -0-
Exec. 1994** -0- -0- -0- -0-
Officer
of P.W.
Stephens
(1) Mr. McGinnis was President from March 1996 to August 1996.
Mr. McGinnis received no salary for this position.
(2) Mr. Norris was hired in August 1996. Mr. Norris employment
contract is with American Eco Corporation, and provides for an
annual base salary of $150,000. Since Mr. Norris had spent
substantially most of his time during fiscal 1996 on the Company,
his salary was paid by the Company.
(3) Mr. Austin terminated all of his positions with the Company
in July 1996. As part of that termination and the related
settlement agreement with the Company, Mr. Austin s employment
agreement was canceled and all rights to options previously
granted were waived. Prior to this Mr. Austin employment
contract provided for an annual base salary of $200,000. Mr.
Austin waived all salary in excess of $166,437 for the year ended
September 30, 1995. The 500,000 options granted to Mr. Austin in
1995, replaced the 3,000,000 options granted during 1993. See
Item 12 "Certain Relationships and Related Transactions".
(4) Includes automobile lease payments of $5,000, $5,000, and
$14,000, health insurance of $9,000, $9,000, and $9,000; and
$1,000, $1,000 and $1,000 of other payments for the years ended
September 30, 1996 and 1995 and the nine months ended September
30, 1994, respectively.
(5) Includes automobile lease payments of $5,000 for the years
ended September 30, 1996 and 1995 and the nine months ended
September 30, 1994 respectively.
* See "Employment Contracts" below.
** Includes amounts for nine month period for 1994.
-41-
<PAGE>
The following table sets forth individual grants of stock
options or freestanding stock appreciation rights made by the
Company during the last completed fiscal year to the Named
Executive Officers.
Option/SAR Grants in Last Fiscal Year
-------------------------------------
Individual Grants
% of total
options/SAR's Exercise
Options/ granted to or base
SAR's employees in price Expiration
Name Granted fiscal year ($/sh) date
----
------- ---------- -------- ----------
Michael 300,000 33.3% $.16 June, 1999
McGinnis
David L. 300,000 33.3% $.20 August,
Norris 1999
Richard R. -0- N/A N/A N/A
Austin
Normand -0- N/A N/A N/A
Couturier
The following table sets forth information regarding each exercise of
stock options (or tandem stock appreciation rights) and freestanding stock
appreciation rights during the last fiscal year by each Named Executive
Officer and the fiscal year end value of unexercised options and stock
appreciation rights provided on an aggregate basis.
Aggregated Option/SAR Exercises in Last Fiscal Year
--------------------------------------------------
and FY-End Option/SAR Values
----------------------------
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SAR's Option/SAR's
Shares at at
acquired Value FY-End (#) FY-End ($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ----------- ------- ------------- -------------
Michael -0- -0- 300,000 $102,000
McGinnis exercisable
options
David L. -0- -0- 300,000 $ 90,000
Norris exercisable
options
Richard R. -0- -0- N/A N/A
Austin
Normand -0- -0- N/A N/A
Couturier
-42-
<PAGE>
Employment Contracts
In August 1996, Mr. Norris entered into a two-year employment
agreement with American Eco Corporation which provides for an annual salary
of $150,000. In addition, the agreement provides for the granting of
options of 50,000 in American Eco Corporation common shares. Because Mr.
Norris has devoted substantially all of his time to the Company through
November 30, 1996, it has agreed to make the payments under the agreement
to Mr. Norris.
As of July 17, 1996, Mr. Austin terminated his employment with the
Company and its subsidiaries, and resigned from all offices and
directorships of the companies. As part of that termination and the
related settlement agreement with the Company, Mr. Austin s employment
agreement was canceled and all rights to options previously granted were
waived. Prior to this on August 17, 1994, the Company had entered into an
amended employment contract with Mr. Austin which was to expire on December
31, 2004. The August 17, 1994 employment contract was subsequently amended
as part of Mr. Austin's settlement and release agreement, dated June 6,
1995. The amended employment contract provided for an annual bonus equal
to 15% of that portion of the Company's pre tax income in excess of an
amount determined by multiplying stockholders' equity by .10. In addition,
Mr. Austin received options to purchase 500,000 shares of the Company's
Common Stock exercisable at the current market price as of the date of the
agreement ($.35) expiring December 31, 2004, which options replaced options
previously issued to Mr. Austin. All such options were waived as part of
the settlement agreement dated November 8, 1996. Bonus amounts in excess
of $45,000 were waived by Mr. Austin for the year ended September 30, 1994
and no bonuses were earned for the years ended September 30, 1995 and 1996.
See Item 3 "Legal Proceedings."
Director Compensation
No director compensation was paid to any director during 1996. In July
1995, the Company agreed to compensate Mr. Tobler for serving on the Board
of Directors. Mr. Tobler is entitled to $15,000 per year payable in the
Company's Common Stock. The Company has agreed to issue Mr. Tobler 45,000
shares of the Company s Common Stock as consideration for services
previously rendered to the Company.
Officers and Directors are reimbursed for travel expenses for
corporate board of directors meetings they are required to attend. No
directors fees were paid by the Company. during the fiscal years ending
September 30, 1996 and 1995, other than payments described above.
-43-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of January 24, 1997 the number of
shares of Common Stock beneficially owned (i) by each person known to be
the beneficial owner of more than five percent of the outstanding shares of
the Company's Common Stock, (ii) by each director and Named Executive
Officer (as defined above in Item 10 "Executive Compensation") and (iii) by
all officers and directors as a group as known by the Company or reflected
on the records of the transfer agent. Unless otherwise indicated, all
persons have sole voting and investment power over such shares, subject to
community property laws.
Percent of
Amount and Outstanding
Status of Nature of Shares of
Name and Address Beneficial Common
of Beneficial Beneficial Ownership Stock Owned
Owner Owner
-------------------- ----------------- -------------- --------------
American Eco Beneficial 8,800,000 36%
Corporation Owner of more shares
154 University Ave., than 5% of
Ste. 200 Toronto, Common Stock
Ontario M5H 3Y9
Michael McGinnis Chairman of the 9,100,000 36%
11011 Jones Road Board and shares(1)
Houston, Texas 77070 director
David L. Norris President and 300,000 1%
475 N. Muller St. director shares(2)
Anaheim, CA 92801
Andreas O. Tobler Director 199,116 shares *
354 East 50th St. (3)
New York, New York
10022
Joseph E. Miller Chief Operating 300,000 1%
475 N. Muller St. Officer and shares(2)
Anaheim, CA 92801 Executive Vice
President
All Executive 5,763,716 23%
Officers and shares
Directors
as a group
(6 persons)
* Indicates less than 1%
(1) Includes 8,800,000 shares owned by American Eco Corporation, which Mr.
McGinnis is Chief Executive Officer and President and options to purchase
300,000 shares of Common Stock. See Item 12 "Certain Relationships and
Related Transactions".
(2) Includes option to purchase 300,000 shares of Common Stock.
(3) Includes 30,000 shares owned by Cornerstone Financial Corporation of
which Mr. Tobler has shared investment and voting power and includes
140,666 shares issued to Otto Tobler which Andreas O. Tobler has the option
to acquire.
Control By American Eco
As of December 31, 1996, American Eco owned directly 8,800,000 shares
of Common Stock in the Company. Mr. McGinnis, the Chairman of the Board
and a director of the Company, is the Chief Executive Officer and President
of American Eco. American Eco has an employment contract with David L.
Norris, the President of the Company, who is also a Vice President and
Chief Financial Officer of American Eco. American Eco has provided a line
of credit with the Company with a maximum borrowing amount of
$5,250,000. The
-44-
<PAGE>
Company has discussed with American Eco exchanging the line of credit
balance for issuance of Common Stock, subject to the increase in the
authorized number shares of Common Stock, which requires shareholders
approval. No agreement has been reached on the terms of such exchange and
no assurance can be given that American Eco and the Company will be able to
agree on terms for such an exchange.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
P.W. Stephens Transactions
--------------------------
Richard R. Austin was a principal shareholder, officer and director of
the Company. Mr. Austin owns 50% of a partnership which owns the corporate
and warehouse facilities which P.W. Stephens leased until December 31,
1996. P.W. Stephens paid an aggregate of $182,000 and $156,000 to Mr.
Austin s partnership for the use of such premises during fiscal 1996 and
1995 respectively.
P.W. Stephens leased vehicles and equipment under capitalized leases
from Tiger Leasing Co., an entity that is 100% owned by Richard R. Austin,
with interest rates of approximately 13% per annum. The relevant amounts
were as follows:
Fiscal Cost Accumulated Net Book Related
Year Depreciation Value Liability
---- ------------ -------
------
1996 $1,280,230 $952,885 $327,345 $271,245
1995 $1,040,730 $643,892 $396,838 $364,728
Total payments in 1996 and 1995 were $109,000 and $98,507,
respectively. All such leases were terminated in November of 1996.
P.W. Stephens and Farmers & Merchants Bank (the "Bank") entered into a
credit agreement (the "Credit Agreement") in August 1992. In December
1992, in anticipation of P.W. Stephens being acquired by the Company and
becoming part of a publicly-held entity, Mr. Kidani, a former officer and
director, and Mr. Austin personally assumed the outstanding principal
amount under the Credit Agreement which approximated $400,000. Mr. Austin
thereafter caused the Company to make deposits in the Bank which equaled
the installments due under the Credit Agreement and to characterize such
deposits as payments to Mr. Kidani's law firm. The deposits did not bear
any relation to the legal services rendered by Mr. Kidani's law firm. The
Bank applied the deposited funds towards payment of the outstanding amount
owed under the Credit Agreement. As a result, Mr. Kidani and Mr. Austin
were effectively relieved of their obligations under the Credit Agreement.
When it was no longer feasible to service the loan through payments
characterized the payment of legal fees, Mr. Kidani, with the participation
or acquiescence of Mr. Austin, caused the Company to continue to service
the amount due under the Credit Agreement by charging such payments to the
Company's workers' compensation accounts.
The Company discovered these transactions in early 1995 and launched
an investigation into Mr. Kidani's and Mr. Austin's conduct. The Board of
Directors forced Mr. Kidani to resign as the Company's President in March
1995.
In 1995, Mr. Austin entered into an agreement with the Company to
fully resolve above described matter. Such contract included the following
agreements. Mr. Austin reimbursed the Company for his 50% share of the
payments and 50% of the additional interest estimated to have been incurred
by the Company as a result of these payments. Such reimbursement,
aggregating $220,000, was satisfied by Mr. Austin with shares of Common
Stock from his personal holdings, based on the average of the bid and ask
price over the 30-day period ended May 19, 1995. Accordingly, Mr. Austin
tendered to the Company 630,139 shares of Common Stock. Mr. Austin
reimbursed the Company for the costs associated with the investigation,
including legal fees. These costs
-45-
<PAGE>
approximated $25,000. Mr. Austin personally assumed responsibility
for all debt service on the loan going forward, estimated to be
approximately $163,000. The Company has no obligations under the
Credit Agreement.
As a part of the aforementioned agreement, the Company and Mr. Austin
had amended his employment contract providing for (i) reduction in the
number of stock options granted to Mr. Austin from 3,000,000 to 500,000,
vesting over a three year period, with an exercise price based on the
average of the bid and ask price over the 30 day period ended May 19, 1995;
and (ii) modification of bonus provisions such that any bonus paid will be
based solely on the Company's earnings performance.
The terms of all transactions described in this section were on terms
believed by the Company to be at least as favorable as could be obtained by
unaffiliated independent third parties. However, in none of the
transactions was there an independent determination of fairness and
reasonableness of the terms of the transaction with the affiliates.
On July 1, 1996, Mr. Richard B. Austin filed suit in Los Angeles
County Superior Court against the Company, American Eco, Julbin, P.W.
Stephens, QHI\Stephens Contractors, Inc. and Michael McGinnis, seeking
unspecified damages and specific performance. Mr. Austin s claims arose
out of series of transactions pursuant to which Mr. Austin had sold his
controlling interest in the Company to Julbin. The defendants answered the
complaint denying the allegations therein and filed a cross complaint
against Mr. Austin, and others for fraudulent misrepresentation and similar
claims alleging that Mr. Austin had induced American Eco to invest in the
Company by making material misrepresentations to American Eco and its
representatives about the financial and operating condition of the Company
and P.W. Stephens. On November 8 , 1996, the Company, P.W. Stephens,
American Eco, and other named defendant entered into a settlement agreement
with Mr. Austin and the other cross-defendants. The essential terms of the
agreement called for the resignation of Mr. Austin from all position with
the Company or its subsidiaries and termination of his employment agreement
and all options to purchase shares of Common Stock effective July 16, 1996,
payment of $35,000 to Mr. Austin for costs and delivery of 300,000 shares
of American Eco common stock with certain price guarantees in exchange for
mutual general release by all parties. No payments were made by the
Company or P.W. Stephens to Mr. Austin as part of the settlement.
AMERICAN ECO
------------
In February 1996, American Eco agreed to loan money to the Company
pursuant to a line of credit agreement with a maximum borrowing of
$5,250,000. The total amount borrowed under the agreement approximated
$4,908,000 at September 30, 1996. The line of credit bears interest at the
prime rate plus 2%.
American Eco has also guaranteed certain indebtedness and leases of
EIF and its subsidiaries. At September 30, 1996, American Eco had
outstanding guarantees of the $130,162 bank loan of P.W. Stephens
St. Louis, which loan was repaid in October 1996; of the $130,000 factoring
line of P.W. Stephens St. Louis, which was outstanding as of March 31,
1997; and the $1,200,000 bank loan, which loan was repaid in February
1997. Subsequent to November 30, 1996, American Eco guaranteed the EIF
lease in Anaheim, California, a factoring line of P.W. Stephens and an
equipment lease.
KELAR CONTROLS
---------------
Kelly McMahon, and Larry Thomas, President and Vice President of
Kelar, respectively, own the building in which Kelar leases its offices
and warehouse facilities. Kelar paid an aggregate of $38,400 and $28,800
to Messrs, McMahon and Thomas for the use of such premises during fiscal
1996 and for the nine months ended September 30, 1995, respectively.
-46-
<PAGE>
ITEM 13. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits
The following documents are filed (separately) as exhibits to this
report:
Regulation S-B
Exhibit Number
2.1 Exchange of Stock Agreement and Plan of
Reorganization between EIF Holdings, Inc.
("EIF") and P.W. Stephens Contractors, Inc. (1)
2.2 Acquisition Agreement between EIF and Von Guard
Holdings, Inc. and its subsidiaries (2)
2.3 Sale of Stock Agreement by and between EIF,
Kelar Controls, Inc. and its shareholders (3)
3.1 Certificate of Incorporation, as amended to date (4)
3.2 Bylaws (4)
4.1 Specimen Common Stock certificate (4)
4.2 Certificate for Specimen "B", "C" and "D" Warrants (4)
4.3 Extension of Class B Warrants (7)
10.1 Amended Employment Contract of Andreas O. Tobler (5)
10.2 NY-STAR Purchase Agreement between EIF Holdings,
Inc. ("EIF") and Andreas O. Tobler (4)
10.3 Agreements relating to Gertino/Block stock issuance (6)
10.4 Promissory Note Line of Credit Agreement,
dated March 1, 1996, with American Eco Corporation
("American Eco") *
10.5 Agreement, dated February 2, 1996, between EIF
and American Eco (8)
10.6 Settlement Agreement and Mutual Release, dated
April 4, 1996, among Kelar, Kelly McMahon, and
Larry Thomas (as plaintiffs) and EIF and
the other defendants *
10.7 Agreement and General Release, dated as of
November 8, 1996, among Richard Austin,
EIF, PW Stephens and American Eco *
10.8 Lease Agreement, dated January 9, 1997,
between Aetna Life Insurance Company and EIF,
for premises in Anaheim, California *
21 Subsidiaries *
27 Financial Data Schedule *
(1) Filed as an Exhibit to the Current Report of the Company on Form
8-K for the Date of Event January 31, 1993 and incorporated herein
by reference.
(2) Filed as an Exhibit to the Current Report of the Company on Form
8-K for the Date of Event August 2, 1994 and incorporated
herein by reference.
(3) Filed as an Exhibit to the Annual Report of the Company on Form
10-KSB for the fiscal year ended December 31, 1994 and incorporated
herein by reference.
(4) Filed as an Exhibit to the Annual Report of the Company on Form
10-KSB for the fiscal year ended December 31, 1992 and incorporated
herein by reference.
(5) Filed as an Exhibit to the Current Report of the Company on Form
8-K for the Date of Event September 7, 1994 and incorporated herein
by reference.
(6) Filed as an Exhibit to the quarterly report of the Company on Form
10-QSB for the quarter ended September 30, 1993 and incorporated
herein by reference.
(7) Filed as an Exhibit to the Current Report of the Company on Form
8-K for the Date of Event October 15, 1994 and incorporated herein
by reference.
(8) Filed as an Exhibit to the Current Report of the Company on Form
8-K for the Date of Event February 2, 1996 and incorporated
herein by reference.
-----------------------------
*Filed herewith
(b) Reports on Form 8-K
No report on Form 8-K were filed during the last quarter of fiscal 1996.
-47-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, EIF Holdings
Inc. caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EIF HOLDINGS, INC.
(Registrant)
By: /s/David L. Norris
---------------------------------
David L. Norris,
President and
Chief Executive Officer
Dated: April 21, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: /s/David L. Norris
--------------------------------- Dated: April 21, 1997
David L. Norris,
President, Chief Executive Officer
and Director
By: /s/Michael E. McGinnis Dated: April 21, 1997
---------------------------------
Michael E. McGinnis,
Chairman of the Board and Director
By: /s/Joel J. Thomas Dated: April 21, 1997
---------------------------------
Joel J. Thomas,
Chief Financial Officer
(Principal financial and
accounting officer)
By: /s/ Andreas O. Tobler Dated: April 21, 1997
---------------------------------
Andreas O. Tobler,
Director
<PAGE>
EXHIBIT INDEX
--------------
Exhibit
Number Description
------- -------------------------------------------------------
10.4 Promissory Note Line of Credit Agreement,
dated March 1, 1996, with American Eco Corporation
("American Eco")
10.6 Settlement Agreement and Mutual Release, dated
April 4, 1996, among Kelar, Kelly McMahon, and
Larry Thomas (as plaintiffs) and EIF and
the other defendants
10.7 Agreement and General Release, dated as of
November 8, 1996, among Richard Austin,
EIF, PW Stephens and American Eco
10.8 Lease Agreement, dated January 9, 1997,
between Aetna Life Insurance Company and EIF,
for premises in Anaheim, California
21 Subsidiaries
27 Financial Data Schedule
PROMISSORY NOTE
LINE OF CREDIT AGREEMENT
Amount Of Line of Credit Date
$5,250,000.00 March 1, 1996
FOR VALUE RECEIVED, EIF HOLDINGS, INC., ("Borrower"), a Hawaii
corporation, hereby enters into this line of credit agreement,
("Line of Credit") and promises to pay to the order AMERICAN ECO
CORPORATION, ("Lender"), an Ontario Canada corporation, its
successors and assigns at 11011 Jones Road, Houston, Texas, USA,
or at other place as might be designated in writing by the
Lender, the outstanding principal sum of Line of Credit, together
with interest with a variable rate, equal to the Line of Credit
Rate, (as hereafter defined), in United States dollars.
1. Interest:
--------------
The interest rate on the outstanding principal balance shall
be equal to two percent (2%) in excess of the Prime Rate (as
herein after defined) per annum, (the "Line of Credit Rate").
The Line of Credit Rate charged hereunder will change effective
on the date of change in the Prime Rate without notice to the
Borrower. As used in this Line of Credit, the term "Prime Rate"
means the interest per annum most recently announced by Citibank,
N.A. New York, New York, for the guidance of its officer as its
prime lending rate or, if the foregoing index is not available,
the highest prevailing base interest rate charged on corporate
loans by large United States money center commercial banks as
published from time to time in the "Money Rates" column of the
Wall Street Journal. Prime rate is currently eight percent
(8.0%) per annum and the Borrower acknowledges that this Line of
Credit will bear interest at rate two percent (2.0%) in excess of
eight percent (8.0%) or ten percent (10%) per annum, until the
date of a change in the Prime Rate. Interest will be calculated
on the basis of the actual days elapsed based on a per diem
charge computed over a year composed of three hundred sixty-five
(365) days.
2. Advances:
--------------
Borrower must request all advances under this Line of Credit
in writing and signed by as authorized party, as designated in
advance by the Borrower. All authorized parties must be so
designated in writing by the Borrower's Board of Directors. If
the Borrower is not in default or an Event of Default (as
hereafter defined), has not occurred, Borrower may request an
advance up to the total amount of this Line of Credit, less the
then current outstanding principal balance. In no event shall
the advance requested plus the unpaid principal balance exceed
the total amount of the Line of Credit. No advances will be made
after the Maturity Date (as hereafter defined). Advances will be
transferred to the designated bank account via bank draft, check
or wire transfer as requested by the Borrower. On the date the
advance is sent by the Lender, it will be added to the unpaid
principal balance and accrue interest as indicated above. Any
costs charged by a third-party for sending the advance, or wire,
will be deducted from the amount of the advance or added to the
outstanding principal balance of the Line of Credit.
3. Payments:
--------------
The entire outstanding Principal balance of the Line of
Credit will be due and payable on July 31, 1997 ("Maturity
Date"). Interest on the outstanding Principal balance is due and
payable on the first day of each and every month. All payments
received by the Lender shall be first applied to any interest
balance due, at the rate herein specified, on the date the
payment is received and then to principal. The Borrower shall
have the right at any time to prepay the Line of Credit, in whole
or in part, without penalty. The Line of Credit will not be paid
in full however, until all outstanding principal and accrued
interest is paid in full. This is not a revolving line of
credit, and Borrower shall not be entitled to re-advances of
principal payments made by the Borrower.
4. Borrower's Breach of Default:
----------------------------------
On the breach by the Borrower of any material provision of
this Line of Credit or the occurrence of any Event of Default (as
defined herein), or the occurrence of a default by Borrower under
any other instrument now or hereafter evidencing or securing
payment of the indebtedness hereby evidenced or on the default in
payment or performance under any instrument governing, evidencing
or securing payment of the Principal balance of this Line of
Credit, at the option of the Lender and upon immediate written
notice to the Borrower, the entire indebtedness evidenced by this
Line of Credit will become immediately due, payable and
collectible then or thereafter as the Lender might elect,
regardless of the date of maturity of this Line of Credit.
Failure by the Lender to exercise such option will not constitute
a waiver of the right to exercise the same on the occurrence of
any subsequent Event of Default.
The makers, endorsers, sureties, guarantors and all other
persons who might become liable for all or any part of this
obligation severally waive presentment for payment, protest and
notice of nonpayment. Such parties consent to any extension of
time (whether one or more) of payment hereof, release of all or
any part of the collateral securing payment hereof or release of
any party liable for the payment of this obligation. Any such
extension or release may be made without notice to any such party
and without discharging such party's liability hereunder. If
more than one maker executes this Line of Credit, the liability
of each of the undersigned is and shall be joint and several.
5. Event of Default:
----------------------
When used herein, the term "Event of Default" shall include
the following events:
A. Nonpayment. The nonpayment when due of any installment
-----------
of interest or principal owing under the Line of Credit.
B. Representations and Warranties. Any representations,
-------------------------------
statement, certificate, schedule or report made or furnished
to the Lender by or on behalf of the Borrower proves to be
false or erroneous in any material respect at the time of
the making thereof.
C. Insolvency; Bankruptcy. The insolvency (meaning an
-----------------------
inability to pay debts as the same become due or the
existence of liabilities in excess of assets) of Borrower,
or the institution of bankruptcy, reorganization,
liquidation, receivership or conservatorship proceeding by
or against Borrower.
D. Judgment. Entry by any court of a final uninsured
---------
judgment against Borrower which is not discharged or stayed
to the satisfaction of the Lender.
