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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, 1999
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or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 0-22388
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US INDUSTRIAL SERVICES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 99-0273889
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11011 Jones Road, Houston, Texas 77070
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(281) 774-7000
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $ .01 PAR VALUE
(Title of Class)
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, 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.[ ]
Issuer's revenues for its most recent fiscal year: $10,050,000
As of March 31, 2000, the aggregate market value of the voting stock held by
non-affiliates was $1,985,150 (1,588,120 shares held by persons other than
affiliates) at an average of the high and low bid and high and low asked prices
of $1.25 as reported by NASDAQ.
At March 31, 2000, 8,763,978 shares of Common Stock were outstanding.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (Check one): YES [ ] NO [X]
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US INDUSTRIAL SERVICES, INC.
Table of Contents
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PART I
Item 1. Description of Business....................................................................3
Item 2. Description of Property....................................................................9
Item 3. Legal Proceedings.........................................................................10
Item 4. Submission of Matters to a Vote of Security Holders.......................................10
PART II
Item 5. Market For Common Equity And Related Stockholder Matters..................................11
Item 6. Management's Discussion and Analysis of Plan..............................................11
Item 7. Financial Statements......................................................................14
Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure......30
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(A) of The Exchange Act.........................................................31
Item 10. Executive Compensation....................................................................32
Item 11. Security Ownership of Certain Beneficial Owners and Management............................32
Item 12. Certain Relationships and Related Transactions............................................33
Item 13. Exhibit and Reports on Form 8-K...........................................................33
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Organization and Recent Developments
US Industrial Services, Inc. a Delaware corporation (the "Company" or
"USIS"), is the successor to EIF Holdings, Inc., a Hawaii corporation ("EIFH").
In May 1998, the EIFH shareholders approved a merger with and into USIS, a
newly-formed wholly owned subsidiary of EIFH. The merger, which became effective
in June 1998, resulted in a change in name and in the state of incorporation and
also in a 1-for-10 reverse stock split of the outstanding Common Stock. All
share information in this report gives effect to the reverse stock split.
Subsequent to the May 1998 reincorporation and recapitalization (the
"Reincorporation"), the Company effected a conversion of a substantial portion
of its unsecured debt to equity, disposed of most operating businesses and is
seeking to refocus its activities in other industries.
In November 1997, the Company completed the acquisition of J.L. Manta,
Inc. an Illinois corporation ("Manta"), which provided specialty coatings and
industrial maintenance services. The consideration paid by the Company included
$4,725,321 of cash and $2,235,312 of convertible promissory notes, payable in
installments, with the final payment due on November 18, 2000. The Company also
entered into Retention Bonus Agreements with key Manta managers providing for
bonus payments aggregating $900,000 to be amortized by the company over a six
year period and issued 50,000 options to purchase 50,000 shares of USIS Common
Stock, with a life of three years and an exercise price of $3.40. In connection
with the acquisition, Manta entered into a $10.0 million credit facility.
In November 1998, the Company sold the assets and liabilities of Manta,
including the credit facility, to Kenny Industrial Services, L.L.C. ("Kenny"),
for $23.0 million, consisting of a combination of $3.0 million of cash, a short
term note of $15.0 million, which was paid December 15, 1998, and $5.0 million
in notes due as follows: $1 million in November 1999, $1 million in November
2000, $1 million in November 2001 and $2 million in November 2002; together with
interest at 5%.
On December 31, 1998, the Company sold the assets and liabilities of
P.W. Stephens Residential Inc. ("Residential") American Temporary Sanitation
Inc. for $2.4 million, consisting of $1 million in cash and a five year
promissory note for $1.4 million, payable in equal quarterly installments
through 2004, together with interest at the Prime Rate plus 2.5% per annum.
Upon the Reincorporation, American Eco Corporation, an Ontario, Canada
corporation ("American Eco"), acquired 1,000,000 shares of the Company's Common
Stock pursuant to a February 1996 Stock Purchase Agreement. The closing had been
delayed pending the Recapitalization. At that time, American Eco held certain
promissory notes (the "Notes") of the Company consisting of outstanding
principal and interest in the aggregate amount of $17.9 million. The outstanding
amount of the Notes had been reduced by $1 million, representing the purchase
price for the 1,000,000 shares. In 1996, American Eco had provided the Company a
$5.2 million line of credit, which line of credit was convertible into shares of
the Company's Common Stock at a price equal to 85.0% of the five day weighted
average price of such shares immediately preceding the conversion date.