E. Other Borrowing. If any debt that is not currently
----------------
senior, becomes senior to this promissory note.
F. Other Debt. The default in payment or acceleration of
-----------
the maturity of any indebtedness of Borrower owing to any
other person.
G. Adverse Change. The occurrence of a material adverse
---------------
change in the financial condition of Borrower.
H. Ownership and Management. A change in the ownership or
-------------------------
management of Borrower shall occur which is unsatisfactory
to Lender.
I. Corporate Existence. Any act or omission (formal or
--------------------
informal) of Borrower leading to, or resulting in, the
termination, invalidation (partial or total), revocation,
suspension, interruption or unenforcibility of Borrower's
corporate existence, rights, licenses, franchises or
permits, or the transfer or disposition (whether by sale,
lease or otherwise) to any person of all of a substantial
part of the Borrower's property outside of the ordinary
course of business.
J. Other Events of Default. Any sale, transfer or pledge
of
------------------------
permits, equipment, common stock in subsidiary or any other
asset of Borrower without Lender's prior written consent.
This Line of Credit is intended to strictly conform with all
usury laws to the extent applicable to the transactions
contemplated hereby. The provisions of this Line of Credit and
of all agreements between the Borrower and the Lender are hereby
expressly limited so that in no contingency or event whatsoever,
shall the amount contracted for, charged, paid or agreed to be
paid to the Lender for the use, forbearance or retention of money
or credit hereunder or otherwise exceed the maximum rate
permitted by laws therefor. If, from any circumstance
whatsoever, performance or fulfillment any provision hereof or of
any agreement between the Borrower and Lender shall, at the time
of the execution and delivery thereof, or at the time or
performance of such provision shall be due, involve or purport to
require any payment in excess of the limits prescribed by law,
the obligation to be performed or fulfilled shall be reduced
automatically to the limit prescribed by law without the
necessity of the execution of any amendment or new document.
6. Late Charges and Collection Costs:
---------------------------------------
The Borrower agrees that if, and as often as, this Line of
Credit is placed in the hands of an attorney for collection or to
defend or enforce any of the Lender's rights under this Line of
Credit or otherwise relating to the indebtedness hereby
evidenced, the Borrower will pay the Lender's reasonable
attorney's fees, all court costs and all other expenses incurred
by the Lender in connection therewith. The Lender may collect a
late charge equal to one percent (1%) of the outstanding
principal balance if monthly interest payments are not received
by the Lender within ten (10) days after the due date of such
payment. Such late charge represents the estimate of reasonable
compensation for the loss which will be sustained by the Lender
arising from the Borrower's failure to make timely payments and
may be collected without prejudice to the rights of the Lender to
collect any other amounts arising from the Borrower's default in
payment or to accelerate the maturity of the indebtedness hereby
evidenced.
7. Default Rate of Interest:
------------------------------
In addition to the foregoing late charge, at the option of
the Lender, after the occurrence of any Event of Default (as
defined herein), the unpaid balance of this Line of Credit will
bear interest at that rate which is equal to ten percent (10%)
per annum in excess of the Prime Rate and such interest which has
accrued will be paid at the time of and as a condition precedent
to curing any Default (as defined herein). During the existence
of any Default, the Lender may apply payments received on any
amount due hereunder or under the terms of any instrument now or
hereafter evidencing or securing payment of this indebtedness as
the Lender determines from time to time.
This Line of Credit is issued by the Borrower and accepted
by the Lender pursuant to a lending transaction negotiated,
consummated and to be performed in City of Industry, California.
This Line of Credit is to be construed according to the internal
laws of the State of California. All actions with respect to
this Line of Credit or any other instrument securing payment of
this Line of Credit will be instituted in a state or federal
court sitting in Orange County, California. By the execution of
this Line of Credit, the Borrower irrevocably and unconditionally
submits to the jurisdiction (both subject matter and personal) of
each such court and irrevocably and unconditionally waives: (a)
any objection the Borrower might now or hereafter have to the
venue in any court; and (b) any claim that any action or
proceeding brought in any such court has been brought in an
inconvenient forum.
8. Waiver and Notice:
-----------------------
Borrower hereby otherwise waives presentment, demand for
payment, notice of dishonor, notice of default or Event of
Default, notice of protest, and all other notices or demands in
connection with the delivery, acceptance, performance, default or
guarantee of this Line of Credit. No delay or omission on the
part of the Lender in exercising any right hereunder against the
Borrower, shall operate as a waiver of such right or of any other
rights under this Line of Credit. Waiver on any specific
occasion against the Borrower shall not be construed as a bar to
or waiver of any right and/or remedy on any future occasion. All
waivers of any rights by the Lender must be in writing.
Unless applicable law requires a different method, any
notice that must be given to the Lender under this Note will be
given by delivering it or by mailing it by first class mail to
the Lender at 11011 Jones Road, Houston, Texas, or to such other
address as notified by the Lender in writing.
IN WITNESS WHEREOF, the undersigned has caused these presents to
be signed by a duly authorized officer of the Borrower and its
corporate seal to be hereunto affixed and attested by its
Secretary, as of the date first above written.
BORROWER: LENDER:
EIF HOLDINGS, INC. AMERICAN ECO CORPORATION.
a Hawaii corporation an Ontario Canada corporation
By: /s/D. L. Norris By: /s/ Michael E. McGinnis
------------------------- ------------------------
Title: President & CEO Title: President & CEO
---------------------- ----------------------
By: By: /s/ Valerie Williams
------------------------ -------------------------
Title: Title: Assistant Secretary
---------------------- ----------------------
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release ("Agreement")
is made by and between:
Kelar Controls, Inc. ("Kelar"), Kelly McMahon ("McMahon"), and
Larry Thomas ("Thomas") (hereafter collectively referred to as
"Plaintiffs")
And
EIF Holdings, Inc. ("EIF"), Richard Austin ("Austin") and Grant
Kidani ("Kidani") (hereinafter collectively referred to as
"Defendants")
And
American Eco Corporation ("ECO").
The Plaintiffs, the Defendants and ECO are hereinafter
collectively referred to as "The Parties".
RECITALS
1. On or about December 30, 1994, EIF, Kelar, McMahon and
Thomas entered into a Stock Sale Agreement (the "Stock Sale
Agreement") whereby EIF sold McMahon and Thomas 200,000
shares of restricted common stock in EIF in exchange for
100% of the outstanding shares of stock in Kelar.
2. On or about December 29, 1995, Kelar, McMahon and Thomas
filed suit in the Federal District Court in the Northern
District of California. Case number C 95-20877 PVT (the
"Lawsuit"), against Defendants.
3. The Lawsuit seeks rescission of the December 30, 1994
agreement as well as damages from each of the defendants for
alleged violations of the securities laws of the United
States and the State of California as well as common law
fraud, breach of contract, breach of fiduciary duties.
4. Each party specifically denies that it is liable to any
other party for any damages arising out of any claims made
in the Lawsuit. The Parties desire, however, to fully
compromise their disputes.
NOW, THEREFORE, in consideration of the mutual promises made
in this Agreement, the Parties hereby agree as follows:
AGREEMENT
1. CONSIDERATION
-------------
a) ECO will transfer to McMahon and Thomas a total of
50,000 shares (25,000 shares each) of free trading ECO
common stock in exchange for the 200,000 shares of EIF
stock acquired by McMahon and Thomas pursuant to the
December 30, 1994 Stock Sale Agreement. This transfer
will take place no later than March 22, 1996.
b) EIF will transfer to McMahon and Thomas a total of
678,294 shares (339,147 shares each) of free trading
common stock in EIF. This transfer will take place no
later than June 30, 1996.
c) Upon transfer of the 678,294 shares of EIF common stock
to McMahon and Thomas as set forth in section 1.b)
above, the Earn Out provisions of Section 2.5.1 and
Schedule 2.5.1 of the Stock Sale Agreement shall be
void, rescinded and of no further force and effect.
d) No later than June 30, 1996, EIF will have registered
an employee stock option plan under S-8. Upon the
establishment of the registered employee stock option
plan. EIF will deliver to McMahon and Thomas options
for the purchase of free trading EIF common stock
registered under the S-8 registration as follows:
i) The amount of option shares delivered to McMahon
shall be 2,500 shares multiplied by the number of
completed months since January 1, 1995. The
amount of option shares delivered to Thomas shall
be 2,500 shares multiplied by the number of
completed months since January 1, 1995.
ii) The option price shall be equal to the average of
the monthly average purchase price of EIF stock as
reflected in NASDAQ records for the period 1/1/96
to 3/31/96. In computing the average, if there
were no sales reflected in the NASDAQ records for
any calendar month period then that calendar month
shall not be used in computing the average selling
price.
iii) If as S-8 registration is not in effect by June
30, 1996, then at the sole options of McMahon
and/or Thomas, McMahon and/or Thomas may each
independently elect to receive cash in lieu of the
stock options vested under their respective
employment contracts with Kelar as of June 30,
1996. If either McMahon or Thomas elects to
receive a cash payment, then EIF shall pay McMahon
and/or Thomas, as the case may be, in cash, the
difference between the option price, as computed
above, and the market price of free trading EIF
common stock as of February 16, 1996. McMahon and
Thomas must make such election no later than July
15, 1996 and if cash payment is elected, EIF shall
make its cash payment(s) no later than July 30,
1996.
iv) In the event that such a cash payment is elected,
the cash payment shall be in lieu of the stock
options that had vested under paragraph 3. D) of
the employment contracts between Kelar and McMahon
and/or Thomas respectively. This Agreement has no
effect on stock options to be granted pursuant to
the respective employment contracts between Kelar
and McMahon and between Kelar and Thomas to the
extent those options have not vested as of June
30, 1996.
v) Except as specifically set forth in this
agreement, the employment contracts between Kelar
and McMahon and between Kelar and Thomas shall
remain in full force and effect.
e) The employment contracts between Kelar and McMahon and
between Kelar and Thomas are hereby extended so that
the terms of those agreements extends to a date that is
five (5) years from the effective date of this
settlement agreement.
f) The initial term of the lease agreement for the lease
of the building located at 404-C Umbarger Road, San
Jose, CA 95111-2035 is hereby extended to a date that
is five (5) years from the effective date of this
settlement agreement.
g) EIF provided Kelar with $80,000 cash. This cash
represents capital investment by EIF into Kelar and not
a loan.
h) Within 15 days of the effective date of this agreement,
EIF shall provide Kelar with the necessary funds to
bring the accounts payable of Kelar current to the
satisfaction of both McMahon and Thomas. The amount of
money needed to accomplish this is currently estimated
to be $127,000. The provision of these funds shall
constitute a capital investment by EIF into Kelar and
not a loan.
i) EIF will provide Kelar with the necessary working
capital in the future to enable Kelar to achieve its
objectives. The parties have estimated the working
capital needed in the next six (6) months period to be
approximately $250,000. Kelar, EIF, McMahon and Thomas
agree to communicate either in person or over the phone
at least once a week to discuss Kelar's continuing
objectives and working capital requirements and
coordinate the adequate and timely furnishing of those
requirements. All such provisions of working capital
shall constitute capital investments by EIF into Kelar
and not loans.
j) All money that EIF has advanced to Kelar since the
acquisition of Kelar by EIF in December 1994 represent
capital investments by EIF into Kelar and are not
loans.
2. RELEASE OF CLAIMS. Each party to this Agreement agrees that
------------------
the foregoing consideration represents settlement in full of
all outstanding obligations owed by the Parties to each
other. The Parties, on behalf of themselves, and their
respective heirs, executors, officers, directors, owners,
employees, investors, shareholders, administrators,
predecessors and successor companies/corporations, and
assigns, hereby fully and forever release each other and
their respective heirs, executors, officers, directors,
owners, employees, investors, shareholders, administrators,
predecessors and successor companies/corporations, and
assigns, of and from any claim, duty, obligation or cause of
action relating to the negotiation and consummation of the
Stock Sale Agreement and the actions of any of the Parties
since that time, insofar as those actions relate to the
businesses of EIF and/or Kelar, whether presently known or
unknown, suspected or unsuspected, that any of them may
possess arising from any omissions, acts or facts that have
occurred up until and including the Effective Date of this
Agreement, including, without limitation any and all claims
that were raised or could have been raised in The Lawsuit
either as affirmative claims, cross-claims or counter-
claims.
The Parties agree that the release set forth in this section
shall be and remain in effect in all respects as a complete
general release as to the matters released. This release
does not extend to any obligations incurred under this
Agreement.
3. DISMISSAL. Immediately upon execution of this Agreement,
---------
each party shall execute as stipulation and order for
dismissal with prejudice of the Lawsuit and shall cause
that dismissal with prejudice to be entered in the United
States District Court for the Northern District of California,
Case number C 95-20877 PVT.
4. CIVIL CODE SECTION 1542. The parties represent that they
-----------------------
are not aware of any claim by any of them other than the
claims that are released by this Agreement. The Parties
acknowledge that they have been advised by legal counsel and
are familiar with the provisions of California Civil Code
Section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO
CLAIMS WHICH THE CREDITOR DOES NOT KNOW
OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM, MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
The Parties, being aware of said code section, agree to
expressly waive any rights they may have under said code
section, as well as under any other statute or common law
principles of similar effect.
5. DISPARAGEMENT. Each party agrees to refrain from any
-------------
disparagement, criticism, defamation, slander of the other,
or tortious interference with the contracts and
relationships of the other.
6. NO ADMISSION OF LIABILITY. The Parties understand and
-------------------------
acknowledge that this Agreement constitutes a compromise and
settlement of disputed claims. No action taken by the
Parties hereto, or any of them, either previously or in
connection with the Agreement shall be deemed or construed
to by (a) an admission of the truth or falsity of any claims
heretofore made or (b) an acknowledgment or admission by any
party of any fault or liability whatsoever to any other
party or to any third party.
7. COSTS. The Parties shall each bear their own costs, expert
-----
fees, attorneys' fees and other fees incurred in connection
with this Agreement and the Lawsuit. However, should it be
necessary for a Party to this Agreement to employ attorneys
to obtain performance of the other Party's obligations under
this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fee, costs and experts' fees incurred.
8. AUTHORITY. Each Party represents and warrants that the
---------
respective undersigned persons have the authority to act on
behalf of each of the respective Parties and to bind the
respective Parties and all who may claim through it to the
terms and conditions of this Agreement. Each Party warrants
and represents that there are no liens or claims of lien or
assignments in law or equity or otherwise of or against any
of the claims or causes of action released herein.
9. NO REPRESENTATIONS. Each Party represents that it has had
------------------
the opportunity to consult with an attorney, and has carefully
read and understands the scope and effect of this Agreement.
No party has relied upon any representations or statements
made by any other party hereto which are not specifically
set forth in this Agreement.
10. SEVERABILITY. In the event that any provision hereof becomes
------------
or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall
continue in full force and effect without said provision.
11. ENTIRE AGREEMENT. This Agreement represents the entire
----------------
agreement and understanding between and among the Parties
concerning the matters discussed in the recitals, and
supersedes and replaces any and all prior agreements and
understandings concerning the same subject matter between
and among the Parties.
12. NO ORAL MODIFICATION. This Agreement may only be amended in
--------------------
writing signed by both of the Parties.
13. GOVERNING LAW. This Agreement shall be governed by the laws
-------------
of the State of California, and may be enforced by action in
the courts located in the County of Santa Clara, California.
14. EFFECTIVE DATE. This Agreement is effective as of February
--------------
16, 1996.
15. COUNTERPARTS. This Agreement may be executed in
counterparts,
------------
and each counterpart shall have the same force and effect as
an original and shall constitute an effective, binding
agreement on the part of each of the undersigned.
16. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed
--------------------------------
voluntarily and without duress or undue influence on the
part or behalf of the Parties hereto, with the full intent
of releasing all claims. The Parties acknowledge that:
a) They have read this Agreement;
b) They have been represented in the preparation,
negotiation, and execution of this Agreement by legal
counsel of their own choice or that they have
voluntarily declined to seek such counsel;
c) They understand the terms and consequences of this
Agreement and of the releases it contains;
d) They are fully aware of the legal and binding effect of
this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement
on the respective dates set forth below.
EIF Holdings, Inc.
Dated: April 4, 1996 By: /s/ Mike McGinnis
------- -------------------------------------
Mike McGinnis
Its: President and CEO
Kelar Controls, Inc.
Dated: April 4, 1996 By: /s/ Kelly McMahon
------- -------------------------------------
Kelly McMahon
Its: President
American Eco Corporation
Dated: April 4, 1996 By: /s/ Mike McGinnis
------- -------------------------------------
Mike McGinnis
Its: President and CEO
Kelly McMahon
Dated: April 4, 1996 By: /s/ Kelly McMahon
------- -------------------------------------
Larry Thomas
Dated: April 4, 1996 By: /s/ Larry Thomas
------- -------------------------------------
Richard Austin
Dated: April 4, 1996 By: /s/ Richard Austin
------- -------------------------------------
Grant Kidani
Dated: April 4, 1996 By: /s/ Grant Kidani
------- -------------------------------------
AGREEMENT AND GENERAL RELEASE
-----------------------------
This Agreement and General Release (the "Agreement") is made
and entered into, at Los Angeles, California, as of the 8th day
of November, 1996, by and between P.W. Stephens Contractors,
Inc., a California Corporation ("PWS"), EIF Holdings, Inc., a
Hawaiian Corporation ("EIF"), American Eco Corporation, a
Canadian Corporation ("AEC"), and Richard Raymond Austin, an
individual ("Austin").
WHEREAS, Austin was an employee, Chief Executive Officer and
a Director of PWS and its parent corporation, EIF, and the owner
of 5,526,861 shares of EIF common stock, representing a
controlling interest therein, which shares were traded to Julbin
International, Inc. ("Julbin") in a I.R.C. 368 (A)(1)(b)
Reorganization in exchange for 300,000 negotiable shares of AEC
common stock and other valuable consideration; and
WHEREAS, on or about July 1, 1996, Austin commenced a
lawsuit in the Superior Court of the State of California, County
of Los Angeles, docketed as Richard R. Austin v. American Eco
---------------------------------
Corporation, a Canadian corporation; EIF Holdings. Inc., a Hawaii
-----------------------------------------------------------------
corporation; P.W. Stephens Contractors, Inc., a California
----------------------------------------------------------
corporation; Julbin International, Inc., a British Virgin Islands
-----------------------------------------------------------------
corporation; QHI Stephens Contractors, Inc., a California
---------------------------------------------------------
corporation; Michael E. McGinnis, an individual; and Does 1-100,
----------------------------------------------------------------
Case Number BC152966 (the "Austin Complaint"); and
WHEREAS, PWS, QHI Stephens Contractors, Inc. ("QHI"), EIF,
AEC and Michael E. McGinnis ("McGinnis") have served and filed an
Answer and have denied and continue to deny each and every
material allegation set forth in the Austin Complaint and deny
having committed any wrong to the injury of Austin, and PWS, EIF
and AEC have filed a Cross-Complaint in said lawsuit against
Austin and others (the "Cross-Complaint"), the allegations of
with Austin denies; and
WHEREAS, on or about August 5, 1996, Austin served on PWS
and EIF a Demand for Arbitration before the American Arbitration
Association, AAA Case No. 72 481 00807 96 (the "Arbitration");
and
WHEREAS, on or about August 8, 1996, Austin filed a
complaint with the NASD by letter dated August 8, 1996 (the "NASD
Complaint"); and
WHEREAS, in order to avoid the further costs, burdens and
risks of litigation, Austin, on the one hand, and PWS, EIF and
AEC on the other hand, desire to settle fully and finally any and
all differences between them, including, but not limited to,
those differences embodied in the Austin Complaint, the
Cross-Complaint, the Arbitration and the NASD Complaint, and any
differences that might arise out of or relate to Austin's
positions with PWS and EIF and the termination thereof, and
Austin's exchange of EIF stock for AEC stock;
NOW, THEREFORE, IT IS HEREBY AGREED THAT:
1. Austin's positions with EIF terminated on or before
March 1, 1996. Austin's positions with PWS terminated effective
on July 16, 1996 (the "Termination Date"). As of the Termination
Date, Austin maintains that he had resigned all positions held as
an employee, officer and/or director of PWS, EIF, and any of
their respective subsidiaries, parent corporations and/or
affiliates.
2. (a) Austin agrees not to enter, become or remain
present on, or otherwise have access to, any of the premises or
property of PWS, EIF, or any of their respective subsidiaries,
without the prior written consent of PWS's President, except in
the capacity of Landlord pursuant to applicable Lease agreements
or as provided by law, and except for premises occupied by other
tenants in any building occupied by PWS and/or EIF provided that
Austin confine himself to those portions of the premises solely
occupied by such other tenants, and the parking lot, driveways,
ramps, and basement storage area.
(b) Other than with the President of PWS, Austin
agrees not to attempt, directly or indirectly, to initiate any
communication with any other officer, director or employee of
PWS, QHI, EIF, or any of their respective subsidiaries, for any
purpose relating to the business of PWS, QHI, EIF, AEC, or any of
their respective subsidiaries or affiliates, without the prior
written consent of PWS's President. Notwithstanding the
foregoing, Austin may communicate with the President of PWS, or
with any officer, director or employee of PWS, QHI or EIF
designated in writing by the President of PWS, concerning the
transfer and sale of the AEC stock hereunder and pursuant to
Rider A hereto, any communications concerning the obligations of
the parties under this Agreement, and any communications
concerning the office lease between ADJ Partnership and PWS.
3. (a) Austin represents and warrants that prior to or at
the Closing he has returned to PWS, EIF and QHI any and all
documents, software, equipment and all other materials or other
things in Austin's possession, custody, or control, if any, which
are the property of PWS, EIF or QHI including, but not limited
to, any PWS, EIF, QHI identification, keys, and the like,
wherever such items may have been located, as well as all copies
of any business records of PWS, EIF or QHI; provided, however,
that Austin shall be entitled to retain copies of his personal
records which directly relate to his personal relationships with
PWS, EIF or QHI such as, by way of example, but not limited to,
his personal compensation, his taxes, his personal contracts, his
personal correspondence relating to his personal contracts and/or
termination, and/or his stock ownership (hereinafter Austin's
"Personal Records").
(b) Austin hereby represents that, other than those
materials Austin has returned to PWS, EIF and QHI pursuant to
Paragraph 3(a), above, Austin has not copied or caused to be
copied, and has not printed-out or caused to be printed-out, any
software, computer disks, or other documents other than those
documents generally available to the public, or retained any
other materials originating with or belonging to PWS, QHI, EIF or
any of their respective subsidiaries, or controlling shareholders
(other than his Personal Records) and that Austin will not do so
or cause or permit any other person to do so on his behalf.
Austin further represents that Austin has not retained and will
not retain in his possession any software, documents or other
materials in machine or other readable form, which are the
property of, originated with, were obtained or created in the
course of Austin's employment, except for his Personal Records.
4. PWS, AEC and EIF represent and warrant that prior to or
at the Closing they have returned to Austin any of his personal
files and property, if any, in their possession, custody, or
control.
5. Austin shall be entitled to any rights guaranteed by
the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"). Premium and other payments required for any continued
health insurance coverage beyond the Termination Date, in
accordance with COBRA, shall be the sole responsibility of
Austin.
6. Austin represents, warrants, acknowledges and agrees
that he has been paid for, and that none of PWS, EIF, QHI or AEC
owes or shall owe Austin any wages, commissions, bonuses,
vacation pay, severance pay, or other compensation or payments of
any kind or nature whatsoever, other than as provided in this
Agreement.
7. Austin hereby authorizes and instructs his attorneys,
the law firm of Drummy King White & Gire, to execute and deliver
to PWS's, EIF's and AEC's attorneys, the law firm of Troop
Meisinger Steuber & Pasich LLP (to the attention of Anthony J.
Oncidi, Esq.) and Reid & Priest LLP (to the attention of Jonathan
D. Siegfried, Esq.), at the Closing of this Agreement, the
original and two copies of (a) a Request for Dismissal With
Prejudice, dismissing the Austin Complaint with prejudice and
without fees or costs, (b) a Stipulation dismissing with
prejudice and without fees or costs the Arbitration, and (c) a
letter requesting dismissal with prejudice, and without fees or
costs, of the NASD Complaint. Austin consents to the filing of
(a) such Request for Dismissal with the Superior Court of the
State of California, County of Los Angeles, (b) such Stipulation
dismissing the Arbitration with the American Arbitration
Association, and (c) such letter dismissing the NASD Complaint.
8. PWS, EIF and AEC hereby authorize and instruct their
attorneys, the law firm of Troop Meisinger Steuber & Pasich LLP,
to execute and deliver to Austin's attorneys, the law firm of
Drummy King White & Gire, at the Closing of this Agreement, the
original and two copies of a Request for Dismissal with
Prejudice, dismissing the Cross-Complaint against Austin and Dawn
Seubert with prejudice and without fees or costs, provided that
Dawn Seubert, at the time of Closing, delivers to Troop Meisinger
Steuber & Pasich LLP a release in form acceptable to PWS. PWS,
EIF and AEC consent to the filing of (a) such Request for
Dismissal with the Superior Court of the State of California,
County of Los Angeles, and (b) if their consent is required, such
documents as may be necessary to dismiss the Arbitration,
including without limitation the Stipulation referred to in
Paragraph 7(b), above, and the NASD Complaint. PWS, EIF, and AEC
further authorize and instruct their attorneys, the law firm of
Troop Meisinger, Steuber & Pasich LLP, to execute and deliver to
Austin's attorneys, the law firm of Drummy King White & Gire, at
the Closing of this Agreement, the original and two copies of a
Request for Dismissal without Prejudice, dismissing the
Cross-Complaint as to all remaining parties other than Richard
Austin and Dawn Seubert without prejudice. In exchange for the
dismissal without prejudice of the Cross-Complaint, Patricia
Kennedy and Consolidated Western Contractors, Inc. shall sign a
separate letter agreement to be provided at the Closing by Austin
by which they agree that, for a period of one hundred twenty
(120) days following the Closing of this Agreement, if Patricia
Kennedy and/or Consolidated Western Contractors, Inc. intend to
file a lawsuit against PWS, EIF, or AEC, that they will give
written notice to each party whom they intend to sue (from among
PWS, EIF, and AEC) of such intent; such notice to be given two
(2) weeks before filing any such lawsuit in order to give PWS,
EIF and/or AEC the opportunity to re-file their claims, if any,
against Patricia Kennedy and/or Consolidated Western Contractors,
Inc.
9. In consideration of this Agreement: (a) PWS, EIF,
and/or AEC shall at the Closing of this Agreement pay to Austin
$35,000 by cashier's check as reimbursement of all expenses of
Austin, whether or not such expenses have heretofore been
submitted by Austin to PWS for payment; (b) AEC shall at the
Closing deliver or cause to be delivered to Farmers and Merchants
Bank of Long Beach (the "Bank"), as Escrow Agent, 300,000
unrestricted and freely tradeable shares of AEC common stock (the
"Shares") on an irrevocable basis (unless a court subsequent to
the Closing should order otherwise by reason of a material breach
of this Agreement by Austin) in accordance with and subject to
the terms and conditions set forth in Rider A attached hereto and
incorporated by reference, provided that the Bank first executes
Rider A as Escrow Agent; and (c) AEC shall deliver to Austin at
the Closing its guaranty, in form acceptable to ADJ Partnership,
of the base rent to be paid by PWS to ADJ Partnership for
November and December, 1996, inclusive, under the office lease
between PWS and ADJ Partnership.
10. In further consideration of this Agreement, AEC shall
provide to counsel for Austin at the Closing of this Agreement:
(a) its guaranty, in form and substance satisfactory to the Bank
(the "AEC Guaranty"), of the payment and performance of any loans
made to PWS, EIF or QHI pursuant to the Optional Advance Note and
Continuing Security Agreement dated on or about October 9, 1995,
as amended by the Settlement Agreement dated August 9, 1996
(hereinafter collectively the "Loan Agreement"); and (b) a
Certificate of a duly authorized officer of AEC as to the
incumbency, and setting forth a specimen signature, of each
person who has signed the AEC Guaranty. AEC acknowledges that
Austin shall have the right to request that the Bank pursue and
exhaust all security for any loans made under the Loan Agreement,
including without limitation the AEC Guaranty, before pursuing
any guaranty or security given by Austin to the Bank in
connection with such loans. Austin represents that other than
the Loan Agreement, there are no other obligations or agreements
entered into by him with the Bank on behalf of PWS, EIF, QHI or
any of their subsidiaries, and PWS, EIF and QHI represent that
since July 1, 1996, other than the Loan Agreement, there are no
other obligations or agreements entered into by them or by any of
their subsidiaries with the Bank for which Austin is liable.
11. In the event that the payment of the $35,000 described
in Paragraph 9 above is set aside or ordered returned in whole of
in part as a preference in any bankruptcy, judicial, or
receivership proceeding filed by or against PWS and/or EIF, then
within ten (10) days of written notice thereof by Austin to AEC,
AEC shall pay to Austin that portion of the payment which Austin
has been compelled or ordered to return or restore as a
preference.
12. (a) Subject to and except as to the covenants and
obligations of the Company Releasees (as defined herein), or any
of them, pursuant to the terms of this Agreement and Rider A
hereto, Austin, in consideration of this Agreement and the mutual
covenants set forth herein, and for other good and valuable
consideration received from PWS, EIF, and AEC receipt whereof is
hereby acknowledged, and in consideration of the mutual, general
releases, in form acceptable to Austin, to be exchanged between
Austin, on the one hand, and Julbin, QHI, and Michael E.
McGinnis, on the other hand, at the Closing and as a condition to
the Closing of this Agreement, hereby releases and forever
-------- --- -------
discharges PWS, EIF, AEC, McGinnis, QHI, Julbin and each of them
----------
and each of their respective current, former, and future
controlling shareholders, subsidiaries, related companies,
predecessor companies, directors, officers, employees, agents,
attorneys, successors, and assigns, and each of their current,
former and future controlling shareholders, directors, officers,
employees, agents, and attorneys of such subsidiaries, related
companies, predecessor companies, and controlling shareholders,
(PWS, EIF, AEC, McGinnis, Julbin, QHI and the foregoing other
persons and entities are herein sometimes collectively referred
to as the "Company Releasees"), from all actions, causes of
action, suits, debts, dues, sums of money, accounts, reckonings,
bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments,
extents, executions, claims, and demands whatsoever, whether
-------
known or unknown, in law or equity, whether statutory or common
----- -- -------
law, whether federal, state, local, or otherwise, including, but
not limited to, any claims relating to, or arising out of any
aspect of Austin's employment with PWS, QHI or EIF, any agreement
concerning such employment, or the termination of such
employment, and any agreement, transaction and/or relationship
between Austin, on the one hand, and PWS, and EIF, QHI, AEC and
Julbin, or any of them, on the other hand, including, but not
limited to:
(i) any and all claims asserted, or which could
have been asserted in the Austin Complaint, the NASD
Complaint, the Arbitration or in response to the Cross-
Complaint;
(ii) any and all claims of wrongful discharge or
breach of contract, any and all claims for equitable
estoppel, any and all claims for employee benefits,
including, but not limited to, any and all claims under the
Employee Retirement Income Security Act of 1974, as amended,
and any and all claims of employment discrimination on any
basis, including, but not limited to, any and all claims
under Title VII of the Civil Rights Act of 1964, as amended,
under the Age Discrimination in Employment Act of 1967, as
amended, under the Civil Rights Act of 1866, 42 U.S.C. [S]
1981, under the Civil Rights Act of 1991, as amended, under
the Americans With Disabilities Act of 1990, as amended,
under the Family and Medical Leave Act of 1993, under the
Immigration Reform and Control Act of 1986, under the
California Fair Employment and Housing Act, as amended, and
under the California Labor Code, as amended;
(iii) any and all claims under any other
federal, state, or local labor law, civil rights law, fair
employment practices law, or human rights law;
(iv) any and all claims of slander, libel,
defamation, invasion of privacy, intentional or negligent
infliction of emotional distress, intentional or negligent
misrepresentation, fraud, and prima facie tort;
(v) any and all claims for monetary recovery,
including, but not limited to, back pay, front pay,
liquidated, compensatory, and punitive damages, attorneys'
fees, experts' fees, disbursements, and costs;
which Austin, Austin's heirs, executors, administrators,
successors, and assigns ever had or now have or hereafter can,
shall or may have against the Company Releasees, or any of them,
for, upon, or by reason of any matter, cause, or thing
whatsoever, from the beginning of the world to the date of
Austin's execution of this Agreement.
(b) By way of additional clarification, and without
limitation or qualification of any of the provisions of
Subparagraph 12(a), above, Austin, on behalf of himself and his
heirs, executors, administrators, successors, and assigns hereby:
(i) waives, and releases the Company Releasees
from any obligation with respect to the signing bonus,
promissory note, and life insurance policy described in
Sections 1 and 2 of the Supplement and Amendment to
Employment Agreement of P.W. Stephens with Richard R. Austin
effective as of January 31, 1996; Austin hereby represents
and warrants that he does not have an executed original of
such promissory note nor a copy of any executed original and
represents and warrants that he was never given an executed
original promissory note and that he has not assigned,
pledged, hypothecated or otherwise encumbered such
promissory note, the signing bonus and life insurance; and
(ii) acknowledges that the only rights, options,
or warrants to purchase shares of capital stock of EIF that
he owns, either of record or beneficially, are options to
purchase 500,000 shares of EIF's common stock of an exercise
price of $0.34 per share on or before January 31, 1999,
which options were granted or otherwise referenced under the
Settlement and Release Agreement made as of June 1995 and
vested pursuant to the Mutual Release and Termination of
Employment Agreement effective March 1, 1996 between Austin
and EIF (the "Options") and represents and warrants that he
has not heretofore exercised such Options, and agrees that
all such Options are hereby canceled and terminated and of
no further force and effect.
13. (a) Subject to and except as to the covenants and
obligations of Austin pursuant to the terms of this Agreement and
Rider A hereto, PWS, EIF, and AEC (herein sometimes collectively
called "PWS Releasors"), and each of them, in consideration of
this Agreement and the mutual covenants set forth herein, and for
other good and valuable consideration received from Austin,
receipt whereof is hereby acknowledged, hereby release and
------- ---
forever discharge Austin and his attorneys, agents (other than
------- ---------
companies in which Austin was an officer, director, partner or
employee as of the Termination Date), heirs, executors, and
administrators, successors and assigns, and each of them (Austin
and the foregoing other persons and entities are hereinafter
defined separately and collectively as the "Austin Releasees"),
from all actions, causes of action, suits, debts, dues, sums of
money, accounts, reckonings, bonds, bills, specialties,
covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions,
claims, and demands whatsoever, whether known or unknown, in law
------- ----- -- -------
or equity, whether statutory or common law, whether federal,
state, local, or otherwise, including, but not limited to, any
claims relating to, or arising out of, any aspect of Austin's
employment with PWS or EIF or with any of PWS's or EIF's
subsidiary companies, any agreement concerning such employment
and the termination of such employment, and any agreement,
transaction and/or relationship between Austin, on the one hand,
and PWS, EIF, QHI, Julbin and/or AEC, or any of them, on the
other hand, including, but not limited to:
(i) any and all claims asserted, or which could
have been asserted against him in the Cross-Complaint, or in
response to the Arbitration and the NASD Complaint;
(ii) any and all claims relating to or arising out
of any Stock Purchase Agreement dated August 24, 1995 by and
between Austin and Julbin;
(iii) any and all claims relating to or
arising out of Austin's service and/or status as an officer,
employee, shareholder and/or director of PWS and/or EIF;
(iv) any and all claims of slander, libel,
defamation, invasion of privacy, intentional or negligent
infliction of emotional distress, intentional or negligent
misrepresentation, fraud and prima facie tort;
(v) any and all claims for monetary recovery,
including, but not limited to, back pay, front pay,
liquidated, compensatory, and punitive damages, attorneys'
fees, experts' fees, disbursements, and costs;
which the PWS Releasors, or any of them, and their respective
current, former, and future controlling shareholders,
subsidiaries, related companies, predecessor companies,
directors, officers, employees, agents, attorneys, successors and
assigns ever had, now have, or hereafter can, shall, or may have
against the Austin Releasees, or any of them, for, upon, or by
reason of any matter, cause or thing whatsoever from the
beginning of the world to the date of this Agreement.
(b) By way of additional clarification, and without
limitation or qualification of any of the provisions of Paragraph
13(a), above, PWS, EIF and AEC hereby release, hold harmless,
indemnify, and agree to defend Austin in any action or proceeding
with respect to any remaining guaranty by Austin with respect to
any loans made to PWS, EIF and/or QHI by the Bank pursuant to the
Loan Agreement including, but not limited to, any interest or
expense relating thereto.
14. The parties hereto expressly waive and relinquish all
rights and benefits afforded by Section 1542 of the Civil Code of
the State of California ("Section 1542"), or by any other similar
law of any other state or local jurisdiction, and do so
understanding and acknowledging the significance and consequence
of such specific waiver of Section 1542 or any other similar law.
Section 1542 of the Civil Code of the State of California states
as follows:
"A general release does not extend to claims which
the creditor does not know or suspect to exist in
his favor at the time of executing the release,
which if known by him must have materially
affected his settlement with the debtor."
Thus, notwithstanding the provisions of Section 1542, or any
other similar law, and for the purpose of implementing a full and
complete release and discharge, the parties hereto each expressly
acknowledges that this Agreement is intended to include in its
effect, without limitation, all claims which such party does not
now or suspect to exist in his or its favor at the time of
execution hereof, and that this Agreement contemplates the
extinguishment of any such claim or claims.
15. Austin warrants and represents that he has no knowledge
that any person or entity other than Austin is entitled to
assert, holds, has asserted or intends to assert any claim based
on or arising out of any alleged discriminatory, unlawful,
wrongful, tortious, or other conduct, whether by act or omission,
against Austin by the Company Releasees, or any of them,
including, but not limited to, any and all claims for attorneys'
fees, experts' fees, or damages resulting as a consequence
thereof, based upon or seeking relief, in whole or in part, on
account of actions or failures to act by the Company Releasees,
or any of them, which may have occurred or failed to occur before
Austin's execution of this Agreement. Austin further represents
and warrants that Austin has not assigned and shall never assign
any such claim, and that in the event any such claim is filed or
prosecuted by any other person or entity, Austin shall cooperate
fully with the Company Releasees and shall move immediately to
withdraw Austin's name and to disassociate himself completely
from any such claim, shall request such person or entity to
withdraw such claim with prejudice, and shall not voluntarily
cooperate with or testify on behalf of the person or entity
prosecuting such claim. Austin further warrants and represents
that he has no knowledge that any company of which he was an
officer, director, employee or partner as of the Termination Date
is entitled to assert, holds, has asserted or intends to assert
any claim against the Company Releases, or any of them, except
for claims by ADJ Partnership (relating to the PWS lease).
16. The PWS Releasors, and each of them, represent and
warrant that they have no knowledge that any person or entity
other than the PWS Releasors is entitled to assert, holds, has
asserted or intends to assert any claim against the Austin
Releasees, or any of them, based on or arising out of any alleged
discriminatory, unlawful, wrongful, tortious, or other conduct,
whether by act omission, against the PWS Releasors, or any of
them, by Austin, including, but not limited to, any and all
claims for attorneys' fees, experts' fees, or damages resulting
as a consequence thereof, based upon or seeking relief, in whole
or in part, on account of actions or failures to act by Austin
which may have occurred or failed to occur before the PWS
Releasors' execution of this Agreement. The PWS Releasors, and
each of them, further represent and warrant that they have not
assigned and shall never assign any such claim, and that in the
event any such claim is filed or prosecuted by any other person
or entity, the PWS Releasors, and each of them, shall cooperate
fully with Austin and shall move immediately to withdraw their
name(s) and to disassociate themselves completely from any such
claim, shall request such person or entity to withdraw such claim
with prejudice, and shall not voluntarily cooperate with or
testify on behalf of the person or entity prosecuting such claim.
17. Austin warrants and represents that, with the sole
exception of the Austin Complaint, unlawful detainer proceedings
brought by the ADJ Partnership, the Arbitration, and the NASD
Complaint, Austin has not commenced, initiated, filed or joined
as plaintiff, and Austin covenants and agrees not to initiate,
commence, file, join as plaintiff, aid, or in any way prosecute
or cause to be initiated, commenced or prosecuted against the
Company Releasees, or any of them, whether directly or
indirectly, personally or through or by a family member or other
agent, representative, or surrogate, any action, charge,
complaint, governmental investigation, criminal action or
prosecution or other proceeding, whether administrative,
judicial, legislative, or otherwise, including, but not limited
to, any class action or shareholder derivative action, and
including any claim or request for attorneys' fees, experts'
fees, disbursements, or costs based upon or seeking relief, in
whole or in part, on account of actions or failures to act by the
Company Releasees, or any of them, which may have occurred or
failed to occur before the date of Closing of this Agreement.
18. The PWS Releasors, and each of them, warrant and
represent, with the sole exception of the Cross-Complaint, that
neither they nor any of their respective officers, directors,
shareholders, attorneys, or agents have commenced, initiated,
filed or joined as plaintiff, and the PWS Releasors, and each of
them, covenant and agree that neither they nor any of their
respective officers, directors, controlling shareholders,
attorneys, or agents will commence, initiate, file, join as
plaintiff, aid, or in any way prosecute or cause to be initiated,
commenced or prosecuted against the Austin Releasees, or any of
them, whether directly or indirectly, personally or through any
agent, representative, or surrogate, any action, charge,
complaint, governmental investigation, criminal actions or
prosecutions, or other proceeding, whether administrative,
judicial, legislative or otherwise, including, but not limited
to, any class action or shareholder derivative action and
including any claim or request for attorneys' fees, experts' fees
disbursements, or costs based upon or seeking relief, in whole or
in part, on account of actions or failure to act by the Austin
Releasees, or any of them, which may have occurred or failed to
occur before the date of Closing of this Agreement.
19. Austin agrees to cooperate reasonably and at no expense
to Austin with PWS and/or EIF in the event that PWS and/or EIF,
or either of them, become a defendant or respondent in or to any
legal proceeding or claim arising out of or relating to the
business or operations or activities of PWS and/or EIF, or either
of them, during the period of Austin's employment with PWS or
EIF.
20. (a) PWS, EIF, and AEC agree to indemnify, defend and
hold Austin harmless from and against any and all claims,
demands, losses, liabilities, obligations, damages, recoveries,
suits, judgments, causes of action, legal proceedings, penalties,
fines, other sanctions and any costs and expenses, including
interest and attorneys' fees and disbursements (collectively,
"Claims") to which Austin may be exposed at any time that
directly arise from, directly result from, or directly relate to
the discharge by Austin of his duties as, or his status as, an
officer, director, shareholder or employee of EIF and/or PWS with
respect to:
(i) any debt, liability, obligation or contract
of, or Claims of any type against or relating to, PWS, EIF, QHI,
and/or AEC, and each of them, and/or their respective
subsidiaries, employees, agents, attorneys, successors, and
assigns, whether contingent or absolute, direct or indirect,
presently known or unknown, suspected or unsuspected, matured or
unmatured, and whether incurred or accrued before or after the
Closing of this Agreement; and
(ii) the past, present and future business,
operations and/or management of PWS, EIF, QHI, and/or AEC.
(b) The indemnification, defense and hold harmless
obligations of PWS, EIF, and AEC herein provided shall not apply
to any Claim to which Austin is exposed resulting from (a) the
conduct of Austin which is outside the reasonable course and
scope of his authority as an officer, director, employee and/or
shareholder of EIF and/or PWS, and/or (b) unlawful acts known or
believed by Austin to be unlawful at the time they were
performed.
21. Austin has kept and shall keep confidential, and,
unless compelled by subpoena or court order, shall not hereafter
disclose to any person, firm, corporation, governmental agency,
or other entity, any trade secret, proprietary information, or
confidential information of PWS, EIF, QHI, AEC, or any of their
respective controlling shareholders, or subsidiaries. By
entering into this Agreement, Austin makes no representation or
admission that any such information or material exists within his
knowledge or possession. In the event that Austin is served with
a subpoena or court order or other notice to produce the
foregoing information, Austin shall promptly give written notice,
by fax, to PWS, Attention: Joseph Miller, and shall provide a
copy of same to PWS so that PWS may object in a timely manner to
such subpoena or notice.
22. PWS, EIF, QHI and AEC, and any of their respective
controlling shareholders, or subsidiaries on the one hand, and
Austin and any corporation or other business entity with which
Austin may be associated, whether as an employee, owner, or other
capacity, on the other hand, shall be free to compete with and
against the other as and to the full extent permitted by
applicable law.
23. The releases and covenants set forth in Paragraphs 12,
13, 14, 17, 18, and 31 herein shall not affect, extend to or
include the rights and obligations of the parties under this
Agreement which shall continue to exist after the Closing; nor
will those releases and covenants affect, extend to or include
the rights and obligations of the parties pursuant to the office
lease between ADJ Partnership and PWS, and any guaranty of such
Lease by AEC.
24. Should any provision of this Agreement be declared or
determined by a court to be illegal or invalid, the validity of
the remaining parts, terms, or provisions shall not be affected
thereby, and said illegal or invalid part, term, or provision
shall be deemed not to be a part of this Agreement.
25. (a) The parties hereto agree that in the event of any
breach by a party to this Agreement, or the fact that any
representation made by a party to this Agreement in this
Agreement was false when made, the breaching party shall
indemnify and hold harmless the non-breaching party or parties
from and against any and all loss, cost, damage, or expense,
including, but not limited to, attorneys' fees and costs,
incurred by the non-breaching party or parties, or any of them,
as a result of such breach or misrepresentation.
(b) The parties agree that the prevailing party in any
action between any of them arising from or relating to any breach
or alleged breach of this Agreement shall be entitled to recover
reasonable attorneys' fees and experts' fees from the losing
party in such action.
26. (a) The parties hereto hereby acknowledge that in the
event of a breach of the covenants or agreements in this
Agreement, the non-breaching party or parties would not have an
adequate remedy at law for money damages. It is therefore agreed
that the parties hereto, or any of them, in addition to and
without limiting any other remedy or right they may have, will
have the right to an injunction or other equitable relief in any
court of competent jurisdiction enjoining any such breach and
enforcing specifically the terms and provisions hereof, and the
breaching party hereby waives any and all defenses the breaching
party may have on the ground of lack of jurisdiction or
competence of the court to grant such an injunction or equitable
relief.
(b) All rights, powers and remedies granted under this
Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise
or beginning of the exercise of any thereof by either party shall
not preclude the simultaneous or later exercise of any such
right, power or remedy by such party.
27. This Agreement shall be binding upon, and inure to the
benefit of the parties hereto and their successors and assigns.
28. This Agreement shall be deemed to have been made at Los
Angeles, California, and shall be interpreted, construed, and
enforced pursuant to the laws of the State of California and in
the state or federal courts of California.
29. The Closing of this Agreement, as referred to herein,
shall take place on November 8, 1996, at 10:00 a.m., at the
offices of Troop Meisinger Steuber & Pasich LLP, or under such
other circumstances including time, date and place, as the
parties may mutually agree. All obligations created in this
Agreement and all releases, representations, warranties,
acknowledgments and covenants given herein shall be deemed
binding and effective only upon the completion of the Closing of
this Agreement.
30. As used in this Agreement, the singular or plural
number shall be deemed to include the other whenever the context
so indicates or requires.