As of July 24, 1998, American Eco sold the Notes to USIS Acquisition,
L.L.C. (the "Holder") for $5.0 million in cash and a secured promissory note for
$12.9 million repayable on January 29, 1999. The Holder converted the Notes into
5,295,858 shares of the Company's Common Stock, and secured its promissory note
to American Eco with a pledge of the 5,295,858 shares. In November 1998, the
Holder advised American Eco that the Holder would not be able to pay its note at
maturity, and American Eco took ownership of the pledged shares in discharge of
the Holder's note. Since November 1998, American Eco has owned 7,175,858 shares
of the Company's Common Stock representing 81.9% of the outstanding shares, see
Item 11, Security Ownership of Certain Beneficial Owners and Management.
Historical
EIF Holdings, Inc. was formed in the State of Hawaii in 1989, and
migrated to Delaware in 1998 and in connection therewith changed its name to
U.S. Industrial Services, Inc. Until late 1997, the Company was primarily
engaged in environmental construction related industries, more specifically,
asbestos abatement, both commercial and residential, lead removal, and soil and
groundwater remediation. The Company was also involved, to a limited extent, in
the energy management business. These activities, in particular the commercial
asbestos abatement business, involved a high percentage of relatively large,
fixed-price contracts under which the Company assumed significant financial
risks. The
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Company incurred substantial losses on a number of major contracts and
consequently reported substantial operating losses during the three-year period
ended September 30, 1997.
In May 1997, the Company changed its focus to the specialized
maintenance industry, an industry characterized by a predominance of cost-plus
contracts, creditworthy industrial customers and significant repeat business.
Management also sought to eliminate unprofitable operations, reduce the Company
overhead costs, recapitalize the Company's balance sheet, and effect
acquisitions in the specialized maintenance industry. The acquisition of Manta
was a result of this strategy.
The primary businesses of the Company have been acquired through a
series of acquisitions. In January 1993, the Company acquired P.W. Stephens
Contractors, Inc., ("P.W. Stephens") which was engaged in the environmental
contracting industry, primarily focusing on the removal of materials containing
asbestos, but also offering lead hazard removal, insulation and other hazardous
materials clean-up services. Services were offered to the commercial, industrial
and institutional markets, primarily in the states of California, Hawaii and
Nevada. These operations were conducted out of seven branch offices located
throughout the service area. Services were offered to the residential market in
California through Residential, a California corporation, and a wholly-owned
subsidiary of P. W. Stephens. As previously mentioned, Residential was sold as
of December 31, 1998. In the fourth quarter of 1996, the Company assumed the
assets of QHI, Inc., a California corporation out of bankruptcy, which provided
asbestos abatement services to the commercial, industrial and institutional
markets.
The commercial asbestos operations of P. W. Stephens had generated
operating losses over each of the years from 1995 to 1997. As part of
management's efforts to eliminate unprofitable operations, all of the operations
of P. W. Stephens, with the exception of Residential, were discontinued by the
Company in May 1997.
In August 1994, the Company acquired VonGuard Holdings, Inc.
("Vonguard"), and its subsidiaries. VonGuard was formed as a Missouri
corporation in 1992, as a holding company to acquire FCA Services, Inc. ("FCA")
and Remediation Services, Inc. ("RSI"). FCA had been in business since 1987 and
RSI since 1989. In June 1996, VonGuard and Enstar-North American, Inc., a
subsidiary of VonGuard, were merged into FCA and the name of the entity was
changed to P. W. Stevens Services, Inc., a Missouri corporation. At the same
time, Select Abatement, Inc., a subsidiary of VonGuard, was merged into RSI and
the name of that entity was changed to P. W. Stephens Contractors, Inc., a
Missouri corporation. P.W. Stephens Services, Inc. and P. W. Stephens
Contractors, Inc. (Missouri) are collectively referred to as "P. W. Stephens -
St. Louis" or "St. Louis". P. W. Stephens - St Louis provides industrial
cleaning and remediation services, including soil and groundwater remediation,
hazardous materials management and clean-up, asbestos abatement and lead hazard
removal service, to clients, primarily located in the states of Illinois, Iowa,
Missouri, Nebraska and Washington.