31. This Agreement, including the attached Rider A, sets
forth the entire agreement between the parties hereto, and,
effective as of the Closing, fully terminates and supersedes any
and all prior agreements or understandings between Austin and the
Company Releasees, or any of them, pertaining to the subject
matter hereof, including, but not limited to, the January 1, 1993
Employment Agreement between Austin and PWS, as subsequently
amended, the Settlement and Release Agreement made as of June
1995, the August 17, 1995 Amended Employment Agreement between
Austin and EIF, as subsequently amended, the August 24, 1995
Stock Purchase Agreement by and between Austin and Julbin, the
February 28, 1996 Indemnification by and between Austin and PWS,
EIF and AEC, and the Mutual Release and Termination of Employment
Agreement effective March 1, 1996 between Austin and EIF, and may
not be modified orally. The foregoing notwithstanding, this
Agreement shall not act to terminate, limit, amend, or supersede
(i) the assignment by Austin to EIF of claims as against Grant K.
Kidani or his affiliates, as set forth in Paragraph 6 of the June
1995 Settlement Agreement between Austin and EIF; or (ii) the
office lease between ADJ Partnership and PWS pertaining to the
PWS business premises.
32. The parties to this Agreement expressly acknowledge,
represent, and warrant that the terms and provisions of this
Agreement herein stated are the only consideration for signing
this Agreement; that no other promise or agreement of any kind
has been made to or with any person or entity whatsoever to cause
the signing of this Agreement; and that, in executing this
Agreement, they are not relying and have not relied upon any
representation or statement made by any of the other parties or
their agents, representatives, or attorneys with regard to the
subject matter, basis, or effect of this Agreement or otherwise;
and that each of the parties hereto has the full power and
authority to execute this Agreement, to make each of the
representations, warranties, and acknowledgments herein, and to
perform each of its covenants and obligations set forth or
established herein. Furthermore, each of the corporate parties
to this Agreement represents that its execution and performance
of this Agreement has been authorized by all required corporate
action, and that the person signing for it has been properly
authorized to do so.
33. Each party to this Agreement covenants and agrees to
execute and deliver such other and further agreements,
instruments and other documents reasonably necessary to
effectuate, evidence and further the purposes of this Agreement
and the transactions contemplated hereby.
34. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and
all of which shall constitute one and the same instrument.
35. THE PARTIES TO THIS AGREEMENT EACH EXPRESSLY
ACKNOWLEDGE, REPRESENT, AND WARRANT THAT THEY HAVE CAREFULLY READ
THIS AGREEMENT AND GENERAL RELEASE; THAT THEY FULLY UNDERSTAND
THE TERMS, CONDITIONS AND SIGNIFICANCE OF THIS AGREEMENT AND
GENERAL RELEASE; THAT THEY HAVE HAD AMPLE TIME TO CONSIDER AND
NEGOTIATE THIS AGREEMENT AND GENERAL RELEASE; THAT THEY HAVE
ADVISED AND URGED THE OTHER TO CONSULT WITH AN ATTORNEY
CONCERNING THIS AGREEMENT AND GENERAL RELEASE; THAT THEY HAVE HAD
A FULL OPPORTUNITY TO REVIEW THIS AGREEMENT AND GENERAL RELEASE
WITH AN ATTORNEY, AND HAVE DONE SO OR HAS DECLINED TO DO SO; AND
THAT THEY HAVE EXECUTED THIS AGREEMENT AND GENERAL RELEASE
VOLUNTARILY, KNOWINGLY, AND WITH SUCH ADVICE FROM THEIR
ATTORNEYS, AS THEY DEEMED APPROPRIATE.
PLEASE READ CAREFULLY. THIS AGREEMENT AND GENERAL RELEASE
HAS IMPORTANT LEGAL CONSEQUENCES.
P.W. STEPHENS CONTRACTORS, INC.
By: /s/ David L. Norris /s/ Richard R. Austin
--------------------------- ------------------------------
Name: Executive Vice RICHARD R. AUSTIN
Title: President
EIF HOLDINGS, INC. AMERICAN ECO CORPORATION
By: /s/ Michael E. McGinnis By: /s/ Michael E. Mcginnis
--------------------------- ---------------------------
Name: Name:
Title: President Title: President
LEASE AGREEMENT
(INDUSTRIAL GROSS)
BASIC LEASE INFORMATION
LEASE DATE: January 9, 1997
LESSOR: Aetna Life Insurance Company,
a Connecticut corporation
LESSOR'S ADDRESS: c/o Lincoln Property Company Management Services, Inc.
P.O. Box 19693, 30 Executive Park, Suite 100
Irvine,California 92614-9693
LESSEE: EIF Holdings, Inc.,
a Hawaii corporation
LESSEE'S ADDRESS: 475 N. Muller Avenue
Anaheim,CA 92801
PREMISES: Approximately 14,669 square feet as shown on Exhibit A
---------
PREMISES ADDRESS: 475 N. Muller Avenue
Anaheim,CA 92801
BUILDING: 37,220 square feet
LOT (BUILDING'S TAX PARCEL): APN# 072-071-25
PARK: 260,967 square feet
TERM: March 1,1997 ("Commencement Date"), through
July 31, 2002 ("Expiration Date")
BASE RENT Eight Thousand Five Hundred Eight and 00/100 Dollars
(<paragraph>3): ($8,508.00) per month
ADJUSTMENTS TO
BASE RENT: April 1,1997 - May 30,1997 $0.00 per month
June I ,1997 - September 30, 1999 $8,508.00 per month
October I, 1999 - July 31, 2002 $9,535.00 per month
SECURITY DEPOSIT
(<paragraph>4.A): Nine Thousand Five Hundred Thirty-Five and 00/100
Dollars ($9,535.00)
CLEANING DEPOSIT
(<paragraph>4.B): N/A
TRASH AND WATER CHARGE
(<paragraph>7): N/A
BASE YEAR FOR LESSEE'S SHARE OF EXPENSES: 1997
*LESSEE'S SHARE OF INCREASES IN
OPERATING EXPENSES
(<paragraph>6.A): 5.62% of the Park
*LESSEE'S SHARE OF INCREASES IN TAX
EXPENSES (<paragraph>6.B): 39.41% of the Lot
*LESSEE'S SHARE OF INCREASES IN COMMON
AREA UTILITY COSTS (<paragraph>7): 5.62% of the Park
*The amount of Lessee's Share of the increases in expenses as referenced
above shall be subject to modification as set forth in this
Lease.
PERMITTED USES: Administrative and sales offices for
environmental contractor, and storage of
contractor's materials, specifically
excluding any and all hazardous or toxic
materials as defined in Section 29 of the
Lease.
GENERAL LIABILITY INSURANCE Bodily injury limit of not less than
AMOUNT (<paragraph>12): $1,000,000 per occurrence; Property damage
limit of not less than $1,000,000 per
occurrence; per occurrence; Combined single
limit of not less than $2,000,000.
UNRESERVED PARKING SPACES: Fifty-Eight (58) nonexclusive and
undesignated spaces
BROKER (<paragraph>38): Keith Wilson, The Seeley Company for Lessee
Shawn Kelter & LR Sanders, Grubb & Ellis for
Lessor
EXHIBITS: Exhibit A - Premises, Building, Lot and/or
Park
Exhibit B - Tenant Improvements
Exhibit C - Rules and Regulations
Exhibit D - CC&Rs
Exhibit E - Sign Criteria
Exhibit F - Hazardous Materials Disclosure
Certificate
Exhibit G - Change of Commencement Date
Exhibit H - Guaranty of Lease
ADDENDA: Addendum I: Option to Extend the Lease
<PAGE>
LEASE AGREEMENT
DATE: This Lease is made and entered into as of the Lease Date
defined on Page 1. The Basic Lease information set forth on
Page I and this Lease are and shall be construed as a single
instrument.
1. PREMISES: Lessor hereby leases the Premises to Lessee upon the
--------
terms and conditions contained herein. Lessor hereby grants to Lessee
a revocable license for the right to use, on a non-exclusive basis,
parking areas and ancillary facilities located within the Common Area
of the Park, subject to the terms of this Lease.
2. ADJUSTMENT OF COMMENCEMENT DATE: CONDITION OF THE PREMISES: If
----------------------------------------------------------
Lessor cannot deliver possession of the Premises on the Commencement
Date, Lessor shall not be subject to any liability nor shall the
validity of the Lease be affected; provided the Lease term and the
obligation to pay Rent shall commence on the date possession is
tendered and the termination date shall be extended by a period of
time equal to the period computed from the Commencement Date to the
date possession is tendered by Lessor to Lessee. In the event the
commencement date of this Lease is other than the Commencement Date
provided on Page I, Lessor and Lessee shall execute a written
amendment to this Lease, substantially in the form of EXHIBIT G
hereto, wherein the parties shall specify the actual commencement
date, termination date and the date on which Lessee is to commence
paying Rent. Notwithstanding anything to the contrary contained
herein or in Exhibit B hereto, if Lessor does not tender possession to
Lessee of the Premises by July 1, 1997 (the "Outside Date") then
Lessee may terminate this Lease by delivering written notice thereof
to Lessor no later than the date which is ten (10) days after the
actual Outside Date. If Lessee fails to timely terminate the Lease as
and when provided herein, or if Lessor delivers to Lessee possession
of the Premises at any time earlier than the Outside Date, then in
either of such events Lessee's foregoing right to terminate this Lease
as provided herein shall lapse and be null and void upon the earlier
occurrence of such event and the Lease shall remain in full force and
effect with Lessee having no further right to terminate this Lease.
If Lessor does so timely deliver to Lessee possession of the Premises
Lessee shall promptly deliver written notice to Lessor confirming
same. In the event that Lessor permits Lessee to occupy the Premises
prior to the Commencement Date, such occupancy shall be at Lessee's
sole risk and subject to all the provisions of this Lease, including,
but not limited to, the requirement to pay Rent and the Security
Deposit, and to obtain the insurance required pursuant to this Lease
and to deliver insurance certificates as required herein. In addition
to the foregoing, Lessor shall have the right to impose such
additional conditions on Lessee's early entry as Lessor shall deem
appropriate. By taking possession of the Premises, Lessee shall be
deemed to have accepted the Premises in a good, clean and completed
condition and state of repair, in compliance with all applicable laws,
codes, regulations, administrative orders and ordinances, and subject
to all matters of record. Lessee hereby acknowledges and agrees that
neither Lessor nor Lessor's agents or representatives has made any
representations or warranties as to the suitability, safety or fitness
of the Premises for the conduct of Lessee's business, Lessee's
intended use of the Premises or for any other purpose, and that
neither Lessor nor Lessor's agents or representatives has agreed to
undertake any alterations or construct any Tenant Improvements to the
Premises except as expressly provided in this Lease.
3. RENT: On the date that Lessee executes this Lease, Lessee shall
----
deliver to Lessor the original executed Lease, the Base Rent (which
shall be applied against the Rent payable for the first month Lessee
is required to pay Base Rent), the Security Deposit, and all insurance
certificates evidencing the insurance required to be obtained by
Lessee under Paragraph 12 of this Lease. Lessee agrees to pay Lessor,
without prior notice or demand, or abatement, offset, deduction or
claim, the Base Rent described on Page 1, payable in advance at Lessor
s address shown on Page I on the first day of each month throughout
the term of the Lease. In addition to the Base Rent set forth on Page
1, Lessee shall pay Lessor m advance and on the first (1st) day of
each month throughout the term of this Lease (including any extensions
of such term), as additional rent Lessee's share, as set forth on Page
1, of Increases in Operating Expenses, Increases m Tax Expenses,
Increases in Common Area Utility Costs, administrative expenses, Trash
and Water Charge and Utility Expenses, as specified in Paragraphs
6.A., 6.B., 6.C. and 7 of this Lease, respectively. Additionally,
Lessee shall pay to Lessor as additional rent hereunder, immediately
on Lessor's demand therefor, any and all costs and expenses incurred
by Lessor to enforce the provisions of this Lease, including, but not
limited to, costs associated with any proposed assignment or
subletting of all or any portion of the Premises by Lessee, costs
associated with the delivery of notices, delivery and recordation of
notice(s) of default, attorneys' fees, expert fees, court costs and
filing fees (collectively, the "Enforcement Expenses"). The term
"Rent" whenever used herein refers to the aggregate of all these
amounts. If Lessor permits Lessee to occupy the Premises without
requiring Lessee to pay rental payments for a period of time, the
waiver of the requirement to pay rental payments shall only apply to
waiver of the Base Rent and Lessee shall otherwise perform all other
obligations of Lessee hereunder, including, but not limited to paying
to Lessor any and all amounts considered additional rent, such as
Lessee's share of Increases in Operating Expenses, Increases m Tax
Expenses, Increases in Common Area Utility Costs, Trash and Water
Charge, Utility Expenses, and administrative expenses. If, at any
time, Lessee is in default of or otherwise breaches any term,
condition or provision of this Lease, any such waiver by Lessor of
Lessee's requirement to pay rental payments shall be null and void and
Lessee shall immediately pay to Lessor all rental payments waived by
Lessor. The Rent for any fractional part of a calendar month at the
commencement or termination of the Lease term shall be a prorated
amount of the Rent for a full calendar month based upon a thirty (30)
day month. The prorated Rent shall be paid on the Commencement Date
and the first day of the calendar month un which the date of
termination occurs, as the case may be.
4. SECURITY DEPOSIT AND CLEANING DEPOSIT:
-------------------------------------
A. Security Deposit: Upon Lessee's execution of this
Lease, Lessee shall deliver to Lessor, as a Security Deposit for the
performance by Lessee of its obligations under this Lease, the amount
described on Page 1. If Lessee is in default, Lessor may, but without
obligation to do so, use the Security Deposit, or any portion thereof,
to cure the default or to compensate Lessor for all damages sustained
by Lessor resulting from Lessee's default, including, but not limited
to the Enforcement Expenses. Lessee shall, immediately on demand, pay
to Lessor a sum equal to the portion of the Security Deposit so
applied or used so as to replenish the amount of the Security Deposit
held up to the amount initially deposited with Lessor. Concurrently
with any increase in the Base Rent, Lessee shall deliver to Lessor an
amount equal to such increase, which amount shall be added to the
Security Deposit being held by Lessor and be deemed a part of such
Security Deposit thereafter. At any time after Lessee has defaulted
hereunder, Lessor may require a reasonable increase in the amount of
the Security Deposit required hereunder to be held for the then
balance of the Lease term and Lessee shall, immediately on demand, pay
to Lessor additional sums in the amount of such increase. As soon as
practicable after the termination of this Lease, Lessor shall return
the Security Deposit to Lessee, less such amounts as are reasonably
necessary, as determined solely by Lessor, to remedy Lessee's
default(s) hereunder or to other vise restore the Premises to a clean
and safe condition, reasonable wear and tear excepted. If the cost to
restore the Premises exceeds the amount of the Security Deposit,
Lessee shall promptly deliver to Lessor any and all of such excess
sums as determined solely by Lessor. Lessor shall not be required to
keep the Security Deposit separate from other funds, and, unless
otherwise required by law, Lessee shall not be entitled to interest on
the Security Deposit. In no event or circumstance shall Lessee have
the right to any use of the Security Deposit and, specifically, Lessee
may not use the Security Deposit as a credit or to otherwise offset
any payments required hereunder, including, but not limited to, Rent
or any portion thereof.
5. CONDITION OF PREMISES: Lessee hereby accepts the Premises in its
---------------------
current "as is" condition unless otherwise specified in EXHIBIT B,
attached hereto and incorporated herein by this reference. If so
specified in EXHIBIT B hereto, Lessor or Lessee, as the case may be,
shall install the improvements ("Tenant Improvements") on the Premises
as described and in accordance with the terms, conditions, criteria
and provisions set forth in EXHIBIT B, attached and incorporated
herein by this reference. Lessee acknowledges that neither Lessor nor
any of Lessor's agents, representatives or employees has made any
representations as to the suitability or fitness of the Premises for
the conduct of Lessee's business or for any other purpose, and that
neither Lessor nor any of Lessor's agents, representatives or
employees has agreed to undertake any alterations or construct any
Tenant Improvements to the Premises except as expressly provided in
EXHIBIT B to this Lease.
6. EXPENSES:
--------
A. Operating Expenses: In addition to the Base Rent set forth
in Paragraph 3, Lessee shall pay its share, which is defined on Page
1, of all Operating Expenses in excess of the amount of said expenses
for the calendar year in which this Lease commenced ("Increases in
Operating Expenses") as additional rent. The term "Operating
Expenses" as used herein shall mean the total amounts paid or payable
by Lessor in connection with the ownership, maintenance, repair and
operation of the Premises, the Building and the Lot, and where
applicable, of the Park referred to on Page 1. The amount of Lessee's
share of Increases in Operating Expenses shall be reviewed from time
to time by Lessor and shall be subject to modification by Lessor, as
reasonably determined by Lessor, including, but not limited to
modifications due to the sale or addition of a building or additional
space within the Lot or the Park. These Operating Expenses may
include, but are not limited to:
(i) Lessor's cost of non-structural repairs to and
maintenance of the roof and exterior walls of the Building;
(ii) Lessor's cost of maintaining the outside paved area,
landscaping and other common areas for the Park. The term
"Common Area" shall mean all areas and facilities within the Park
exclusive of the Premises and the other portions of the Park
leased exclusively to other tenants. The Common Area includes,
but is not limited to, interior lobbies, mezzanines, parking
areas, access and perimeter roads, sidewalks, landscaped areas
and similar areas and facilities;
(iii) Lessor's annual cost of insurance insuring against
fire and extended coverage (including, if Lessor elects, "all
risk" coverage) and all other insurance, including, but not
limited to, earthquake, flood and/or surface water endorsements
for the Building, the Lot and the Park (including the Common
Area), and rental value insurance against loss of Rent in am
amount equal to the amount of Rent for a period of at least six
(6) months commencing on the date of loss;
(iv) Lessor's cost of modifications to the Building, the
Common Area and/or the Park occasioned by any rules, laws or
regulations effective subsequent to the commencement of the
Lease;
(v) Lessor's cost of modifications to the Building, the
Common Area and/or the Park occasioned by any rules, laws or
regulations arising from Lessee's use of the Premises regardless
of when such rules, laws or regulations became effective;
(vi) If Lessor elects to so procure, Lessor's cost of
preventative maintenance, repair and replacement contracts
including, but not limited to, contracts for elevator systems and
heating, ventilation and air conditioning systems, and trash or
refuse collection;
(vii) Lessor's cost of security and fire protection services
for the Park, if in Lessor's sole discretion such services are
provided;
(viii) Lessor's establishment of reasonable reserves for
replacements and/or repairs of Common Area improvements,
equipment and supplies;
(ix) Lessor's cost for the creation and negotiation of, and
pursuant to, any rail spur or track agreements, licenses,
easements or other similar undertakings; and
(x) Lessor's cost of supplies, equipment, rental equipment
and other similar items used in the operation and/or maintenance
of the Park.
B. TAX EXPENSES: In addition to the Base Rent set forth in
Paragraph 3, Lessee shall pay its share, which is defined on Page 1,
of all real property taxes applicable to the land and improvements
included within the Lot on which the Premises are situated in excess
of the amount of the Tax Expenses for the calendar year in which this
Lease commenced ("Increases in Tax Expenses") and one hundred percent
(100%) of all personal property taxes now or hereafter assessed or
levied against the Premises or Lessee's personal property. The amount
of Lessee's share of Increases in Tax Expenses shall be reviewed from
time to time by Lessor and shall be subject to modification by Lessor,
as reasonably determined by Lessor, including, but not limited to
modifications due to the sale or addition of a building or additional
space within the Lot or the Park. Lessee shall also pay any increase
in real property taxes attributable, in Lessor's sole discretion, to
any and all alterations, Tenant Improvements or other improvements of
any kind whatsoever placed in, on or about the Premises for the
benefit of, at the request of, or by Lessee. The term "Tax Expenses"
includes, but is not limited to, any form of tax and assessment
(general, special, ordinary or extraordinary), commercial rental tax,
payments under any improvement bond or bonds, license, rental tax,
transaction tax, levy, or penalty imposed by authority having the
direct or indirect power of tax (including any city, county, state or
federal government, or any school, agricultural, lighting, drainage or
other improvement district thereof) as against any legal or equitable
interest of Lessor in the Premises, Lot or Park, as against Lessor's
right to rent or other income therefrom, or as against Lessor's
business of leasing the Premises or the occupancy of Lessee or any
other tax, fee, or excise, however described (excluding inheritance or
estate taxes), including any value added tax, or any tax imposed in
substitution, partially or totally, of any tax previously included
within the definition of real property taxes, or any additional tax
the nature of which was previously included within the definition of
real property tax.
C. PAYMENT OF EXPENSES AND ADMINISTRATIVE EXPENSES: Lessor
shall estimate Lessee's share of the Increases in Operating Expenses
and Increases in Tax Expenses for the calendar year in which the Lease
commences. Commencing in January of the following calendar year,
one-twelfth (1/12th) of this estimated amount shall be paid by Lessee
to Lessor, as additional rent, on the first (1st) day of each month
and throughout the remaining months of such calendar year.
Thereafter, Lessor may estimate such expenses as of the beginning of
each calendar year and Lessee shall pay one-twelfth (1/12th) of such
estimated amount as additional rent hereunder on the first day of each
month during such calendar year and for each ensuing calendar year
throughout the term of this Lease (including any extensions of the
term). Not later than March 31 of each of the following calendar
years, or as soon thereafter as reasonably possible, including the
calendar year after the calendar year in which this Lease terminates
or the term expires, Lessor shall endeavor to furnish Lessee with a
true and correct accounting of actual Increases in Operating Expenses
and Increases in Tax Expenses. Within thirty (30) days of Lessor's
delivery of such accounting, Lessee shall pay to Lessor the amount of
any underpayment. Notwithstanding the foregoing, failure by Lessor
to give such accounting by such date shall not constitute a waiver by
Lessor of its right to collect any of Lessee's underpayment at
anytime. Lessor shall credit the amount of any overpayment by Lessee
toward the next estimated monthly installment(s) falling due, or where
the term of the Lease has expired, refund the amount of overpayment to
Lessee. Lessee, at its sole cost and expense through any certified
public accountant designated by it, shall have the right to examine
and/or audit the books and records evidencing such costs and expenses
for the previous one (1) calendar year, during Lessor's reasonable
business hours and not more frequently than once during any calendar
year. Lessee's obligations to pay its share of Increased Operating
Expenses and Increased Tax Expenses shall survive the expiration or
earlier termination of this Lease.
If the term of the Lease expires prior to the annual
reconciliation of expenses, if any, Lessor shall have the right to
reasonably estimate Lessee's share of such expenses, and if Lessor
determines that an underpayment is due, Lessee hereby agrees that
Lessor shall be entitled to deduct such underpayment from Lessee's
Security Deposit. If Lessor reasonably determines that an overpayment
has been made by Lessee, Lessor shall refund said overpayment together
with the return of Lessee's Security Deposit. Notwithstanding the
foregoing, failure of Lessor to accurately estimate Lessee's share of
such expenses shall not constitute a waiver of Lessor's right to
collect any of Lessee's underpayment at anytime.
In addition to the Base Rent set forth m Paragraph 3 hereof,
Lessee shall pay Lessor, without prior notice or demand, on the first
(1st) day of each month throughout the term of this Lease (including
any extensions of such term), as compensation to Lessor for accounting
and management services rendered on behalf of the Park, an amount
equal to ten percent (10%) of the aggregate of Lessee's share of (i)
the total Increases in Operating Expenses and Increases in Tax
Expenses as described in Paragraphs 6.A. and 6.B. above, respectively,
and (ii) all Increases in Common Area Utility Costs for the Park as
described in Paragraph 7. Lessor may also, at its sole discretion
require Lessee to pay Lessee's pro rata share of the Management Fee to
the Lessor without prior notice or demand, on the first (1st) day of
each month throughout the term of this Lease (including any extensions
of such term). Management Fee is defined as the fee which Lessor pays
Lessor's authorized representative, Lincoln Property Company
Management Services, Inc., to manage the Park for Lessor ("Management
Fee"). Lessee's obligations to pay its share of such administrative
expenses and/or management fee shall survive the expiration or earlier
termination of this Lease.