In December 1994, the Company acquired Kelar Controls, Inc., a
California corporation ("Kelar"). Kelar primarily installed new or retrofitted
energy management controls and conservation equipment for large storage and
warehouse facilities. Management of the Company determined that the business of
Kelar was not consistent with the strategic direction of the Company and sold
Kelar to Regal Oak Properties, Inc., effective June 30, 1997, for a one-year 10%
interest-bearing note in the principal amount of $2.5 million. This note,
including interest, was satisfied in August of 1998.
Services Provided By Continuing Subsidiaries
P.W. Stephens St. Louis provides its environmental services through
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
states of Illinois, Iowa, Missouri, Nebraska and Washington. 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.
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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 when 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 with high efficiency negative
pressure air filtration machines. The negative air units, equipped with HEPA
filters, 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 to seal off any potential
residual fibers remaining. 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 and disposed of in
the same manner as asbestos waste. After removal, the work area is thoroughly
cleaned using high efficiency particulate air filter vacuuming and wet mopping
of all surfaces.
Each asbestos field worker must complete training and safety programs
as required by state and federal regulations. 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 contaminated 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, posing a risk to occupants and construction
workers. Lead was added to paint used on the interior and exterior of buildings
to shorten drying time and increase the durability of paint. The EPA began to
restrict the use of lead-based paint during the 1970s. The largest initial
market for lead-based paint abatement is 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.
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The Company removes lead from various surfaces using various techniques
including wet sanding, stripping or component replacement and ultra high
pressure water blasting (see "Industrial Cleaning" herein). The Company also
encapsulates and encloses surfaces of lead based coated products. As with
asbestos removal, dust minimization and control of the environment are required.
Each lead field worker and supervisor must complete training programs
required by state regulations. 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 is in compliance with these training
requirements.
Soil and Groundwater Remediation and Hazardous Materials Cleanup
The Company performs soil and groundwater remediation and hazardous
materials services. Soil remediation is used 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
and 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
generally performs this assessment through a joint venture with an independent
environmental engineering firm or it is conducted by the client's environmental
consultant. Once the assessment is completed, the Company will then assist in
formulating a remediation solution which meets the client's individual needs.
Industrial Cleaning
The Company provides industrial cleaning services primarily using
hydroblasting technology. 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 can remove urethane coatings, fiberglass coatings,
rubberized coatings, and lead-base paint from steel and concrete substrates.
Hydroblasting can also be used to cut steel and concrete through the use of
entrained abrasive without the risk of sparking. Industrial cleanings services
are also utilized in cleaning barges, railroad cars and conveyor systems in
manufacturing and distribution plants.
Raw Materials
The Company obtains its raw materials, supplies and small tools used in
its operations from multiple vendors. Although unforeseen costs and delays could
occur resulting from catastrophic environmental emergencies, the Company
believes that sufficient sources of raw materials exist to cover its operational
needs.
Strategy
In November 1998, the Company adopted a strategic plan to sell off all
industrial service and environmental companies with the goal of rebuilding the
Company with a clean balance sheet and engaging in a line of business related to
another industry. The implementation of this strategy began when the Company
sold the assets and liabilities of Manta on November 30, 1998. The second step
was completed on December 31, 1998 when the Company sold the assets and
liabilities of Residential. Management is continuing to evaluate strategic
alternatives.
Customers
The shift in strategic direction of the Company is resulting in changes
in the Company's customer list. At the present time, the Company provides
services through its subsidiary P.W. Stephens St. Louis. Services are primarily
provided in the states of Illinois, Iowa, Missouri, Nebraska and Washington.
Most of the customers are manufacturing facilities and government installations.
For the year ended September 30, 1999, the Company had three
significant customers that accounted for approximately 19%, 15% and 14% of total
sales, respectively. At September 30, 1999 the amounts due from these three
customers was approximately $371,000, $27,000 and $259,000, respectively. During
the fiscal year ended September 30, 1998, no customer accounted for more than
ten percent (10%) of the Company's annual revenues.