7. UTILITIES: Lessee shall pay the cost of all water, sewer use and
--------
connection fees, gas, heat, electricity, refuse pickup, janitorial
service, telephone and other utilities billed or metered separately to
the Premises and/or Lessee. Lessee shall also pay its share of any
assessments or charges for utility or similar purposes included within
any tax bill for the Lot on which the Premises are situated. For any
such utility fees or use charges that are not billed or metered
separately to Lessee, Lessee shall pay to Lessor, as additional rent,
without prior notice or demand, on the first (1st) day of each month
throughout the term of this Lease the amount which is attributable to
Lessee's use of the Premises as reasonably estimated and determined by
Lessor based upon factors such as size of the Premises and intensity
of use of such utilities by Lessee such that Lessee shall pay the
portion of such charges reasonably consistent with Lessee's use of
such utilities ("Utility Expenses"). If Lessee disputes any such
estimate or determination, then Lessee shall either pay the estimated
amount or cause the Premises to be separately metered at Lessee's sole
expense. In addition, Lessee shall pay Lessor a trash and water
charge (the "Trash and Water Charge") in the amount set forth on Page
1, as additional rent. Lessee shall also pay to Lessor its share,
which is described on Page 1, as additional rent, of any Common Area
utility costs, fees, charges or expenses in excess of the amount of
such costs, fees, charges or expenses for the calendar year in which
this Lease commenced ("Increases in Common Area Utility Costs") within
fifteen (15) days after receiving a bill from Lessor. The amount of
Lessee's share of Increases in Common Area Utility Costs shall be
reviewed from time to time by Lessor and shall be subject to
modification by Lessor, as reasonably determined by Lessor, including,
but not limited to modifications due to the sale or addition of a
building or additional space within the Lot or the Park. Lessee
acknowledges that the Premises may become subject to the rationing of
utility services or restrictions on utility use as required by a
public utility company, governmental agency or other similar entity
having jurisdiction thereof. Notwithstanding any such rationing or
restrictions on use of any such utility services, Lessee acknowledges
and agrees that its tenancy and occupancy hereunder shall be subject
to such rationing restrictions as may be imposed upon Lessor, Lessee,
the Premises, the Building or the Park, and Lessee shall in no event
be excused or relieved from any covenant or obligation to be kept or
performed by Lessee by reason of any such rationing or restrictions.
Lessee further agrees to pay and discharge, prior to delinquency, any
amount, tax, charge, surcharge, assessment or imposition levied,
assessed or imposed upon the Premises, or Lessee's use and occupancy
thereof, or as a result directly or indirectly of any such rationing
or restrictions.
8. LATE CHARGES: Lessee acknowledges that late payment (the eighth
------------
day of each month or anytime thereafter) by Lessee to Lessor of Base
Rent, Lessee's share of Increases in Operating Expenses, Increases in
Tax Expenses, Increases in Common Area Utility Costs, the Trash and
Water Charge, Utility Expenses or other sums due hereunder, will cause
Lessor to incur costs not contemplated by this Lease, the exact amount
of such costs being extremely difficult and impracticable to fix.
Such costs include, without limitation, processing and accounting
charges, and late charges that may be imposed on Lessor by the terms
of any note secured by any encumbrance against the Premises, and late
charges and penalties due to the late payment of real property taxes
on the Premises. Therefore, if any installment of Rent or any other
sum due from Lessee is not received by Lessor when due, Lessee shall
promptly pay to Lessor all of the following, as applicable: (a) an
additional sum equal to ten percent ( 10%) of such delinquent amount
plus interest on such delinquent amount at the rate equal to the prime
rate plus three percent (3%) for the time period such payments are
delinquent as a late charge for every month or portion thereof that
such sums remain unpaid, (b) the amount of seventy-five dollars ($75)
for each three-day notice prepared for, or served on, Lessee, (c) the
amount of fifty dollars ($50) relating to checks for which there are
not sufficient funds. The parties agree that this late charge and the
other charges referenced above represent a fair and reasonable
estimate of the costs that Lessor will incur by reason of late payment
by Lessee. Acceptance of any late charge or other charges shall not
constitute a waiver by Lessor of Lessee's default with respect to the
delinquent amount, nor prevent Lessor from exercising any of the other
rights and remedies available to Lessor for any other breach of Lessee
under this Lease. If a late charge or other charge becomes payable
for any three (3) installments of Rent within any twelve ( 12) month
period, then Lessor, at Lessor's sole option, can either require the
Rent be paid quarterly in advance, or be paid monthly in advance by
cashier's check or by electronic funds transfer.
9. USE OF PREMISES: The Premises are to be used solely for the uses
---------------
stated on Page I and for no other uses or purposes without Lessor's
prior written consent. The use of the Premises by Lessee and its
agents, invitees and employees shall be subject to, and at all times
in compliance with, (a) any and all applicable laws, ordinances,
statutes, orders and regulations as same exist from time to time
(collectively, the "Laws"), and (b) any and all declarations of
covenants, conditions and restrictions ("CC&Rs") and any supplement
thereto which has been or hereafter is recorded in any official or
public records with respect to the Premises, the Building, the Lot
and/or the Park, or any portion thereof
Lessee shall not use the Premises or permit anything to be
done in or about the Premises nor keep or bring anything therein which
will in any way conflict with any of the requirements of the Board of
Fire Underwriters or similar body now or hereafter constituted or in
any way increase the existing rate of or affect any policy of fire or
other insurance upon the Building or any of its contents, or cause a
cancellation of any insurance policy. Lessee shall not do or permit
anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of Lessor, other tenants or
occupants of the Building, other buildings in the Park, or other
persons or businesses in the Park, or injure or annoy other tenants or
use or allow the Premises to be used for any improper, immoral,
unlawful or objectionable purpose, as determined by Lessor, in its
sole discretion, for the benefit, quiet enjoyment and use by Lessor
and all other tenants or occupants of the Building or other buildings
in the Park; nor shall Lessee cause, maintain or permit any private or
public nuisance in, on or about the Premises, Building, Park and/or
the Common Area, including, but not limited to, any offensive odors,
fumes or vibrations. Lessee shall not damage or deface or otherwise
commit or suffer to be committed any waste in, upon or about the
Premises. Lessee shall not store, nor permit any other person or
entity to store, any property, equipment, materials, supplies,
personal property or any other items or goods outside of the Premises.
Lessee shall not permit any animals, including, but not limited to,
any household pets, to be brought or kept in or about the Premises.
Lessee shall place no loads upon the floors, walls, or ceilings in
excess of the maximum designed load permitted by the applicable
Uniform Building Code or which may damage the Building or outside
areas; nor place any harmful liquids in the drainage systems; nor dump
or store waste materials, refuse or other such materials, or allow
such to remain outside the Building area, except in refuse dumpsters
or in any enclosed trash areas provided. Lessee shall honor the terms
of all recorded CC&Rs relating to the Premises, the Building, the Lot
and/or the Park Lessee shall honor the rules and regulations set forth
in EXHIBIT C, attached to and made a part of this Lease, and any other
reasonable rules and regulations of Lessor now or hereafter enacted
relating to parking and the operation of the Building and the Park.
If Lessee fails to comply with such Laws, CC&Rs, rules and regulations
or the provisions of this Lease, Lessor shall have the right to
collect from Lessee a reasonable sum as a penalty, m addition to all
rights and remedies of Lessor hereunder including, but not limited to,
the payment by Lessee to Lessor of all Enforcement Expenses and
Lessor's costs and expenses, if any, to cure any of such failures of
Lessee, if Lessor, at its sole option, elects to undertake such cure.
10. ALTERATIONS AND ADDITIONS: Lessee shall not install any signs,
-------------------------
fixtures, improvements, nor make or permit any other alterations or
additions to the Premises without the prior written consent of Lessor.
If any such alteration or addition is expressly permitted by Lessor,
Lessee shall deliver at least twenty (20) days prior notice to Lessor,
from the date Lessee intends to commence construction, sufficient to
enable Lessor to post a Notice of Non-Responsibility. In all events,
Lessee shall obtain all permits or other governmental approvals prior
to commencing any of such work and deliver a copy of same to Lessor.
All alterations and additions shall be installed by a licensed
contractor approved by Lessor, at Lessee's sole expense in compliance
with all applicable Laws, CC&Rs, and Lessor's rules and regulations.
Lessee shall keep the Premises and the property on which the Premises
are situated free from any liens arising out of any work performed,
materials furnished or obligations incurred by or on behalf of Lessee.
As a condition to Lessor's consent to the installation of any fixtures
or improvements, Lessor may require Lessee to post and obtain a
completion and indemnity bond for up to one hundred fifty percent (
150%) of the cost of the work. Upon termination of this Lease, Lessee
shall remove all signs, fixtures, furniture and furnishings and if
requested by Lessor, remove any improvements made by Lessee and repair
any damage caused by the installation or removal of such signs,
fixtures, furniture, furnishings and improvements and leave the
Premises in as good condition as they were in at the time of the
commencement of this Lease, excepting for reasonable wear and tear.
Reasonable wear and tear shall not include any damage or deterioration
that would have been prevented by proper maintenance by Lessee or
Lessee otherwise performing all of its obligations under this Lease.
11. REPAIRS AND MAINTENANCE: Lessee shall, at Lessee's sole cost and
-----------------------
expense, keep and maintain the Premises and the adjacent Park in good,
clean and safe condition and repair to the satisfaction of Lessor
including, but not limited to, repairing any damage caused by Lessee
or its employees, representatives, agents, invitees, licensees or
contractors. Without limiting the generality of the foregoing, Lessee
shall be solely responsible for maintaining, repairing and replacing
all interior plumbing and mechanical systems, heating, ventilation and
air conditioning systems, interior electrical wiring and equipment,
interior lighting, all interior glass, interior window casements,
partitions, tenant signage, interior doors and door closers, fixtures,
equipment, interior painting, and interior walls and floors of the
Premises. Lessee's obligation to keep, maintain, preserve and repair
the Premises and the adjacent Park shall specifically extend to the
cleanup and removal of any and all Hazardous Materials (hereafter
defined) occurring in, on or about the Premises.
Subject to the provisions of Paragraphs 6 and 9 of this
Lease and except for repairs rendered necessary by the active or
passive negligent acts or omissions of Lessee, its agents, customers,
employees and invitees, Lessor agrees, at Lessor's expense, subject to
reimbursement pursuant to Paragraph 6 above, to keep in good repair
the plumbing and mechanical systems exterior to the Premises, roof
membranes, signage (exclusive of tenant signage), exterior electrical
wiring and equipment, exterior lighting, all exterior glass, exterior
doors and entrances, exterior window casements, exterior doors and
door closers, exterior painting, and underground utility and sewer
pipes outside the exterior walls of the Building. Lessor reserves the
right, but without the obligation, to procure and maintain the
heating, ventilation and air conditioning systems maintenance contract
and if Lessor so elects, Lessee will reimburse Lessor for the cost
thereof in accordance with the provisions of Paragraph 6 above.
Except for repairs rendered necessary by the active or
passive negligent acts or omissions of Lessee, its agents, customers,
employees and invitees, Lessor agrees, at Lessor's sole cost and
expense, to keep in good repair the structural portions of the floors,
foundations, exterior walls (exclusive of glass and exterior doors),
and the structural portions of the roof (excluding the roof membrane)
of the Building.
Except for normal maintenance and repair of the items outlined
above, Lessee shall have no right of access to or right to install any
device on the roof of the Building nor make any penetrations of the
roof of the Building without the express prior written consent of
Lessor. If Lessee refuses or neglects to repair and maintain the
Premises and the adjacent Park properly as required herein and to the
reasonable satisfaction of Lessor, Lessor may, but without obligation
to do so, at anytime make such repairs and/or maintenance without
Lessor having any liability to Lessee for any loss or damage that may
accrue to Lessee's merchandise, fixtures or other property, or to
Lessee's business by reason thereof In the event Lessor makes such
repairs and/or maintenance, upon completion thereof Lessee shall pay
to Lessor, as additional rent, the Lessor's costs for making such
repairs and/or maintenance, plus twenty percent (20%) for overhead,
upon presentation of a bill therefor, plus any Enforcement Expenses.
The obligations of Lessee hereunder shall survive the expiration of
the term of this Lease or the earlier termination thereof Lessee
hereby waives any right to repair at the expense of Lessor under any
applicable Laws now or hereafter un effect respecting the Premises.
12. INSURANCE: Lessee shall maintain in full force and effect at all
---------
times during the term of this Lease, at Lessee's sole cost and
expense, for the protection of Lessee and Lessor, as their interests
may appear, policies of insurance issued by a carrier or carriers
acceptable to Lessor and its lender(s) which afford the following
coverages: (i) worker's compensation: statutory limits; (ii)
employer's liability: as required by law with a minimum of $1,000,000;
(iii) comprehensive general liability insurance (occurrence form)
including blanket contractual liability, broad form property damage,
premises, personal injury, completed operations, products liability,
personal and advertising coverage, a plate-glass rider to provide
coverage for all glass in, on or about the Premises including, without
limitation, skylights, and fire damage with a combined single limit of
not less than $2,000,000 per occurrence, and $2,000,000 per occurrence
per location if Lessee has multiple locations, with deletion of (a)
the exclusion for operations within fifty (50) feet of a railroad
track (railroad protective liability), if applicable, and (b) the
exclusion for explosion, collapse or underground hazard, if
applicable, and if necessary, Lessee shall provide for restoration of
the aggregate limit; (iv) comprehensive automobile liability
insurance: a combined single limit of not less than $1,000,000 per
occurrence and insuring Lessee against liability for claims arising
out of the ownership, maintenance, or use of any owned, hired or
non-owned automobiles; and (v) "all risk" property insurance including
boiler and machinery comprehensive form, if applicable, covering
damage to or loss of any personal property, fixtures and equipment,
including, without limitation, electronic data processing equipment,
of Lessee (and coverage for the full replacement cost thereof
including business interruption of Lessee), together with, if the
property of Lessee's invitees is to be kept in the Premises,
warehouser's legal liability or bailee customers insurance for the
full replacement cost of the property belonging to invitees and
located in the Premises.
Insurance required to be maintained by Lessee shall be written by
companies licensed to do business in the State of California and
having a "General Policyholders Rating" of at least A (or such higher
rating as may be required by a lender having a lien on the Premises)
as set forth in the most current issue of "Best's Insurance Guide."
Lessee shall deliver to Lessor certificates of insurance for all
insurance required to be maintained by Lessee hereunder at the time of
execution of this Lease by Lessee. Lessee shall, at least thirty (30)
days prior to expiration of each policy, furnish Lessor with
certificates of renewal or "binders" thereof. Each certificate shall
expressly provide that such policies shall not be cancelable or
otherwise subject to modification except after thirty (30) days prior
written notice to the parties named as additional insureds as required
in this Lease (except for cancellation for nonpayment of premium, in
which event cancellation shall not take effect until at least ten (10)
days' notice has been given to Lessor). If Lessee fails to maintain
any insurance required in this Lease, Lessee shall be liable for all
losses and costs resulting from such failure.
Lessor, any property management company of Lessor for the
Premises, any lender(s) of Lessor having a lien against the Premises,
the Building, the Lot or the Park, and any joint venture partners of
Lessor shall be named as additional insureds under all of the policies
required in Paragraph 12.(iii) above. Additionally, such policies
shall provide for severability of interest. All insurance to be
maintained by Lessee shall, except for workers' compensation and
employer's liability insurance, be primary, without right of
contribution from insurance maintained by Lessor. Any umbrella
liability policy or excess liability policy (which shall be in
"following form") shall provide that if the underlying aggregate is
exhausted, the excess coverage will drop down as primary insurance.
The limits of insurance maintained by Lessee shall not limit Lessee's
liability under this Lease.
13. LIMITATION OF LIABILITY AND INDEMNITY: Except for damage
-------------------------------------
resulting from the sole active gross negligence or willful misconduct
of Lessor or its authorized representatives, Lessee agrees to protect,
defend (with counsel acceptable to Lessor) and hold Lessor and
Lessor's lender(s), partners, employees, representatives, legal
representatives, successors and assigns (collectively, the
"Indemnitees") harmless and indemnify the Indemnitees from and against
all liabilities, damages, claims, losses, judgments, charges and
expenses (including reasonable attorneys' fees, costs of court and
expenses necessary in the prosecution or defense of any litigation
including the enforcement of this provision) arising from or in any
way related to, directly or indirectly, Lessee's use of the Premises
and/or the Park, or the conduct of Lessee's business, or from any
activity, work or thing done, permitted or suffered by Lessee in or
about the Premises, or in any way connected with the Premises or with
the improvements or personal property therein, including, but not
limited to, any liability for injury to person or property of Lessee,
its agents or employees or third party persons. Lessee agrees that
the obligations of Lessee herein shall survive the expiration or
earlier termination of this Lease.
Except for damage resulting from the sole active gross negligence
or willful misconduct of Lessor or its authorized representatives,
Lessor shall not be liable to Lessee for any loss or damage to Lessee
or Lessee's property, for any injury to or loss of Lessee's business
or for any damage or injury to any person from any cause whatsoever,
including, but not limited to, any acts, errors or omissions by or on
behalf of any other tenants or occupants of the Building and/or the
Park. Lessee shall not, in any event or circumstance, be permitted to
offset or otherwise credit against any payments of Rent required
herein for matters for which Lessor may be liable hereunder. Lessor
and its authorized representatives shall not be liable for any
interference with light or air, or for any latent defect in the
Premises or the Building. To the fullest extent permitted by law,
Lessee agrees that neither Lessor nor any of Lessor's lender(s),
partners, employees, representatives, legal representatives,
successors and assigns shall at any time or to any extent whatsoever
be liable, responsible or in any way accountable for any loss,
liability, injury, death or damage to persons or property which at any
time may be suffered or sustained by Lessee or by any person(s)
whomsoever who may at any time be using or occupying or visiting the
Premises, the Building or the Park.
14. ASSIGNMENT AND SUBLEASING:
-------------------------
A. PROHIBITION: Lessee shall not assign, mortgage, hypothecate,
encumber, grant any license or concession, pledge or otherwise
transfer this Lease (collectively, "assignment"), in whole or in part,
whether voluntarily or involuntarily or by operation of law, nor
sublet or permit occupancy by any person other than Lessee of all or
any portion of the Premises without first obtaining the prior written
consent of Lessor, which shall not be unreasonably withheld. If
Lessee seeks to sublet or assign all or any portion of the Premises,
Lessee shall deliver to Lessor at least thirty (30) days prior to the
proposed commencement of the sublease or assignment (the "Proposed
Effective Date") the following: (i) the name of the proposed assignee
or sublessee; (ii) such information as to such assignee's or
sublessee's financial responsibility and standing as Lessor may
reasonably require; and (iii) a copy of the proposed sublease or
assignment agreement and all agreements collateral thereto, which
instrument shall include a provision whereby the assignee or sublessee
assumes all of Lessee's obligations hereunder and agrees to be bound
by the terms hereof. As additional rent hereunder, Lessee shall pay
to Lessor a fee in the amount of five hundred dollars ($500) plus
Lessee shall reimburse Lessor for actual legal and other expenses
incurred by Lessor in connection with any request by Lessee for
Lessor's consent to assignment or subletting. In the event the
sublease (1) by itself or taken together with prior sublease(s) covers
or totals, as the case may be, more than twenty-five percent (25%) of
the rentable square feet of the Premises or (2) is for a term which by
itself or taken together with prior or other subleases is greater than
fifty percent (50%) of the period remaining in the term of this Lease
as of the time of the Proposed Effective Date, then Lessor shall have
the right, to be exercised by giving written notice to Lessee, to
recapture the space described in the sublease. If such recapture
notice is given, it shall serve to terminate this Lease with respect
to the proposed sublease space, or, if the proposed sublease space
covers all the Premises, it shall serve to terminate the entire term
of this Lease, m either case as of the Proposed Effective Date.
However, no termination of this Lease with respect to part or all of
the Premises shall become effective without the prior written consent,
where necessary, of the holder of each deed of trust encumbering the
Premises or any part thereof If this Lease is terminated pursuant to
the foregoing with respect to less than the entire Premises, the Rent
shall be adjusted on the basis of the proportion of square feet
retained by Lessee to the square feet originally demised and this
Lease as so amended shall continue thereafter in full force and
effect. Each permitted assignee or sublessee shall assume and be
deemed to assume this Lease and shall be and remain liable jointly and
severally with Lessee for payment of Rent and for the due performance
of, and compliance with all the terms, covenants, conditions and
agreements herein contained on Lessee's part to be performed or
complied with, for the term of this Lease. No assignment or
subletting shall affect the continuing primary liability of Lessee
(which, following assignment, shall be joint and several with the
assignee), and Lessee shall not be released from performing any of the
terms, covenants and conditions of this Lease. For purposes hereof,
un the event Lessee is a corporation, partnership, joint venture,
trust or other entity other than a natural person, any change in the
direct or indirect ownership of Lessee (whether pursuant to one or
more transfers) which results in a change of more than fifty percent
(50%) in the direct or indirect ownership of Lessee shall be deemed to
be am assignment within the meaning of this Paragraph 14 and shall be
subject to all the provisions hereof. Any and all options, first
rights of refusal, tenant improvement allowances and other similar
rights granted to Lessee in this Lease, if any, shall not be
assignable by Lessee unless expressly authorized in writing by Lessor.
B. EXCESS SUBLEASE RENTAL OR ASSIGNMENT CONSIDERATION: In the
event of any sublease or assignment of all or any portion of the
Premises where the rent or other consideration provided for in the
sublease or assignment either initially or over the term of the
sublease or assignment exceeds the Rent or pro rata portion of the
Rent, as the case may be, for such space reserved in the Lease, Lessee
shall pay the Lessor monthly, as additional rent, at the same time as
the monthly installments of Rent are payable hereunder, fifty percent
(50%) of the excess of each such payment of rent or other
consideration in excess of the Rent called for hereunder.
C. WAIVER: Notwithstanding any assignment or sublease, or any
indulgences, waivers or extensions of time granted by Lessor to any
assignee or sublessee, or failure by Lessor to take action against any
assignee or sublessee, Lessee waives notice of any default of any
assignee or sublessee and agrees that Lessor may, at its option,
proceed against Lessee without having taken action against or joined
such assignee or sublessee, except that Lessee shall have the benefit
of any indulgences, waivers and extensions of time granted to any such
assignee or sublessee.
15. WAIVER OF SUBROGATION: Lessee waives any right to recover against
---------------------
Lessor for claims for damages to Lessee's property, including, but not
limited to, personal property, fixtures and equipment, covered by
insurance. This provision is intended to waive fully, and for the
benefit of Lessor, any rights and/or claims which might give rise to a
right of subrogation in favor of any insurance carrier. The coverage
obtained by Lessee pursuant to this Lease shall include, without
limitation, a waiver of subrogation endorsement attached to the
certificate of insurance.
16. AD VALOREM TAXES: Prior to delinquency, Lessee shall pay all
-----------------
taxes and assessments levied upon trade fixtures, alterations,
additions, improvements, inventories and personal property located
and/or installed on or in the Premises by, or on behalf of, Lessee;
and if requested by Lessor, Lessee shall promptly deliver to Lessor
copies of receipts for payment of all such taxes and assessments. To
the extent any such taxes are not separately assessed or billed to
Lessee, Lessee shall pay the amount thereof as invoiced by Lessor.
17. SUBORDINATION: Without the necessity of any additional document
-------------
being executed by Lessee for the purpose of effecting a subordination,
and at the election of Lessor or any bona fide mortgagee or deed of
trust beneficiary with a lien on all or any portion of the Premises or
any ground lessor with respect to the land of which the Premises are a
part, this Lease shall be subject and subordinate at all times to: (i)
all ground leases or underlying leases which may now exist or
hereafter be executed affecting the Building or the land upon which
the Building is situated or both, and (ii) the lien of any mortgage or
deed of trust which may now exist or hereafter be executed in any
amount for which the Building, the Lot, ground leases or underlying
leases, or Lessor's interest or estate in any of said items is
specified as security. Notwithstanding the foregoing, Lessor or any
such ground lessor, mortgagee, or any beneficiary shall have the right
to subordinate or cause to be subordinated any such ground leases or
underlying leases or any such liens to this Lease. If any ground
lease or underlying lease terminates for any reason or any mortgage or
deed of trust is foreclosed or a conveyance in lieu of foreclosure is
made for any reason, Lessee shall, notwithstanding any subordination
and upon the request of such successor to Lessor, attorn to and become
the Lessee of the successor un interest to Lessor, provided such
successor in interest will not disturb Lessee's use, occupancy or
quiet enjoyment of the Premises so long as Lessee is not in default of
the terms and provisions of this Lease. The successor in interest to
Lessor following foreclosure, sale or deed in lieu thereof shall not
be (a) liable for any act or omission of any prior lessor or with
respect to events occurring prior to acquisition of ownership; (b)
subject to any offsets or defenses which Lessee might have against any
prior lessor; (c) bound by prepayment of more than one (I) month's
Rent; or (d) liable to Lessee for any Security Deposit not actually
received by such successor in interest. Lessee covenants and agrees
to execute (and acknowledge if required by Lessor, any lender or
ground lessor) and deliver, within five (5) days of a demand or
request by Lessor and in the form requested by Lessor, ground lessor,
mortgagee or beneficiary, any additional documents evidencing the
priority or subordination of this Lease with respect to any such
ground leases or underlying leases or the lien of any such mortgage or
deed of trust. Lessee's failure to timely execute and deliver such
additional documents shall, at Lessor's option, constitute a material
default hereunder. It is further agreed that Lessee shall be liable
to Lessor, and shall indemnify Lessor from and against any loss, cost,
damage or expense, incidental, consequential, or otherwise, arising or
accruing directly or indirectly, from any failure of Lessee to execute
or deliver to Lessor any such additional documents. Lessee hereby
irrevocably appoints Lessor as attorney-in-fact of Lessee, which
appointment is coupled with an interest, to execute, deliver and
record any such documents in the name and on behalf of Lessee.
18. RIGHT OF ENTRY: Lessee grants Lessor or its agents the right to
--------------
enter the Premises at all reasonable times for purposes of inspection,
exhibition, posting of notices, repair or alteration. At Lessor's
option, Lessor shall at all times have and retain a key with which to
unlock all the doors in, upon and about the Premises, excluding
Lessee's vaults and safes. It is further agreed that Lessor shall
have the right to use any and all means Lessor deems necessary to
enter the Premises m an emergency. Lessor shall also have the right
to place "for rent" and/or "for sale" signs on the outside of the
Premises. Lessee hereby waives any claim from damages or for any
injury or inconvenience to or interference with Lessee's business, or
any other loss occasioned thereby except for any claim for any of the
foregoing arising out of the gross active negligent acts or willful
misconduct of Lessor or its authorized representatives.
19. ESTOPPEL CERTIFICATE: Lessee shall execute (and acknowledge if
--------------------
required by any lender or ground lessor) and deliver to Lessor, within
five (5) days after Lessor provides such to Lessee, a statement in
writing certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification), the
date to which the Rent and other charges are paid in advance, if any,
acknowledging that there are not, to Lessee's knowledge, any uncured
defaults on the part of Lessor hereunder or specifying such defaults
as are claimed, and such other matters as Lessor may reasonably
require. Any such statement may be conclusively relied upon by Lessor
and any prospective purchaser or encumbrancer of the Premises.
Lessee's failure to deliver such statement within such time shall be
conclusive upon the Lessee that (a) this Lease is un full force and
effect, without modification except as may be represented by Lessor;
(b) there are no uncured defaults in Lessor's performance; and (c) not
more than one month's Rent has been paid in advance, except in those
instances when Lessee pays Rent quarterly in advance pursuant to
Paragraph 8 hereof, then not more than three month's Rent has been
paid in advance. Failure by Lessee to so deliver such certified
estoppel certificate shall be a default of the provisions of this
Lease. Lessee shall be liable to Lessor, and shall indemnify Lessor
from and against any loss, cost, damage or expense, incidental,
consequential, or otherwise, arising or accruing directly or
indirectly, from any failure of Lessee to execute or deliver to Lessor
any such certified estoppel certificate.
Lessee hereby irrevocably appoints Lessor as attorney-in-fact of
Lessee, which appointment is coupled with an interest, to act in
Lessee's name, place and stead to execute and deliver such estoppel
certificate on behalf of Lessee.
20. LESSEE'S DEFAULT: The occurrence of any one or more of the
----------------
following events shall, at Lessor's option, constitute a default and
breach of this Lease by Lessee:
(i) The vacation or abandonment of the Premises by
Lessee for a period of ten (10) consecutive days, and Lessee
waives any right to notice Lessee may have under applicable
law;
(ii) The failure by Lessee to make any payment of Rent
or any other payment required hereunder on the date said payment
is due;
(iii) The failure by Lessee to observe, perform or
comply with any of the conditions, covenants or provisions of
this Lease (except default in the payment of Rent); provided, if
such default is susceptible of cure and Lessee has promptly
commenced the cure of such default and is diligently prosecuting
such cure to completion, then the same must remain uncured for a
period, unless otherwise noted herein, of fifteen (15) days after
written notice;
(iv) The making of a general assignment by Lessee for
the benefit of creditors, the filing of a voluntary petition by
Lessee or the filing of an involuntary petition by any of
Lessee's creditors seeking the rehabilitation, liquidation, or
reorganization of Lessee under any law relating to bankruptcy,
insolvency or other relief of debtors and, in the case of am
involuntary action, the failure to remove or discharge the same
within sixty (60) days of such filing, the appointment of a
receiver or other custodian to take possession of substantially
all of Lessee's assets or this leasehold, Lessee's insolvency or
inability to pay Lessee's debts or failure generally to pay
Lessee's debts when due, any court entering a decree or order
directing the winding up or liquidation of Lessee or of
substantially all of Lessee's assets, Lessee taking any action
toward the dissolution or winding up of Lessee's affairs, the
cessation or suspension of Lessee's use of the Premises, or the
attachment, execution or other judicial seizure of substantially
all of Lessee's assets or this leasehold;
(v) Lessee's use or storage of Hazardous Materials on the
Premises other than as permitted by the provisions of Paragraph
29 below;
(vi) The making of any material misrepresentation or
omission by Lessee in any materials delivered by or on behalf of
Lessee to Lessor pursuant to this Lease; or
(vii) Lessee's default or other breach of any covenant,
condition or provision of any lease agreement between Lessee or
an affiliated entity of Lessee, as the tenant, and Lessor or am
affiliated entity of Lessor, as landlord, with regard to any and
all leased premises other than the Premises as described herein.
21. REMEDIES FOR LESSEE'S DEFAULT: In the event of Lessee's default
-----------------------------
or breach of the Lease, Lessor may terminate Lessee's right to
possession of the Premises by any lawful means in which case upon
delivery of written notice by Lessor this Lease shall terminate on the
date specified by Lessor in such notice and Lessee shall immediately
surrender possession of the Premises to Lessor. In addition, the
Lessor shall have the immediate right of re-entry whether or not this
Lease is terminated, and if this right of re-entry is exercised
following abandonment of the Premises by Lessee, Lessor may consider
any personal property belonging to Lessee and left on the Premises to
also have been abandoned. No re-entry or taking possession of the
Premises by Lessor pursuant to this Paragraph 21 shall be construed as
an election to terminate this Lease unless a written notice of such
intention is given to Lessee. If Lessor relets the Premises or any
portion thereof, (i) Lessee shall be liable immediately to Lessor for
all costs Lessor incurs in reletting the Premises or any part thereof,
including, without limitation, broker's commissions, expenses of
cleaning, redecorating, and further improving the Premises and other
similar costs, and (ii) the rent received by Lessor from such
reletting shall be applied to the payment of, first, any indebtedness
from Lessee to Lessor other than Base Rent, Increases in Operating
Expenses, Increases in Tax Expenses, Increases in Common Area Utility
Costs, the Trash and Water Charge and Utility Expenses; second, all
costs including maintenance, incurred by Lessor in reletting; and,
third, Base Rent, Increases in Operating Expenses, Increases in Tax
Expenses, Increases in Common Area Utility Costs, the Trash and Water
Charge and Utility Expenses due under this Lease. After deducting the
payments referred to above, any sum remaining from the rental Lessor
receives from reletting shall be held by Lessor and applied in payment
of future Rent as Rent becomes due under this Lease. In no event
shall Lessee be entitled to any excess rent received by Lessor.
Reletting may be for a period shorter or longer than the remaining
term of this Lease. No act by Lessor other than giving written notice
to Lessee shall terminate this Lease. Acts of maintenance, efforts to
relet the Premises or the appointment of a receiver on Lessor's
initiative to protect Lessor's interest under this Lease shall not
constitute a termination of Lessee's right to possession. So long as
this Lease is not terminated, Lessor shall have the right to remedy
any default of Lessee, to maintain or improve the Premises, to cause a
receiver to be appointed to administer the Premises and new or
existing subleases and to add to the Rent payable hereunder all of
Lessor's reasonable costs in so doing, with interest at the maximum
rate permitted by law from the date of such expenditure.
If Lessee breaches this Lease and abandons the property before
the end of the term, or if Lessee's right to possession is terminated
by Lessor because of a breach or default of the Lease, then in either
such case, Lessor may recover from Lessee all damages suffered by
Lessor as a result of Lessee's failure to perform its obligations
hereunder, including, but not limited to, the cost of any tenant
improvements, and all costs Lessor incurs in reletting the Premises or
any part thereof, including without limitation, brokerage or leasing
commissions, expenses of cleaning, redecorating, and further improving
the Premises and like costs, and the worth at the time of the award
(computed in accordance with paragraph (3) of Subdivision (a) of
Section 1951.2 of the California Civil Code) of the amount by which
the Rent then unpaid hereunder for the balance of the Lease term
exceeds the amount of such loss of Rent for the same period which
Lessee proves could be reasonably avoided by Lessor and in such case,
Lessor prior to the award, may relet the Premises for the purpose of
mitigating damages suffered by Lessor because of Lessee's failure to
perform its obligations hereunder; provided, however, that even though
Lessee has abandoned the Premises following such breach, this Lease
shall nevertheless continue in full force and effect for as long as
Lessor does not terminate Lessee's right of possession, and until such
termination, Lessor shall have the remedy described in Section 1951.4
of the California Civil Code (Lessor may continue this Lease in effect
after Lessee's breach and abandonment and recover Rent as it becomes
due, if Lessee has the right to sublet or assign, subject only to
reasonable limitations) and may enforce all its rights and remedies
under this Lease, including the right to recover the Rent from Lessee
as it becomes due hereunder. The "worth at the time of the award"
within the meaning of Subparagraphs (a)(1) and (a)(2) of Section
1951.2 of the California Civil Code shall be computed by allowing
interest at the rate of ten percent (10%) per annum. Lessee waives
redemption or relief from forfeiture under California Code of Civil
Procedure Sections 1174 and 1179, or under any other present or future
law, in the event Lessee is evicted or Lessor takes possession of the
Premises by reason of any default of Lessee hereunder.
The foregoing rights and remedies of Lessor are not exclusive;
they are cumulative in addition to any rights and remedies now or
hereafter existing at law, in equity by statute or otherwise, or to
any equitable remedies Lessor may have, and to any remedies Lessor may
have under bankruptcy laws or laws affecting creditor's rights
generally. In addition to all remedies set forth above, if Lessee
defaults or otherwise breaches this Lease, any and all Base Rent
waived by Lessor under Paragraph 3 above shall be immediately due and
payable to Lessor and all options granted to Lessee hereunder shall
automatically terminate, unless otherwise expressly agreed to in
writing by Lessor.
The waiver by Lessor of any default or breach of any provision of
this Lease shall not be deemed or construed a waiver of any other
breach or default by Lessee hereunder or of any subsequent breach or
default of this Lease, except for the default specified in the waiver.
22. HOLDING OVER: If Lessee holds possession of the Premises after
------------
the expiration of the term of this Lease with Lessor's consent, Lessee
shall become a tenant from month-to-month upon the terms and
provisions of this Lease, provided the monthly Base Rent during such
hold over period shall be 200% of the Base Rent due on the last month
of the Lease term, payable in advance on or before the first day of
each month. Such month-to-month tenancy shall not constitute a
renewal or extension for any further term. All options, if any,
granted under the terms of this Lease shall be deemed automatically
terminated and be of no force or effect during said month-to-month
tenancy. Lessee shall continue m possession until such tenancy shall
be terminated by either Lessor or Lessee giving written notice of
termination to the other party at least thirty (30) days prior to the
effective date of termination. This paragraph shall not be construed
as Lessor's permission for Lessee to hold over. Acceptance of Base
Rent by Lessor following expiration or termination of this Lease shall
not constitute a renewal of this Lease.
23. LESSOR'S DEFAULT: Lessor shall not be deemed in breach or default
----------------
of this Lease unless Lessor fails within a reasonable time to perform
an obligation required to be performed by Lessor hereunder. For
purposes of this provision, a reasonable time shall in no event be
more than twenty (20) days after receipt by Lessor of written notice
specifying the nature of the obligation, Lessor has not performed;
provided, however, that if the nature of Lessor's obligation is such
that more than twenty (20) days, after receipt of written notice, is
reasonably necessary for its performance, then Lessor shall not be in
breach or default of this Lease if performance of such obligation is
commenced within such twenty (20) day period and thereafter diligently
pursued to completion.
24. PARKING: Lessee shall have a license to use the number of
-------
undesignated and nonexclusive parking spaces set forth on Page 1.
Lessor shall exercise reasonable efforts to insure that such spaces
are available to Lessee for its use, but Lessor shall not be required
to enforce Lessee's right to use the same.
25. SALE OF PREMISES: In the event of any sale of the Premises by
----------------
Lessor, Lessor shall be and is hereby entirely released from any and
all of its obligations to perform or further perform under this Lease
and from all liability hereunder as of the date of such sale; and the
purchaser, at such sale or any subsequent sale of the Premises shall
be deemed, without any further agreement between the parties or their
successors in interest or between the parties and any such purchaser,
to have assumed and agreed to carry out any and all of the covenants
and obligations of the Lessor under this Lease. Lessee agrees to
attorn to such new owner provided such new owner does not disturb
Lessee's use, occupancy or quiet enjoyment of the Premises so long as
Lessee is not m default of any of the provisions of this Lease.
26. WAIVER: No delay or omission m the exercise of any right or
------
remedy of Lessor on any default by Lessee shall impair such a right or
remedy or be construed as a waiver.
The subsequent acceptance of Rent by Lessor after breach by
Lessee of any covenant or term of this Lease shall not be deemed a
waiver of such breach, other than a waiver of timely payment for the
particular Rent payment involved, and shall not prevent Lessor from
maintaining an unlawful detainer or other action based on such breach.
No payment by Lessee or receipt by Lessor of a lesser amount than
the monthly Rent and other sums due hereunder shall be deemed to be
other than on account of the earliest Rent or other sums due, nor
shall any endorsement or statement on any check or accompanying any
check or payment be deemed an accord and satisfaction; and Lessor may
accept such check or payment without prejudice to Lessor's right to
recover the balance of such Rent or other sum or pursue any other
remedy provided in this Lease.
27. CASUALTY DAMAGE: If the Premises or any part thereof shall be
---------------
damaged by fire or other casualty, Lessee shall give prompt written
notice thereof to Lessor. In case the Building shall be so damaged by
fire or other casualty that substantial alteration or reconstruction
of the Building shall, in Lessor's sole opinion, be required (whether
or not the Premises shall have been damaged by such fire or other
casualty), Lessor may, at its option, terminate this Lease by
notifying Lessee in writing of such termination within sixty (60) days
after the date of such damage, in which event the Rent shall be abated
as of the date of such damage. If Lessor does not elect to terminate
this Lease and provided insurance proceeds and any contributions from
Lessee, if necessary, are available to fully repair the damage, Lessor
shall within ninety (90) days after the date of such damage commence
to repair and restore the Building and shall proceed with reasonable
diligence to restore the Building (except that Lessor shall not be
responsible for delays outside its control) to substantially the same
condition in which it was immediately prior to the happening of the
casualty; provided, Lessor shall not be required to rebuild, repair,
or replace any part of Lessee's furniture, furnishings or fixtures and
equipment removable by Lessee or any improvements, alterations or
additions installed by or for the benefit of Lessee under the
provisions of this Lease. Lessor shall not in any event be required
to spend for such work am amount in excess of the insurance proceeds
and any contributions from Lessee, if necessary, actually received by
Lessor as a result of the fire or other casualty. Lessor shall not be
liable for any inconvenience or annoyance to Lessee, injury to the
business of Lessee, loss of use of any part of the Premises by the
Lessee or loss of Lessee's personal property resulting in any way from
such damage or the repair thereof, except that, subject to the
provisions of the next sentence, Lessor shall allow Lessee a fair
diminution of Rent during the time and to the extent the Premises are
unfit for occupancy. If the Premises or any other portion of the
Building be damaged by fire or other casualty resulting from the fault
or active or passive negligence or omissions of Lessee or any of
Lessee's agents, employees, or invitees, the Rent shall not be
diminished during the repair of such damage and Lessee shall be liable
to Lessor for the cost and expense of the repair and restoration of
the Building caused thereby to the extent such cost and expense is not
covered by insurance proceeds. In the event the holder of any
indebtedness secured by the Premises requires that the insurance
proceeds be applied to such indebtedness, then Lessor shall have the
right to terminate this Lease by delivering written notice of
termination to Lessee within thirty (30) days after the date of notice
to Lessee of any such event, whereupon all rights and obligations
shall cease and terminate hereunder.
Except as otherwise provided in this Paragraph 27, Lessee hereby
waives the provisions of Sections 1932(2.), 1933(4.), 1941 and 1942 of
the California Civil Code.
28. CONDEMNATION: If twenty-five percent (25%) or more of the
------------
Premises is condemned by eminent domain, inversely condemned or sold
in lieu of condemnation for any public or quasi-public use or purpose
("Condemned"), then Lessee or Lessor may terminate this Lease as of
the date when physical possession of the Premises is taken and title
vests in such condemning authority, and Rent shall be adjusted to the
date of termination. Lessee shall not because of such condemnation
assert any claim against Lessor or the condemning authority for any
compensation because of such condemnation, and Lessor shall be
entitled to receive the entire amount of any award without deduction
for any estate of interest or interest of Lessee. If a substantial
portion of the Premises, Building or the Lot is so Condemned, Lessor
at its option may terminate this Lease. If Lessor does not elect to
terminate this Lease, Lessor shall, if necessary, promptly proceed to
restore the Premises or the Building to substantially its same
condition prior to such partial condemnation, allowing for the
reasonable effects of such partial condemnation, and a proportionate
allowance shall be made to Lessee, as solely determined by Lessor, for
the Rent corresponding to the time during which, and to the part of
the Premises of which, Lessee is deprived on account of such partial
condemnation and restoration. Lessor shall not be required to spend
funds for restoration in excess of the amount received by Lessor as
compensation awarded.
29. ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS:
------------------------------------------
1. As used in this Lease, the term "Hazardous Materials" shall
mean and include any substance that is or contains (a) any "hazardous
substance" as now or hereafter defined in SECTION 101(14) of the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA")(42 U.S.C. SECTION 9601 ET SEQ.) or any
regulations promulgated under CERCLA; (b) any "hazardous waste" as now
or hereafter defined in the Resource Conservation and Recovery Act, as
amended ("RCRA") (42 U.S.C. SECTION 6901 ET SEQ.) or any regulations
promulgated under RCRA; (c) any substance now or hereafter regulated
by the Toxic Substances Control Act, as amended ("TSCA") (15 U.S.C.
SECTION 2601 ET SEQ.) or any regulations promulgated under TSCA; (d)
petroleum, petroleum by-products, gasoline, diesel fuel, or other
petroleum hydrocarbons; (e) asbestos and asbestos-containing material,
in any form, whether friable or non-friable; (f) polychlorinated
biphynyls; (g) lead and lead-containing materials; or (h) any
additional substance, material or waste (A) the presence of which on
or about the Premises (i) requires reporting, investigation or
remediation under any Environmental Laws (as hereinafter defined), (u)
causes or threatens to cause a nuisance on the Leased Premises or any
adjacent property or poses or threatens to pose a hazard to the health
or safety of persons on the Leased Premises or any adjacent property,
or (iii) which, if it emanated or migrated from the Leased Premises,
could constitute a trespass, or (B) which is now or is hereafter
classified or considered to be hazardous or toxic under any
Environmental Laws.
2. As used in this Lease, the term "Environmental Laws" shall
mean and include (a) CERCLA, RCRA and TSCA; and (b) any other federal,
state or local laws, ordinances, statutes, codes, rules, regulations,
orders or decrees now or hereinafter in effect relating to (i)
pollution, (ii) the protection or regulation of human health, natural
resources or the environment, (iii) the treatment, storage or disposal
of Hazardous Materials, or (iv) the emission, discharge, release or
threatened release of Hazardous Materials into the environment.
3. Lessee agrees that during its use and occupancy of the
Premises it will (a) not (i) permit Hazardous Materials to be present
on or about the Premises except in a manner and quantity necessary for
the ordinary performance of Lessee's business or (ii) release,
discharge or dispose of any Hazardous Materials on, in, at, under, or
emanating from, the Premises or the property in which the Premises are
located; (b) comply with all Environmental Laws relating to the
Premises and the use of Hazardous Materials on or about the Premises
and not engage in or permit others to engage in any activity at the
Premises in violation of any Environmental Laws; and (c) immediately
notify Lessor of (i) any inquiry, test, investigation or enforcement
proceeding by any governmental agency or authority against Lessee,
Lessor or the Premises relating to any Hazardous Materials or under
any Environmental Laws or (ii) the occurrence of any event or
existence of any condition that would cause a breach of any of the
covenants set forth in this Section 29.
4. If Lessee's use of Hazardous Materials on or about the
Premises results in a release, discharge or disposal of Hazardous
Materials on, in, at, under, or emanating from, the Premises or the
property in which the Premises are located, Lessee agrees to
investigate, clean up, remove or remediate such Hazardous Materials in
full compliance with (a) the requirements of (i) all Environmental
Laws and (ii) any governmental agency or authority responsible for the
enforcement of any Environmental Laws; and (b) any additional
requirements of Lessor that are reasonably necessary to protect the
value of the Premises or the property in which the Premises are
located.
5. Upon reasonable notice to Lessee, Lessor may inspect the
Premises for the purpose of determining whether there exists on the
Premises any Hazardous Materials or other condition or activity that
is in violation of the requirements of this Lease or of any
Environmental Laws. Lessee will supply to Lessor such historical and
operational information regarding the Premises as may be reasonably
requested to facilitate any such inspection and will make available
for meetings appropriate personnel having knowledge of such matters.
Lessee agrees to give Lessor at least sixty (60) days prior notice of
its intention to vacate the Premises so that Lessor will have an
opportunity to perform such an inspection prior to such vacation. The
right granted to Landlord herein to perform inspections shall not
create a duty on Lessor's part to inspect the Premises, or liability
on the part of Lessor for Lessee's use, storage or disposal of
Hazardous Materials, it being understood that Lessee shall be solely
responsible for all liability m connection therewith.
6. Lessor shall have the right, but not the obligation, prior
or subsequent to am event of default, without in any way limiting
Lessor's other rights and remedies under this Lease, to enter upon the
Premises, or to take such other actions as it deems necessary or
advisable, to investigate, clean up, remove or remediate any Hazardous
Materials or contamination by Hazardous Materials present on, un, at,
under, or emanating from, the Premises or the property un which the
Premises are located in violation of Lessee's obligations under this
Lease or under any Environmental Laws. Notwithstanding any other
provision of this Lease, Lessor shall also have the right, as its
election, un its own name or as Lessee's agent, to negotiate, defend,
approve and appeal, at Lessee's expense, any action taken or order
issued by any governmental agency or authority with regard to any such
Hazardous Materials or contamination by Hazardous Materials. All
costs and expenses paid or incurred by Lessor m the exercise of the
rights set forth in this Subsection 29 shall be payable by Lessee upon
demand.