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Competition
At the present time, the Company provides services through its
subsidiary P.W. Stephens St. Louis. Services are primarily in the states of
Illinois, Iowa, Missouri, Nebraska and Washington. These markets are all
competitive markets in which numerous other companies compete on the basis of
quality, service and price. Many of the competitive firms have revenues and
capital resources exceeding those of the Company. The Company believes that
competitive pressures will continue, but that it will continue to receive a
reasonable share of the contracts awarded based on its reputation in the
industry, ability to meet competitive pricing levels and to provide high quality
service to its customers.
Insurance and Bonding
The Company obtains insurance covering certain general risks inherent
in the industrial service industry such as the liability from delays, fires or
breaches in the enclosure or "containment" of a work area resulting from its
acts or the acts of subcontractors.
Commercial and industrial projects involving environmental cleanup or
demolition often require contractors to post both performance and payment bonds,
or letters of credit in lieu thereof, at the time of execution of a contract.
These bonds are required to protect the interests of the general public and
private owners in order to guarantee that the projects will be completed and all
subcontractors and vendors are paid. The Company is currently meeting its
bonding needs through its relationships with various bonding companies as
projects require.
Government Regulation
The Company's industrial clean-up operation, particular those
operations related to environmental and asbestos removal, 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 as well as the construction industry in general. The
Company's operations and compliance with statutes and regulations are reviewed
by various governmental agencies and, from time to time, these agencies may make
requests for information or issue citations for noncompliance.
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 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.
State and Local Regulations
P.W. Stephens St. Louis provides services in the states of Illinois,
Iowa, Missouri, Nebraska and Washington. 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 business operation.
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 and safety and health agencies relating
to its soil and groundwater remediation services as well as its hazardous waste
management services. Although the Company's
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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 rapidly developing
and subject to varying interpretations, 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
impoundments, 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.
The Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA", also referred to as the "Superfund Act") 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 as well as 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 comply and conform its
operations to the requirements of any of these 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
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aspect of this program, the Company's quality control officers perform random
inspections before, during, and after project 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, 1999 and 1998 have not been material and the Company has had no
customer sponsored research activities during each of these periods.
Employees
As of March 31, 2000, the Company had approximately 46 full-time
personnel employed as executives, managers, project managers, safety directors,
sales and estimators, as well as administrative and clerical support. In
addition, the Company also employs an hourly direct labor force which totaled
approximately 169 employees, some of whom are represented by unions under
collective bargaining agreements. Such bargaining agreements between the Company
and the unions represent employees based upon geographic region and expire at
various times. All of the employees represented by such agreements are employed
in the St. Louis operations. The Company believes that it has satisfactory
relations with its employees.
Seasonality
The Company's business is subject to variations in revenues and results
of operations for interim periods and from year to year. 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 seasonal (typically less activity in the winter
months) and 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. 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 currently own any patents, royalties, trademarks,
licenses, franchises or concessions which are material to its business.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal corporate office is located at 11011 Jones
Road, Houston, Texas which consists of office space shared with American Eco at
no incremental cost to the Company.
P.W. Stephens St. Louis leases one principal facility located at 1525
S. 8th Street, St. Louis, Missouri which has both office and warehouse space in
support of its operations. The leased property consists of approximately 7,000
square feet and has a monthly rent of $2,950 and expires in December 2004.
P.W. Stephens St. Louis purchased property in November, 1999 consisting
of 3.2 acres with improvements located in Granite City, Illinois. P.W. Stephens
St. Louis uses this facility to house its emergency response, environment
remediation, asbestos abatement and residential renovation operations.
The Company currently leases properties as necessary to support its
operations. One of the leased facilities located in California is not being
utilized and has been sublet since January 1, 1998. Both the lease and the
sublease expire concurrently in July 2002. The Company believes that the
remaining facilities are sufficient to meet the needs of its current operations
and that substitute and or additional space will be available as needed to
accommodate expansion of operations and growth through acquisitions.
9
<PAGE> 10
ITEM 3. LEGAL PROCEEDINGS
The nature and scope of the Company's business operations bring it into
regular contact with the general public, a variety of businesses and government
agencies. These activities inherently subject the Company to the hazards of
litigation, which are defended in the normal course of business. Management
believes that such proceedings are either adequately covered by insurance, or if
uninsured, by the estimated losses it has recorded to date. The resolution of
such claims, however, could have a material effect on the Company's results of
operations or cash flows..
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of shareholders during
the last quarter of fiscal 1999.
10
<PAGE> 11
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Prices
The Common Stock of the Company is traded in the over-the-counter
market. Quotations are published in the National Quotation Bureau "Pink Sheets"
and the OTC Bulletin Board under the symbol USIS. The following table sets
forth, for the fiscal quarters indicated, the range of high ask and low bid
quotations for the Company's Common Stock as reported by the National Quotation
Bureau, Inc. The quotations presented are between broker-dealers and do not
retail mark-ups, mark-downs or other fees and commissions. As a result, the
following quotations may not reflect actual transactions.
<TABLE>
<CAPTION>
Fiscal Year ended September 30, 1999: HIGH ASK LOW BID
-------- -------
<S> <C> <C>
Quarter ended September 30, 1999 19.00 2.63
Quarter ended June 30, 1999 11.06 0.31
Quarter ended March 31, 1999 1.70 0.38
Quarter ended December 31, 1998 3.42 1.25
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year ended September 30, 1998: HIGH ASK LOW BID
-------- -------
<S> <C> <C>
Quarter ended September 30, 1998 2.00 1.25
Quarter ended June 30, 1998 6.50 1.00
Quarter ended March 31, 1998 0.49 0.28
Quarter ended December 31, 1997 0.58 0.38
</TABLE>
Stockholders
As of March 31, 2000, the Company had approximately 79 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.
Dividends
The Company has not established a policy concerning payment of regular
dividends nor has it 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, capital requirements and debt covenants.
Recent Sales of Unregistered Securities
Not applicable.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN
General
The Company has been engaged in the business of asbestos abatement,
lead abatement, soil and hazardous waste remediation and industrial cleaning.
The Company services commercial, industrial and governmental customers primarily
located in the states of Illinois, Iowa, Missouri, Nebraska and Washington.
Since Manta and Residential were sold in the first quarter of fiscal
year 1999, management has chosen to offer a comparison of operations for
subsidiaries that were held by the Company for both 1999 and 1998. Management
feels that this would present the most accurate comparison of operations between
the two years. However, where material, the effect of Manta and Residential on
the financial results of the Company is noted.
Results of Operations
1999 vs. 1998
Continuing Operations
11
<PAGE> 12
Revenue:
Revenue for the year ended September 30, 1999 increased 78.6% to
$10,050,000 from $5,628,000 for the same period in 1998. The increase in revenue
can be attributed to performance under a significant contract for soil
remediation at the Hanford Nuclear Project in Hanford, Washington, that began in
March 1999.
Gross Profit:
Gross profit for the year ended September 30, 1999 increased 36.8% to
$2,236,000 from $1,635,000 for the same period in 1998. The increase in the
gross profit margin can be attributed to the increased sales activity. Gross
profit margins decreased from 29.1% to 22.2% primarily due to lower margins
relating to the soil remediation contract at the Hanford Nuclear Project.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses for the year ended
September 30, 1999 were $2,267,000 compared to $1,585,000 for the same period in
1998. Approximately $370,000 of this increase is attributable to a change in the
allocation of corporate expenses to discontinued operations between the two
years. As a percentage of total revenues adjusted for this change, selling,
general and administrative expenses decreased to 22.6% in fiscal 1999 compared
to 34.7% in fiscal 1998.
Other Expenses:
Other expenses for the years ended September 30, 1999 and 1998 were
$5,388,000 and $814,000 respectively. The expenses in 1999 were due primarily to
write-offs of certain notes receivable, the loss on disposal of certain
securities and financing fees The primary factor contributing to expense for
1998 was interest expense on various notes from the Manta acquisition.
Provision for Income Tax
In fiscal 1998 the Company recognized $3,842,000 of income tax benefits
of the Company's net operating loss carryforwards. In fiscal 1999 the Company
reserved $1,038,000 of these net operating loss carryforwards.
Discontinued Operations
Discontinued operation income for the year ended September 30, 1999
amounted to $3,361,000 compared to $1,323,000 for the year ended September 30,
1998. The income for the year ended September 30, 1999 included only two months
of Manta's operations and three months of Residential's operations, while the
year ended September 30, 1998 included a full year for each of these operations.