7. Lessee shall surrender the Premises to Lessor upon the
expiration or earlier termination of this Lease free of debris, waste
or Hazardous Materials placed on or about the Premises by Lessee or
its agents, employees, contractors or invitees, and in a condition
which complies with all Environmental Laws.
8. Lessee agrees to indemnify and hold harmless Lessor from and
against any and all claims, losses (including, without limitation,
loss in value of the Premises or the property un which the Premises
are located), liabilities and expenses (including reasonable
attorney's fees) sustained by Lessor attributable to (i) any Hazardous
Materials placed on or about the Premises by Lessee or its agents,
employees, contractors or invitees or (ii) Lessee's breach of any
provision of this Section 29.
9. The provisions of this Section 29 shall survive the
expiration or earlier termination of this Lease.
30. FINANCIAL STATEMENTS: Lessee, for the reliance of Lessor, any
---------------------
lender holding or anticipated to acquire a lien upon the Premises, the
Building or the Park or any portion thereof, or any prospective
purchaser of the Building or the Park or any portion thereof, within
ten (10) days after Lessor's request therefor, but not more often than
once annually so long as Lessee is not in default of this Lease, shall
deliver to Lessor the then current audited financial statements of
Lessee (including interim periods following the end of the last fiscal
year for which annual statements are available) which statements shall
be prepared or compiled by a certified public accountant and shall
present fairly the financial condition of Lessee at such dates and the
result of its operations and changes in its financial positions for
the periods ended on such dates. If an audited financial statement
has not been prepared, Lessee shall provide Lessor with an unaudited
financial statement and/or such other information, the type and form
of which are acceptable to Lessor in Lessor's reasonable discretion,
which reflects the financial condition of Lessee. If Lessor so
requests, Lessee shall deliver to Lessor an opinion of a certified
public accountant, including a balance sheet and profit and loss
statement for the most recent prior year, all prepared in accordance
with generally accepted accounting principles consistently applied.
Any and all options granted to Lessee hereunder shall be subject to
and conditioned upon Lessor's reasonable approval of Lessee's
financial condition at the time of Lessee's exercise of any such
option.
31. GENERAL PROVISIONS:
-------------------
(i) TIME. Time is of the essence in this Lease and with respect
to each and all of its provisions in which performance is a factor.
(ii) SUCCESSORS AND ASSIGNS. The covenants and conditions
herein contained, subject to the provisions as to assignment, apply to
and bind the heirs, successors, executors, administrators and assigns
of the parties hereto.
(iii) RECORDATION. Lessee shall not record this Lease or a
short form memorandum hereof without the prior written consent of the
Lessor.
(iv) LESSOR'S PERSONAL LIABILITY. The liability of Lessor
(which, for purposes of this Lease, shall include Lessor and the owner
of the Building if other than Lessor) to Lessee for any default by
Lessor under the terms of this Lease shall be limited to the actual
interest of Lessor and its present or future partners in the Premises
or the Building and Lessee agrees to look solely to the Premises for
satisfaction of any liability and shall not look to other assets of
Lessor nor seek any recourse against the assets of the individual
partners, directors, officers, shareholders, agents or employees of
Lessor; it being intended that Lessor and the individual partners,
directors, officers, shareholders, agents or employees of Lessor shall
not be personally liable in any manner whatsoever for any judgment or
deficiency. The liability of Lessor under this Lease is limited to
its actual period of ownership of title to the Building, and Lessor
shall be automatically released from further performance under this
Lease and from all further liabilities and expenses hereunder upon
transfer of Lessor's interest in the Premises or the Building. Lessee
agrees to attorn to any entity purchasing or other vise acquiring the
Premises.
(v) SEPARABILITY. Any provisions of this Lease which shall prove
to be invalid, void or illegal shall in no way affect, impair or
invalidate any other provisions hereof and such other provision shall
remain in full force and effect.
(vi) CHOICE OF LAW. This Lease shall be governed by the laws
of the State of California.
(vii) ATTORNEYS' Fees. In the event any legal action is
brought to enforce or interpret the provisions of this Lease, the
prevailing party therein shall be entitled to recover all costs and
expenses including reasonable attorneys' fees.
(viii) ENTIRE AGREEMENT. This Lease supersedes any prior
agreements, representations, negotiations or correspondence between
the parties, and contains the entire agreement of the parties on
matters covered. No other agreement, statement or promise made by any
party that is not in writing and signed by all parties to this Lease
shall be binding.
(ix) WARRANTY OF AUTHORITY. Each person executing this
agreement on behalf of a party represents and warrants that (I) such
person is duly and validly authorized to do so on behalf of the entity
it purports to so bind, and (2) if such party is a partnership,
corporation or trustee, that such partnership, corporation or trustee
has full right and authority to enter into this Lease and perform all
of its obligations hereunder.
(x) NOTICES. All notices and demands required or permitted to be
sent to Lessor or Lessee shall be in writing and shall be sent by
United States mail, certified and postage prepaid, or by personal
delivery or by overnight courier, addressed to Lessor at 30 Executive
Park, Suite 100, Irvine, California 92714, or to Lessee at the
Premises, or to such other place as such party may designate in a
notice to the other party given as provided herein. Notice shall be
deemed given upon the earlier of actual receipt or the third day
following deposit in the United States mail.
(xi) JOINT AND SEVERAL. If Lessee consists of more than one
person or entity, the obligations of all such persons or entities
shall be joint and several.
(xii) COVENANTS AND CONDITIONS. Each provision to be
performed by Lessee hereunder shall be deemed to be both a covenant
and a condition.
(xiii) WAIVER OF JURY TRIAL. The parties hereto shall and they
hereby do waive trial by jury un any action, proceeding or
counterclaim brought by either of the parties hereto against the other
on any matters whatsoever arising out of or in any way related to this
Lease, the relationship of Lessor and Lessee, Lessee's use or
occupancy of the Premises, the Building or the Park, and/or any claim
of injury, loss or damage.
(xiv) COUNTERCLAIMS. In the event Lessor commences any
proceedings for nonpayment of Rent, or any other sums or amounts due
hereunder, Lessee shall not interpose any counterclaim of whatever
nature or description in any such proceedings, provided, however,
nothing contained herein shall be deemed or construed as a waiver of
the Lessee's right to assert such claims in any separate action
brought by Lessee or the right to offset the amount of any final
judgment owed by Lessor to Lessee.
32. SIGNS: All signs and graphics of every kind visible in or from
-----
public view or corridors or the exterior of the Premises shall be
subject to Lessor's prior written approval and shall be subject to any
applicable governmental laws, ordinances, and regulations and in
compliance with Lessor's Sign Criteria as set forth in EXHIBIT E
hereto and made a part hereof Lessee shall remove all such signs and
graphics prior to the termination of this Lease. Such installations
and removals shall be made in a manner as to avoid damage or
defacement of the Premises; and Lessee shall repair any damage or
defacement, including without limitation, discoloration caused by such
installation or removal. Lessor shall have the right, at its option,
to deduct from the Security Deposit such sums as are reasonably
necessary to remove such signs, including, but not limited to, the
costs and expenses associated with any repairs necessitated by such
removal. Notwithstanding the foregoing, in no event shall any: (a)
neon, flashing or moving sign(s) or (b) sign(s) which shall interfere
with the visibility of any sign, awning, canopy, advertising matter,
or decoration of any kind of any other business or occupant of the
Building or the Park be permitted hereunder. Lessee further agrees to
maintain any such sign, awning, canopy, advertising matter, lettering,
decoration or other thing as may be approved in good condition and
repair at all times.
33. MORTGAGEE PROTECTION: Upon any breach or default on the part of
--------------------
Lessor, Lessee will give written notice by registered or certified
mail to any beneficiary of a deed of trust or mortgagee of a mortgage
covering the Premises who has provided Lessee with notice of their
interest together with an address for receiving notice, and shall
offer such beneficiary or mortgagee a reasonable opportunity to cure
the default (which, in no event shall be more than ninety (90) days),
including time to obtain possession of the Premises by power of sale
or a judicial foreclosure, if such should prove necessary to effect a
cure. If such breach or default cannot be cured within such time
period, then such additional time as may be necessary will be given to
such beneficiary or mortgagee to effect such cure so long as such
beneficiary or mortgagee has commenced the cure within the original
time period and thereafter diligently pursues such cure to completion
in which event this Lease shall not be terminated while such cure is
being diligently pursued. Lessee agrees that each lender to whom this
Lease has been assigned by Lessor is an express third party
beneficiary hereof Lessee shall not make any prepayment of Rent more
than one (1) month in advance without the prior written consent of
each such lender, except if Lessee is required to make quarterly
payments of Rent in advance pursuant to the provisions of Paragraph 8
above. Lessee waives the collection of any deposit from such
lender(s) or any purchaser at a foreclosure sale of such lender(s)'
deed of trust unless the lender(s) or such purchaser shall have
actually received and not refunded the deposit. Lessee agrees to make
all payments under this Lease to the lender with the most senior
encumbrance upon receiving a direction, in writing, to pay said
amounts to such lender. Lessee shall comply with such written
direction to pay without determining whether an event of default
exists under such lender's loan to Lessor.
34. QUITCLAIM: Upon any termination of this Lease, Lessee shall, at
--------
Lessor's request, execute, have acknowledged and deliver to Lessor a
quitclaim deed of Lessee's interest in and to the Premises.
35. MODIFICATIONS FOR LENDER: If, in connection with obtaining
-------------------------
financing for the Premises or any portion thereof, Lessor's lender
shall request reasonable modification(s) to this Lease as a condition
to such financing, Lessee shall not unreasonably withhold, delay or
defer its consent thereto, provided such modifications do not
materially adversely affect Lessee's rights hereunder or the use,
occupancy or quiet enjoyment of Lessee hereunder.
<PAGE>
36. WARRANTIES OF LESSEE: Lessee hereby warrants and represents to
---------------------
Lessor, for the express benefit of Lessor, that Lessee has undertaken
a complete and independent evaluation of the risks inherent in the
execution of this Lease and the operation of the Premises for the use
permitted hereby, and that, based upon said independent evaluation,
Lessee has elected to enter into this Lease and hereby assumes all
risks with respect thereto. Lessee hereby further warrants and
represents to Lessor, for the express benefit of Lessor, that in
entering into this Lease, Lessee has not relied upon any statement,
fact, promise or representation (whether express or implied, written
or oral) not specifically set forth herein in writing and that any
statement, fact, promise or representation (whether express or
implied, written or oral) made at any time to Lessee, which is not
expressly incorporated herein in writing, is hereby waived by Lessee.
37. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT: Lessor and
-----------------------------------------------
Lessee hereby agree and acknowledge that the Premises, the Building
and/or the Park may be subject to the requirements of the Americans
with Disabilities Act (the "ADA"), a federal law codified at 42 U.S.C.
12101 et seq, including, but not limited to Title 111 thereof, all
regulations and guidelines related thereto, and any amendments thereof
Any Tenant Improvements to be constructed hereunder shall be in
compliance with the requirements of the ADA, and all costs incurred
for purposes of compliance therewith shall be a part of and included
in the costs of the Tenant Improvements. Lessee is responsible for
conducting its own independent investigation of this matter. Except
for the construction of any Tenant Improvements, for which Lessee
shall be solely responsible for compliance with the ADA, if any
barrier removal work or other work is required to the Building, the
Common Area or the Park under Title 111 of the ADA, then such work
shall be performed by Lessor; provided, if such work is required under
the ADA as a result of Lessee's use of the Premises or any work or
alteration made to the Premises by or on behalf of Lessee, then such
work shall be performed by Lessor at the sole cost and expense of
Lessee. Except as otherwise provided in this provision, Lessee shall
be responsible at its sole cost and expense for fully and faithfully
complying with all applicable requirements of the ADA.
38. BROKERAGE COMMISSION: Lessee hereby represents and warrants to
--------------------
Lessor that Lessee's sole contact with Lessor or with the Premises in
connection with this Lease has been directly with Lessor and the
Broker (as set forth on Page 1), and that no other broker or finder
cam properly claim a right to a commission or a finder's fee based
upon contacts between the claimant and Lessee. Lessee shall
indemnify, defend by counsel acceptable to Lessor, protect and hold
Lessor harmless from and against any loss, liability, suit, judgment,
cost or expense, including, but not limited to, experts' and
attorneys' fees and costs, arising from or relating to any claim for a
fee or commission by any broker or finder in connection with the
Premises and this Lease other than Broker, if any.
IN WITNESS WHEREOF, this Lease is executed on the date and year
first written above.
LESSOR:
------
AETNA LIFE INSURANCE COMPANY,
A CONNECTICUT CORPORATION
By: Allegis Realty Investors, LLC
Its Investment Advisor
By:______________________________
Julia Viskanta, Vice President
Date:___________________________
LESSEE:
EIF HOLDINGS, INC.,
A HAWAII CORPORATION
By:_________________
Its:________________
Date:_______________
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. Lessee shall not suffer or permit the obstruction of any Common
Areas, including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor
in good faith judges to be a threat to the safety, reputation, or
property of the Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within
the Project.
4. Lessee shall not keep animals or birds within the Project, and
shall not bring bicycles, motorcycles or other vehicles into
areas not designated as authorized for the same.
5. Lessee shall not make, suffer or permit litter except in
appropriate receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional
locks or bolts, without Lessor's written prior consent.
7. Lessee shall be responsible for the inappropriate use of any
toilet rooms, plumbing or other utilities. No foreign substances
of any kind are to be inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces
of the premises of the Project.
9. Lessee shaD not suffer or permit any thing in or around the
Premises or Building that causes excessive vibration or floor
loading in any part of the Project.
10. Lessee shall return all keys at the termination of its tenancy
and shall be responsible for the cost of replacing any keys that
are lost.
11. No window coverings, shades or awnings shall be installed or used
by Lessee, without Lessor's written prior consent.
12. No Lessee, employee or Invitee shall go upon the roof of the
Building without Lessor's written prior consent.
13. Lessee shall not suffer or permit smoking or carrying of lighted
cigars or cigarettes in areas reasonably designated by Lessor or
by applicable governmental agencies as non-smoking areas.
14. Lessee shall not use any method of heating or air conditioning
other than as provided by Lessor.
15. Lessee shall not install, maintain or operate any vending
machines upon the Premises without Lessor's written consent.
16. The Premises shall not be used for lodging, cooking or food
preparation.
17. Lessee shall comply with all safety, fire protection and
evacuation regulations established by Lessor or any applicable
governmental agency.
18. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such
waiver shaD not constitute a waiver of any other rule or
regulation or any subsequent application thereof to such Lessee.
19. Lessee assumes all risks from theft or vandalism and agrees to
keep its Premises locked as may be required.
20. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the
appropriate operation and safety of the Project and its
occupants. Lessee agrees to abide by these and such rules and
regulations.
PARKING RULES
1. Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers,
shippers, customers, or invitees to be loaded, unloaded, or
parked in areas other than those designated by Lessor for such
activities.
2. Users of the parking area will obey all posted signs and park
only in the areas designated for vehicle parking.
3. Unless otherwise instructed, every person using the parking area
is required to park and lock his own vehicle. Lessor will not be
responsible for any damage to vehicles, injury to persons or loss
of property, all of which risks are assumed by the party using
the parking area.
4. The maintenance, washing, waxing or cleaning of vehicles in the
Common Area is prohibited.
5. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules,
regulations, laws and agreements.
6. Lessor reserves the right to modify these rules and/or adopt such
other reasonable and non-discriminatory rules and regulations as
it may deem necessary for the proper operation of the parking
area.
LESSOR'S INITIALS:
LESSEE'S INITIALS:
<PAGE>
EXHIBIT E
SIGN CRITERIA
Any exterior signage planned by Lessee is subject to the prior written
approval by Lessor and approval by the City of Anaheim or the
applicable governmental agency. Any approved exterior signage must be
installed by a State of California licensed contractor that adequately
meets Lessor's bonding and insurance requirements. Lessor's consent
to Lessee's exterior signage shall not be unreasonably withheld.
LESSOR'S INITIALS:
LESSEE'S INITIALS:
<PAGE>
EXHIBIT F
HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the
information provided by you in this Hazardous Materials Disclosure
Certificate is necessary for the Lessor (identified below) to evaluate and
finalize a lease agreement with you as lessee. After a lease agreement is
signed by you and the Lessor (the "Lease Agreement"), on an annual basis
in accordance with the provisions of Paragraph 29 of the signed Lease
Agreement, you are to provide an update to the information initially
provided by you in this certificate. The information contained in the
initial Hazardous Materials Disclosure Certificate and each annual
certificate provided by you thereafter will be maintained in
confidentiality by Lessor subject to release and disclosure as required by
(i) any lenders and owners and their respective environmental consultants,
(ii) any prospective purchaser(s) of all or any portion of the property on
which the Premises are located, (iii) Lessor to defend itself or its
lenders, partners or representatives against any claim or demand, and (iv)
any laws, rules, regulations, orders, decrees, or ordinances, including,
without limitation, court orders or subpoenas. Any and all capitalized
terms used herein, which are not otherwise defined herein, shall have the
same meaning ascribed to such term in the signed Lease Agreement. Any
questions regarding this certificate should be directed to, and when
completed, the certificate should be delivered to:
Lessor: Aetna Life Insurance Company,
a Connecticut corporation
c/o Lincoln Property Company Management Services, Inc.
P.O.Box 19693
30 Executive Park, Suite 100
Irvine, California 92713-9693
Attn: Susan Ritschel
Phone: (714) 261-2100
Name of Lessee: EIF Holdings, Inc.
Mailing Address: 475 N. Muller Avenue, Anaheim, CA 92801
Contact Person, Title and Telephone Number(s): ____________________
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):
______________________________________________________________________
Address of Premises: 475 N. Muller Avenue
Anaheim, CA 92801
Length of Initial Term: Sixty-five (65) months.
1. GENERAL INFORMATION:
Describe the initial proposed operations to take place in, on, or
about the Premises, including, without limitation, principal products
processed, manufactured or assembled services and activities to be
provided or otherwise conducted. Existing lessees should describe
any proposed changes to on-going operations.
____________________
____________________
2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials be used, generated, stored or
disposed of in, on or about the Premises? Existing lessees
should describe any Hazardous Materials which continue to be
used, generated, stored or disposed of in, on or about the
Premises.
Wastes Yes / / No / /
Chemical Products Yes / / No / /
Other Yes / / No / /
If Yes is marked, please explain: _______________________
_________________________________________________________
____________________________________________________________
2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used, generated, stored or disposed of in, on or
about the Premises, including the applicable hazard class and an
estimate of the quantities of such Hazardous Materials at any
given time; estimated annual throughput; the proposed
location(s) and method of storage (excluding nominal amounts of
ordinary household cleaners and janitorial supplies which are
not regulated by any Environmental Laws); and the proposed
location(s) and method of disposal for each Hazardous Material,
including, the estimated frequency, and the proposed contractors
or subcontractors. Existing lessees should attach a list
setting forth the information requested above and such list
should include actual data from ongoing operations and the
identification of any variations in such information from the
prior year's certificate.
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage of gasoline, diesel,
petroleum, or other Hazardous Materials in tanks or sumps
proposed in, on or about the Premises? Existing lessees should
describe any such actual or proposed activities.
Yes / / No / /
If Yes is marked, please explain: _______________________
_________________________________________________________
____________________________________________________________
4. WASTE MANAGEMENT
4.1 Has your company been issued an EPA Hazardous Waste Generator
I.D. Number? Existing lessees should describe any additional
identification numbers issued since the previous certificate.
Yes / / No / /
4.2 Has your company filed a biennial or quarterly reports as a
hazardous waste generator? Existing lessees should describe any
new reports filed.
Yes / / No / /
If yes, attach a copy of the most recent report filed.
5. WASTEWATER TREATMENT AND DISCHARGE
5.1 Will your company discharge wastewater or other wastes to:
________storm drain? _________sewer?
________surface water? ________ no wastewater or other wastes
discharged.
Existing lessees should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).
5.2 Will any such wastewater or waste be treated before discharge?
Yes / / No / /
If yes, describe the type of treatment proposed to be conducted.
Existing lessees should describe the actual treatment conducted.
________________________________________________________________
___________________________________________________________________
6. AIR DISCHARGES
6.1 Do you plan for any air filtration systems or stacks to be used
in your company's operations in, on or about the Premises that
will discharge into the air; and will such air emissions be
monitored? Existing lessees should indicate whether or not there
are any such air filtration systems or stacks in use in, on or
about the Premises which discharge into the air and whether such
air emissions are being monitored.
Yes / / No / /
If yes, please describe:
_________________________________________________________
6.2 Do you propose to operate any of the following types of equipment, or
any other equipment requiring an air emissions permit? Existing
lessees should specify any such equipment being operated in, on or
about the Premises.
______Spray booth(s) _____Incinerator(s)
______Dip tank(s) _____Other (Please describe)
_____ Drying oven(s) ____ No Equipment Requiring Air Permits
If yes, please describe:
____________________________________________________
____________________________________________________
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("Management Plan") pursuant
to Fire Department or other governmental or regulatory agencies'
requirements? Existing lessees should indicate whether or not a
Management Plan is required and has been prepared.
Yes / / No / /
If yes, attach a copy of the Management Plan. Existing lessees
should attach a copy of any required updates to the Management
Plan.
7.2 Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the
Premises regulated under Proposition 65? Existing lessees should
indicate whether or not there are any new Hazardous Materials
being so used which are regulated under Proposition 65.
Yes / / No / /
If yes, please explain:
____________________________________________________
____________________________________________________
8. ENFORCEMENT ACTIONS AND COMPLAINTS
8.1 With respect to Hazardous Materials or Environmental Laws, has
your company ever been subject to any agency enforcement
actions, administrative orders, or consent decrees or has your
company received requests for information, notice or demand
letters, or any other inquiries regarding its operations?
Existing lessees should indicate whether or not any such
actions, orders or decrees have been, or are in the process of
being, undertaken or if any such requests have been received.
Yes / / No / /
If yes, describe the actions, orders or decrees and any
continuing compliance obligations imposed as a result of these
actions, orders or decrees and also describe any requests,
notices or demands, and attach a copy of all such documents.
Existing lessees should describe and attach a copy of any new
actions, orders, decrees, requests, notices or demands not
already delivered to Lessor pursuant to the provisions of
Paragraph 29 of the signed Lease Agreement.
8.2 Have there ever been, or are there now pending, any lawsuits
against your company regarding any environmental or health and
safety concerns?
Yes / / No / /
If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and all other
documents related thereto as requested by Lessor. Existing
lessees should describe and attach a copy of any new
complaint(s), cross-complaint(s), pleadings and other related
documents not already delivered to Lessor pursuant to the
provisions of Paragraph 29 of the signed Lease Agreement.
____________________________________________________________
____________________________________________________________
8.3 Have there been any problems or complaints from adjacent
tenants, owners or other neighbors at your company's current
facility with regard to environmental or health and safety
concerns? Existing lessees should indicate whether or not there
have been any such problems or complaints from adjacent tenants,
owners or other neighbors at, about or near the Premises.
Yes / / No / /
If yes, please describe. Existing lessees should describe any
such problems or complaints not already disclosed to Lessor under
the provisions of the signed Lease Agreement.
____________________________________________________________
____________________________________________________________
9. PERMITS AND LICENSES
9.1 Attach copies of all Hazardous Materials permits and
licenses issued to your company with respect to its
proposed operations in, on or about the Premises,
including, without limitation, any wastewater discharge
permits, air emissions permits, and use permits or
approvals. Existing lessees should attach copies of any
new permits and licenses as well as any renewals of permits
or licenses previously issued.