The reduction from operations was offset by the recognition of a gain of
$3,345,000 upon the sale of Manta.
Liquidity and Capital Resources
The Company's existing capital resources as of September 30, 1999
consists of cash and notes totaling $6,346,000, compared to $2,350,000 as of
September 30, 1998. This increase is the result of the sale of the assets, and
liabilities, of Manta and Residential for cash and notes. Management believes
that the cash and funds available are sufficient to meet its anticipated cash
requirements to operate its sole operating unit P.W. Stephens St. Louis.
During fiscal year 1999 the Company utilized net cash in operating
activities of $11,625,000, including a net loss of $3,096,000.
The Company's investing activities provided $17,170,000, primarily due
to collections from notes receivable and cash received at the time of the sale
of Manta and Residential.
The Company's financing activities in fiscal 1999 utilized $7,614,000,
primarily due to payments on long-term debt made concurrently with the sale of
Manta.
Cash requirements consist of working capital needs, obligations under
its leases and promissory notes and capital expenditures. The Company believes
that its current cash position, the expected cash flow from operations and, if
required, advances from its majority shareholder should be sufficient throughout
the next twelve months to finance its working capital needs, planned capital
expenditures and debt service requirements.
12
<PAGE> 13
Information Regarding Forward Looking Statements
This Form 10-KSB includes forward looking statements within the meaning
of section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements include statements concerning
plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements which are other than statements of
historical facts. Forward looking statements involve risks and uncertainties
which could cause actual results or outcomes to differ materially. The Company's
expectations and beliefs are expressed in good faith and are believed by the
Company to have a reasonable basis but there can be no assurance that
management's expectations, beliefs or projections will be achieved or
accomplished. In addition to other factors and matters discussed elsewhere
herein, the following are important factors that, in the view of the Company,
could cause actual results to differ materially from those discussed in the
forward-looking statements: the availability of debt or equity capital to fund
the Company's working capital needs and capital requirements, the ability of the
Company to manage its operations effectively, the collection and realization of
its investments and notes receivable, the economic conditions that could affect
demand for the Company's services, the adverse outcome of litigation and
proceedings, the ability of the Company to complete projects profitably and the
severe weather conditions that could delay projects.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Any of
the Company's computer programs that have data-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in other routine business activities.
During 1999, the Company conducted an assessment of issues related to
the Year 2000 Issue and determined that no issues existed which would cause its
computer systems not to properly utilize dates beyond December 31, 1999. At this
time, the Company cannot fully determine the impact that Year 2000 issues will
have on its customers or suppliers. If the Company's customers or suppliers do
not convert their systems to become Year 2000 compliant, the Company may be
adversely impacted. The Company believes that its vendors and customers are in
compliance with the Year 2000 Issue and has not had any material problems. The
Company has completed the Year 2000 project.
13
<PAGE> 14
ITEM 7. FINANCIAL STATEMENTS
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditor's Report - current..................................................................15
Independent Auditor's Report - predecessor..............................................................16
Consolidated Balance Sheet .............................................................................17
Consolidated Statements of Operations .................................................................18
Consolidated Statements of Stockholders' Equity ........................................................19
Consolidated Statements of Cash Flows...................................................................20
Notes to Consolidated Financial Statements .............................................................21
</TABLE>
14
<PAGE> 15
INDEPENDENT AUDITORS' REPORT - CURRENT
TO THE BOARD OF DIRECTORS
U.S. INDUSTRIAL SERVICES, INC.:
We have audited the accompanying consolidated balance sheet of U.S. Industrial
Services, Inc. as of September 30, 1999, and the statements of operations,
shareholders' equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of U.S.
Industrial Services, Inc as of September 30, 1999, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
Los Angeles, California
February 4, 2000
15
<PAGE> 16
INDEPENDENT AUDITORS' REPORT - PREDECESSOR
To the Stockholders and Directors of
U.S. INDUSTRIAL SERVICES, INC.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows for U.S. Industrial Services, Inc. (formerly
EIF Holdings, Inc.) for the year ended September 30, 1998. 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 of the statements of operations, stockholders' equity
and cash flows provides a reasonable basis for our opinion.
In our opinion, the statements of operations, stockholders' equity and cash
flows referred to above present fairly, in all material respects, the results of
operations and cash flows for U.S. Industrial Services, Inc. for the year ended
September 30, 1998 in conformity with generally accepted accounting principles.
KARLINS ARNOLD & CORBITT, P.C.
(SUCCESSORS TO KARLINS FULLER ARNOLD
AND KLODOSKY, P.C.)
The Woodlands, Texas
December 1, 1998
16
<PAGE> 17
U.S. INDUSTRIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(In Thousands)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 280
Accounts receivable, less allowance for doubtful accounts of $140 2,414
Notes receivable, current portion 1,489
Costs and estimated earnings in excess of billings on contracts in
progress 321
Prepaid expenses and other current assets 249
Deferred income tax, current portion 275
------------
TOTAL CURRENT ASSETS 5,028
------------
PROPERTY, PLANT AND EQUIPMENT, NET 1,800
------------
OTHER ASSETS
Prepaid expenses and other assets 10
Notes receivable, less current portion 4,577
Deferred income tax, less current portion 3,145
Goodwill, net of amortization of $282 660
------------
TOTAL OTHER ASSETS 8,392
------------
TOTAL ASSETS $ 15,220
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 2,676
Current portion of obligations under capital leases 417
Current portion of long-term debt 58
Due to affiliates, net 843
Billings in excess of costs and estimated earnings on contracts in
progress 246
------------
TOTAL CURRENT LIABILITIES 4,240
------------
LONG-TERM LIABILITIES
Obligations under capital leases, less current portion 934
Long-term debt, less current portion 134
------------
TOTAL LONG-TERM LIABILITIES 1,068
------------
TOTAL LIABILITIES 5,308
------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 25,000 authorized, 8,764 outstanding 88
Additional paid-in capital 22,684
Accumulated deficit (12,860)
------------
TOTAL SHAREHOLDERS' EQUITY 9,912
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 15,220
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 18
U.S. INDUSTRIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
(In Thousands except for per share amounts)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
REVENUE $ 10,050 $ 5,628
-------- --------
COSTS AND EXPENSES
Direct costs of revenue 7,814 3,993
Selling, general and administrative expenses 2,267 1,585
-------- --------
Total operating costs 10,081 5,578
-------- --------
OPERATING EARNINGS (LOSS) (31) 50
-------- --------
OTHER EXPENSES
Write-off of notes receivable 1,204 --
Loss on disposal of securities 1,298 --
Financing fees 2,849 --
Interest expense, net 37 814
-------- --------
Total other expenses 5,388 814
-------- --------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (5,419) (764)
INCOME TAX PROVISION (BENEFIT) 1,038 (3,842)
-------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (6,457) 3,078
-------- --------
DISCONTINUED OPERATIONS (NET OF INCOME TAX EFFECT OF $0)
Earnings from operations of residential asbestos business 224 189
Earnings (loss) from operations of industrial maintenance business (208) 489
Gain from sale of industrial maintenance business 3,345 --
Earnings from operations of commercial asbestos business -- 645
-------- --------
Total earnings from discontinued operations 3,361 1,323
-------- --------
NET EARNINGS (LOSS) (3,096) 4,401
OTHER COMPREHENSIVE LOSS
Unrealized loss on securities available for sale (net of income tax effect of
$457) -- (888)
-------- --------
COMPREHENSIVE EARNINGS (LOSS) $ (3,096) $ 3,513
======== ========
BASIC EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) from continuing operations $ (0.74) $ 0.85
Earnings from discontinued operations 0.39 0.36
-------- --------
Net earnings (loss) per common share $ (0.35) $ 1.21
======== ========
FULLY DILUTED EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) from continuing operations: $ (0.74) $ 0.77
Earnings from discontinued operations 0.39 0.30
-------- --------
Net earnings (loss) per common share $ (0.35) $ 1.07
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTING EARNINGS (LOSS) PER COMMON
SHARE
Basic 8,764 3,636
======== ========
Fully diluted 8,764 4,373
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
U.S. INDUSTRIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
(In Thousands)
<TABLE>
<CAPTION>
Accumulated
Common Shares Additional other Total
Shares Dollar paid-in Comprehensive Accumulated Shareholders'
Outstanding Amount Capital Income Deficit Equity