The undersigned hereby acknowledges and agrees that this Hazardous
Materials Disclosure Certificate is being delivered in connection with,
and as required by, Lessor in connection with the evaluation and
finalization of a Lease Agreement and will be attached thereto as an
exhibit. The undersigned further acknowledges and agrees that this
Hazardous Materials Disclosure Certificate is being delivered in
accordance with, and as required by, the provisions of Paragraph 29 of the
Lease Agreement. The undersigned further acknowledges and agrees that the
Lessor and its partners, lenders and representatives may, and will, rely
upon the statements, representations, warranties, and certifications made
herein and the truthfulness thereof in entering into the Lease Agreement
and the continuance thereof throughout the term, and any renewals thereof,
of the Lease Agreement. I (print name) , acting
with full authority to bind the (proposed) Lessee and on behalf of the
(proposed) Lessee, certify, represent and warrant that the information
contained in this certificate is true and correct.
LESSEE:
EIF HOLDINGS, INC.,
A HAWAII CORPORATION:
By:____________________
Its:___________________
Date:__________________
<PAGE>
EXHIBIT G
CHANGE OF COMMENCEMENT DATE
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease Agreement (the "Amendment") is made as of
__________________ 19__ , by and between ____________ ("Lessor") and
_____________ a _______________ ("Lessee") with reference to that certain
Lease Agreement (the "Lease"), dated __, by and between Lessor and Lessee
for the leasing of certain premises (the "Premises") located at
_____________, ____________ California.
A. Lessor and Lessee hereby agree that the Lease shall be amended as
follows:
1. The Commencement Date shall be _______________.
2. The last date of the term of the Lease shall be ________________.
3. The rent waiver period shall be ___________________.
4. The rent start date shall be ___________________.
5. The dates on which the Base Rent will be adjusted are:
______________________
______________________
______________________
B. Lessor and Lessee hereby further agree that the Lease is in full
force and effect, and that the terms and provisions of the Lease shall
remain unchanged except as modified in this Amendment.
LESSOR:
___________________________,
a _________________________
By:________________________
Its:_______________________
Dated:_____________________
LESSEE:
___________________________,
a _________________________
By:________________________
Its:_______________________
Dated:_____________________
LESSOR'S INITIALS:
LESSEE'S INITIALS:
<PAGE>
EXHIBIT H
GUARANTY
IN CONSIDERATION of and as an inducement for the granting, execution
and delivery by Aetna Life Insurance Company, a Connecticut
corporation, as lessor ("Lessor"), of the Lease Agreement (the
"Lease") dated January 9, 1997, with EIF Holdings, Inc., a Hawaii
corporation, as lessee ("Lessee"), relating to the leasing and use of
those certain premises located at 475 N. Muller, Anaheim, California
92801, as more particularly described in the Lease (the "Premises"),
the undersigned, American Eco Corporation, an Ontario, Canada
corporation ("Guarantor"), hereby covenants and agrees as follows:
1. Guarantor unconditionally and irrevocably guarantees to Lessor
the full and prompt payment of Rent (as such term is defined in the
Lease) and any and all other sums and charges payable by Lessee under
the Lease, and hereby unconditionally and irrevocably guarantees the
full, faithful and timely performance and observance of all the
covenants, terms, conditions and agreements required to be performed
and observed by Lessee under the Lease and any amendment, modification
or renewal thereof.
2. Guarantor hereby covenants and agrees to and with Lessor that if
a default shall at any time be made by Lessee in the payment of any
such Rent or other such sums and charges payable by Lessee under the
Lease, or if Lessee should default in the performance and observance
of any of the terms, covenants, provisions or conditions contained in
the Lease or, should Rent or other sums and charges not be paid or
terms, covenants, provisions and conditions not be performed in the
event of a Financial Proceeding (as defined in Paragraph 10 below),
Guarantor shall and forthwith pay such Rent and other such sums and
charges and any arrears thereof (including, without limitation,
damages, interest, costs, fees, attorneys' fees and expenses)
(collectively, the "Lease Amounts"), and shall and will forthwith pay
all Lease Amounts that (a) may arise in connection with or otherwise
relate to any default by Lessee under the Lease and/or any enforcement
of this Guaranty, or (b) would have accrued under the Lease but for
the commencement of a Financial Proceeding.
3. Guarantor's obligations under this Guaranty shall be binding on
Guarantor's successors and assigns. All references in this Guaranty
(a) to Lessor and Lessee shall include their successors, assigns or
subtenants, as the case may be, (b) to Lessee, shall also include any
entity created by or pursuant to any Financial Proceeding; and (c) to
Lessee, shall include any successors in interest to Lessee (whether or
not directly succeeding Lessee) by reason of an Event of
Reorganization (as defined in Paragraph 10 below).
4. The provisions of the Lease may be changed by agreement between
Lessor and Lessee without the consent of or notice to Guarantor. The
provisions of the Lease may be changed by agreement between Lessor and
any permitted assignee of Lessee or any subsequent assignee without
the consent of or notice to Guarantor. The Lease may be assigned by
Lessor or Lessee, and the Premises, or a portion thereof, may be
sublet by Lessee, all in accordance with the provisions of the Lease,
without the consent of or notice to Guarantor. This Guaranty shall
guarantee the performance of the Lease so assigned. Without limiting
the generality of the foregoing, Guarantor waives the rights and
benefits of California Civil Code Sections 2819 and 2820 with respect
to any change to the Lease between Lessor and Lessee, and with respect
to any change to the Lease between Lessor and any permitted assignee
of Lessee or any subsequent assignees, and agrees that by doing so
Guarantor's liability shall continue even if (a) Lessor and Lessee
alter any Lease obligations, or Lessor and any permitted assignee of
Lessee or any subsequent assignees alter the Lease obligation, or (b)
Guarantor's remedies or rights against Lessee are impaired or
suspended without Guarantor's consent by such alteration of Lease
obligations
5. This Guaranty shall not be modified or affected by Lessor's
failure or delay from time to time to enforce any of its rights under
either the Lease or this Guaranty.
6. If Lessee breaches or otherwise is in default under the Lease,
Lessor may proceed against either Guarantor or Lessee, or both, or
Lessor may enforce against Guarantor or Lessee any rights that Lessor
has under the Lease, in equity or under applicable law. If the Lease
terminates and Lessor has any rights against Lessee after termination,
Lessor may enforce those rights against Guarantor, without giving
previous notice to Lessee or Guarantor. Guarantor hereby agrees that
no notice of default need be given to Guarantor, it being specifically
agreed and understood that this Guaranty of the undersigned is a
continuing guarantee under which Lessor may proceed forthwith and
immediately against Lessee or against Guarantor following any breach
or default by Lessee.
7. Guarantor hereby waives all benefits and defenses under
California Civil Code Sections 2845, 2848, 2849 and 2850, including
without limitation: (a) the right to require Lessor to proceed against
Lessee, proceed against or exhaust any security that Lessor holds from
Lessee, or pursue any other remedy in Lessor's power; (b) any defense
to its obligations hereunder based on the termination of Lessee's
liability; (c) all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and
notices of acceptance of this Guaranty; and (d) all notices of the
existence, creation, or incurring of new or additional obligations.
Lessor shall have the right to enforce this Guaranty regardless of the
acceptance of additional security from Lessee and regardless of the
release or discharge of Lessee by Lessor or by others, or by operation
of any law.
8. The obligations of Lessee under the Lease to execute and deliver
estoppel certificates and applicable financial statements, if any,
shall be interpreted to also require such documents from Guarantor
with respect to this Guaranty within the same time periods prescribed
in the Lease, except that such certificates and statements shall be
with regard to the Guaranty, not the Lease.
9. Guarantor's liability hereunder shall continue until all sums due
and owing Lessor under the Lease have been paid and all obligations of
Lessee to be performed under the Lease have been performed, all to the
satisfaction of Lessor.
10. The obligations of Guarantor under this Guaranty shall remain in
full force and effect and Guarantor shall not be discharged by any of
the following events with respect to Lessee or Guarantor: (a)
insolvency, bankruptcy, reorganization arrangement, adjustment,
composition, assignment for the benefit of creditors, liquidation,
winding up or dissolution (each, a "Financial Proceeding"); (b) any
merger, acquisition, consolidation or change in entity structure, or
any sale, lease, transfer, or other disposition of any entity's
assets, or any sale or other transfer of interests in the entity
(each, an "Event of Reorganization"), or (c) any sale, exchange,
assignment, hypothecation or other transfer, in whole or in part, of
Lessor's interest in the Premises or the Lease. Nothing in this
Paragraph 10 shall diminish the effect of any subsequent written
agreement between Guarantor and Lessor.
11. Guarantor hereby represents and warrants that it has executed
this Guaranty based solely on its independent investigation of
Lessee's financial condition. Guarantor hereby assumes responsibility
for keeping informed of Lessee's financial condition and all other
circumstances affecting Lessee's performance of its obligations under
the Lease. Absent a written request for such information by
Guarantor, Lessor shall have no duty to advise Guarantor of any
information known to it regarding such financial condition or
circumstances.
12. Guarantor further agrees that it may be joined in any action
against Lessee in connection with the said obligations of Lessee and
recovery may be had against Guarantor in any such action. Guarantor
hereby expressly waives the benefits and defenses under California
Civil Code Sections 2821, 2839, 2847, 2848, 2849 and 2855 to the
fullest extent permitted by applicable law. Guarantor agrees not to
exercise any of its rights of subrogation or reimbursement against
Lessee until after all amounts due and owing under the Lease have been
paid. If the foregoing waiver is determined by a court of competent
jurisdiction to be void or voidable, Guarantor agrees to subordinate
its rights of subrogation and reimbursement against Lessee to Lessor's
rights against Lessee under the Lease.
13. Guarantor hereby represents and warrants that, as of the date of
the execution of this Guaranty by Guarantor, there is no action or
proceeding pending or, to Guarantor's knowledge after due inquiry,
threatened against Guarantor before any court or administrative agency
which could adversely affect the Guarantor's financial condition. The
foregoing representation and warranty shall survive the execution and
delivery of this Guaranty and is expressly made for the benefit of
Lessor, and Lessor's partners, lenders, representatives, successors
and assigns.
14. This Guaranty shall be one of payment and performance and not of
collection. If there is more than one undersigned Guarantor, the term
Guarantor, as used herein, shall include and be binding upon each and
every one of the undersigned, and each of the undersigned shall be
jointly and severally liable hereunder. If there is more than one
undersigned Guarantor, Lessor shall have the right to join one or all
of them in any proceeding or to proceed against them in any order.
15. Guarantor shall indemnify, defend (with counsel acceptable to
Lessor), protect and hold harmless Lessor, and Lessor's partners,
lenders, representatives, successors and assigns from and against all
liabilities, losses, claims, demands, judgments, expenses and costs
(including all attorneys' fees and costs to enforce any of the terms
of this Guaranty or otherwise awarded hereunder) arising from or in
any way related to any failure by Lessee or Guarantor to pay Rent and
any and all other sums and charges payable by Lessee under the Lease,
or to fully, faithfully and timely perform and observe all the
covenants, terms, conditions and agreements required to be performed
and observed by Lessee under the Lease.
16. The term "Lease" whenever used in this Guaranty shall be deemed,
and interpreted so as, to also include any renewals or extensions of
the initial or renewal term(s), as the case may be, and any holdover
periods thereunder.
17. All demands, notices and other communications under or pursuant
to this Guaranty shall be in writing, and shall be deemed to have been
duly given when personally delivered, or three (3) days after the date
deposited in the United States Postal Service, first-class postage
prepaid, certified with return receipt requested, or the delivery date
designated for overnight courier services (e.g. Federal Express),
addressed to the party at the address set forth below, or at such
other address as may be hereafter designated in writing by either
party to the other.
LESSOR:
Aetna Life Insurance Company, a Connecticut corporation
c/o Lincoln Property Company Management Services, Inc.
30 Executive Park, Suite 100
Irvine, California 92714
Attention: Susan Ritschel
GUARANTOR:
American Eco Corporation,
an Ontario, Canada corporation
____________________________________________
____________________________________________
Attention:__________________________________
18. Guarantor hereby represents and warrants that is duly authorized
to execute and deliver this Guaranty, that this Guaranty is binding on
Guarantor in accordance with its terms; that the terms and provisions
of this Guaranty are intended to be valid and enforceable in
accordance with its terms; and that the signatory to this Guaranty is
duly authorized to bind Guarantor and execute this Guaranty on
Guarantor's behalf.
19. Lessor may assign this Guaranty in conjunction with the
assignment of all or any portion of Lessor's interest in the Lease,
without the necessity of obtaining Guarantor's consent thereto, and
any such assignment shall not affect, or otherwise relieve, Guarantor
from its obligations or liability hereunder. Guarantor may not assign
or otherwise delegate any of its rights or obligations hereunder
without first obtaining Lessor's written consent thereto, which
consent may be withheld in Lessor's sole discretion. The terms and
provisions of this Guaranty shall inure to the benefit of Lessor and
Lessor's partners, lenders, representatives, successors and assigns.
Guarantor hereby acknowledges that Lessor is relying upon Guarantor's
covenants, representations and warranties contained in this Guaranty
in entering into the Lease with Lessee, and Guarantor hereby
undertakes to perform its obligations hereunder promptly and in good
faith.
20. If all or any portion of the obligations guaranteed hereunder are
paid or performed and all or any part of such payment or performance
is avoided or recovered, directly or indirectly, from Lessor as a
preference, fraudulent transfer or otherwise, then Guarantor's
obligations hereunder shall continue and remain in full force and
effect as to any such avoided or recovered payment or performance.
21. All representations and warranties by Guarantor contained herein
or made in writing pursuant to this Guaranty are intended to and shall
remain true and correct as of the time of execution of this Guaranty,
shall be deemed to be material, shall survive the execution and
delivery of this Guaranty, and shall be relied upon by Lessor and
Lessor's partners, lenders, representatives, successors and assigns.
22. This Guaranty shall be governed by and construed in accordance
with the laws of the State of California, irrespective of its conflict
of law rules. Guarantor hereby consents to the jurisdiction of the
courts of the State of California. This Guaranty shall be subject to
all valid applicable laws and official orders, rules and regulations,
and, in the event this Guaranty or any portion thereof is found to be
inconsistent with or contrary to any such laws or official orders,
rules or regulations, the latter shall be deemed to control, and this
Guaranty shall be regarded as modified and shall continue in full
force and effect, provided, however, that nothing herein contained
shall be construed as a waiver of any right to question or contest any
such law, order, rule or regulation in any forum having jurisdiction
in the Premises.
23. This Guaranty and any exhibits hereto constitute the entire
agreement between the parties with respect to the matters covered
herein and supersedes all prior agreements and understandings between
the parties hereto relating to the subject matter hereof
24. In the event Guarantor fails to perform any of its obligations
under this Guaranty or in the event a dispute arises concerning the
meaning or interpretation of any provision of this Guaranty, the
defaulting party or the party not prevailing in such dispute, as the
case may be, shall pay any and all costs and expenses incurred by the
other party in enforcing or establishing its rights hereunder,
including, without limitation, court costs, expert fees, and
reasonable attorneys' fees.
25. Time is of the essence of this Guaranty.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be
signed by its duly authorized representative or officer as of the date
set forth below.
GUARANTOR:
AMERICAN ECO CORPORATION,
AN ONTARIO, CANADA CORPORATION
By:__________________
Its:_________________
Date:________________
<PAGE>
ADDENDUM I
OPTION TO EXTEND THE LEASE
Reference is made to that certain Lease Agreement dated for reference
purposes as of January 9, 1997 (the "Lease") by and between Aetna Life
Insurance Company, a Connecticut corporation ("Lessor"), and EIF
Holdings, Inc., a Hawaii corporation ("Lessee"), of approximately
14,669 rentable square feet of space located at 475 N. Muller,
Anaheim, California (the "Premises"). Any capitalized terms used
herein and not otherwise defined herein shall have the meaning
ascribed to such terms as set forth in the Lease.
1. GRANT OF OPTION: EXERCISE. If Lessee has not been, during the
initial term of this Lease, or is not in default in the performance of
any of its obligations under this Lease at the time of delivery to
Lessor of the Option Notice and contingent upon review and approval of
Lessee's then current financial condition by Lessor, Lessee shall have
the right as its option to extend the term of the Lease for one (I)
term of five (5) years (the "Extended Term"). The Lease of the
Premises during the Extended Term shall be upon the same terms,
covenants and conditions as are set forth in this Lease, other than
the monthly Base Rent, the amount of the Security Deposit, this
extension option and the term of the Lease. If Lessor does not
receive from Lessee written notice of Lessee's exercise of this option
by 5:00 p.m. Pacific Time on a date which is not more than nine (9)
months nor less than six (6) months prior to the end of the term
immediately preceding the option period (the "Option Notice"), all
rights under this option shall automatically lapse and terminate and
shall be of no further force and effect. Time is of the essence
herein.
2. INITIAL BASE RENT DURING EXTENDED TERM. In the event Lessee duly
exercises its rights under this option, the monthly Base Rent
commencing on the first day of the Extended Term shall be an amount
which is the greater of (i) the then current market rent for similar
space (the "Fair Rental Value") agreed upon solely by and between
Lessor and Lessee and their agents appointed for this purpose, or (ii)
the monthly Base Rent in effect on the last day of the initial term of
the Lease. Neither Lessor nor Lessee shall have the right to have a
court establish the Fair Rental Value. If Lessor and Lessee are
unable to agree on the Fair Rental Value for the Extended Term within
ten (10) business days after receipt by Lessor of the Option Notice,
Lessor and Lessee being obligated only to act in good faith, then
Lessor and Lessee shall follow the procedures set forth in Section 3,
below.
3. DETERMINATION OF FAIR RENTAL VALUE. The "Fair Rental Value" of
the Premises shall be defined to mean the fair market rental value of
the Premises as of the commencement of the Extended Term, taking into
consideration all relevant factors, including length of term, the uses
permitted under the Lease, the quality, size, design and location of
the Premises, including the condition and value of existing Lessee
improvements, and the monthly base rent paid by Lessees for premises
comparable to the Premises, and located in the same market area as the
Premises. If the parties are unable to agree on the Fair Rental Value
for the Extended Term within ten (10) business days after receipt by
Lessor of the Option Notice, Lessor and Lessee each, at its cost and
by giving notice to the other party, shall appoint a competent and
disinterested real estate appraiser with at least five (5) years'
fulltime commercial appraisal experience in the geographical area of
the Premises to appraise and set the Fair Rental Value for the
Extended Term. If either Lessor or Lessee does not appoint an
appraiser within ten (10) days after the other party has given notice
of the name of its appraiser, the single appraiser appointed shall be
the sole appraiser and shall set the Fair Rental Value for the
Extended Term. If two (2) appraisers are appointed by Lessor and
Lessee as stated in this paragraph, they shall meet promptly and
attempt to set the Fair Rental Value. If the two (2) appraisers are
unable to agree within ten (10) days after the second appraiser has
been appointed, they shall attempt to select a third appraiser meeting
the qualifications stated in this paragraph within ten (10) days after
the last day the two (2) appraisers are given to set the Fair Rental
Value. If they are unable to agree on the third appraiser, either
Lessor or Lessee by giving ten (10) days' notice to the other party,
can apply to the Presiding Judge of the Superior Court of the county
in which the Premises is located for the selection of a third
appraiser who meets the qualifications stated in this paragraph.
Lessor and Lessee each shall bear one-half (1/2) of the cost of
appointing the third appraiser and of paying the third appraiser's
fee. The third appraiser, however selected, shall be a person who has
not previously acted in any capacity for either Lessor or Lessee.
Within fifteen (15) days after the selection of the third appraiser,
the third appraiser shall select one of the two Fair Rental Values
submitted by the first two appraisers as the Fair Rental Value for the
Extended Term. If either of the first two appraisers fails to submit
their opinion of the Fair Rental Value, then the single Fair Rental
Value submitted shall automatically be the monthly Base Rent for the
Extended Term.
4. Notwithstanding any provision to the contrary contained herein,
in no event shall the minimum monthly Base Rent for the Extended Term
as determined pursuant to the Addendum 1, be less than the highest
monthly Base Rent charged during the initial term of the Lease. Upon
determination of the monthly Base Rent for the Extended Term, pursuant
to the terms outlined above, Lessor and Lessee shall promptly execute
an amendment to the Lease stating the minimum monthly Base Rent for
the Extended Term, the amount of the Security Deposit for the Extended
Term, and confirming the expiration date of the Extended Term. Lessee
shall have no other right to extend the term of the Lease under this
Addendum I unless Lessor and Lessee otherwise agree in writing.
5. If Lessee duly and timely exercises this option in accordance
with the terms contained herein, the following shall apply: (a) Lessee
shall accept the Premises in its then "As-Is" condition and
accordingly, Lessor shall not be required to perform any additional
improvements to the Premises; (b) Lessee hereby agrees that it will
solely be responsible for any and all brokerage commissions and
finder's fees payable to any broker in Connection with the option
described herein, and Lessee hereby further agrees that Lessor shall
in no event or circumstance be responsible for the payment of any such
commissions and fees; and (c) Lessee shall deliver to Lessor,
concurrently with the delivery of the Option Notice, a non-refundable
deposit in the amount of the monthly Base Rent in effect as of the
last month of the initial term of the Lease (the "Option Deposit").
If, after the delivery to Lessor of the Option Notice, Lessee fails to
actually lease the Premises during the Extended Term, then Lessor
shall retain the Option Deposit. If, after the delivery to Lessor of
the Option Notice, Lessee does actually lease the Premises during the
Extended Term, then Lessor shall apply the Option Deposit against any
increase in the amount of the Security Deposit required during the
Extended Term and the balance of the Option Deposit shall be applied
against the monthly Base Rent payable by Lessee during the first month
of the Extended Term.
6. At Lessor's option, all rights of Lessee under this option shall
terminate and be of no force and effect if any of the following
individual events occur or any combination thereof occur: (I) Lessee
has been at any time during the initial term of the Lease, or is in
default of any provision of the Lease beyond any notice and cure
period at the time of delivery to Lessor of the Option Notice; and/or
(2) Lessee's or Lessee's Affiliate's (as the case may be) financial
condition is unacceptable to Lessor at the time the Option Notice is
delivered to Lessor; and/or (3) Lessee has failed to exercise this
option in a timely manner in strict accordance with the provisions of
this Addendum I; and/or (4) Lessee or an Affiliate of Lessee no longer
has possession of all or any part of the Premises under the Lease, or
if the Lease has been terminated earlier, pursuant to the terms of the
Lease.
LESSOR'S INITIALS:
LESSEE'S INITIALS:
Exhibit 21
Subsidiaries
Subsidiary Jurisdiction of Incorporation
P.W. Stephens Contractors, Inc. California
QHI Stephens Contractors, Inc.* California
P.W. Stephens Residential, Inc. California
Kelar Controls, Inc. California
P.W. Stephens Contractors, Inc. Missouri
P.W. Stephens Services, Inc. Missouri
*A wholly-owned subsidiary of P.W. Stephens Contractors, Inc., a
California corporation
Does not include inactive subsidiaries
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM EIF HOLDINGS, INC. FORM 10-KSB FOR THE YEAR
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 178,231
<SECURITIES> 0
<RECEIVABLES> 7,299,059
<ALLOWANCES> 326,343
<INVENTORY> 478,370
<CURRENT-ASSETS> 8,367,819
<PP&E> 5,318,636
<DEPRECIATION> 4,043,549
<TOTAL-ASSETS> 10,575,503
<CURRENT-LIABILITIES> 14,074,967
<BONDS> 73,882
0
0
<COMMON> 3,019,246
<OTHER-SE> (6,592,592)
<TOTAL-LIABILITY-AND-EQUITY> 10,575,503
<SALES> 0
<TOTAL-REVENUES> 27,537,589
<CGS> 20,785,194
<TOTAL-COSTS> 20,785,194
<OTHER-EXPENSES> 11,551,845
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 477,320
<INCOME-PRETAX> (5,209,720)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,209,720)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,209,720)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