----------- ---------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1997 2,468 $ 25 $ 3,799 $ -- $ (14,164) $ (10,340)
Conversion of long-term debt 6,296 63 18,837 -- -- 18,900
Unrealized loss on securities, net -- -- -- (888) -- (888)
Net income -- -- -- -- 4,400 4,400
----------- ---------- ---------- ------------- ----------- -------------
Balance, September 30, 1998 8,764 88 22,636 (888) (9,764) 12,072
Realized loss on securities, net -- -- -- 888 -- 888
Issuance of warrants -- -- 48 -- -- 48
Net loss -- -- -- -- (3,096) (3,096)
----------- ---------- ---------- ------------- ----------- -------------
Balance, September 30, 1999 8,764 $ 88 $ 22,684 $ -- $ (12,860) $ 9,912
=========== ========== ========== ============= =========== =============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
19
<PAGE> 20
U.S. INDUSTRIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
(In Thousands)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (3,096) $ 4,400
Adjustments to reconcile net earnings (loss) to net cash used in
operating activities:
Depreciation and amortization 582 1,906
Gain on sale of Manta assets and liabilities (3,345) --
Loss on disposal of machinery and equipment 6 95
Change in deferred income tax 871 (4,403)
Non cash expense, net -- 1,291
Write-off of securities available for sale 1,298 --
Write-off of notes receivable 904 --
Issuance of warrants 48 --
Change in accounts receivables (1,527) (555)
Change in notes receivable - accrued interest (232) --
Change in receivable, officer -- (145)
Change in costs and estimated earnings in excess of
billings on jobs in progress (248) (586)
Change in prepaid retention bonus -- (763)
Change in inventory -- 165
Change in prepaid expenses and other current assets (85) 478
Change in other assets (48) 150
Change in accounts payable and accrued liabilities (8,458) (499)
Change in due to affiliates 843 --
Change in net liabilities of discontinued operations -- (1,509)
Change in billings in excess of costs and estimated
earnings on jobs in progress 862 (368)
-------- --------
Net cash used in operating activities (11,625) (343)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from notes receivable 15,066 --
Advances for notes receivable (760) --
Divestiture of businesses, net of cash sold 3,282 --
Acquisition of business, net of cash acquired -- 172
Proceeds from sale of machinery and equipment -- 252
Capital expenditures (418) (932)
-------- --------
Net cash provided by (used in) investing activities 17,170 (508)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable -- 6,210
Principal payments on long-term debt (7,778) (7,578)
Proceeds from securities available for sale -- 4,264
Proceeds from long-term debt 164 --
-------- --------
Net cash provided by (used in) financing activities (7,614) 2,896
-------- --------
NET INCREASE (DECREASE) IN CASH (2,069) 2,045
CASH AT BEGINNING OF YEAR 2,349 304
-------- --------
CASH AT END OF YEAR $ 280 $ 2,349
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 37 $ 1,888
Income Taxes 60 106
Supplemental schedule of non-cash investing and financing activities:
Machinery and equipment acquired through capital lease obligations $ 1,631 $ 471
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 21
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
1. BASIS OF PRESENTATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Description and Nature of Operations
U.S. Industrial Services, Inc. and its wholly owned subsidiaries (the "Company"
or "USIS"), (formerly "EIF Holdings, Inc.") is a multi-state service company,
specializing in industrial cleaning and remediation services, including soil and
groundwater remediation, hazardous materials management and clean-up, asbestos
abatement and lead hazard removal services, to its customers located primarily
in the states of Illinois, Iowa, Missouri, Nebraska and Washington. The Company
is a majority-owned subsidiary of American Eco Corporation ("AEC").
Effective June 22, 1998, the Company completed a recapitalization and
reincorporation through a merger with USIS, a newly-formed Delaware corporation,
and wholly-owned subsidiary of EIF Holdings, Inc. USIS became the surviving
company, and all outstanding shares of EIF common stock were exchanged on a
one-for-one basis for shares of USIS common stock.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with
generally accepted accounting principles. For certain of the Company's financial
instruments, including cash, accounts receivable, costs and estimated profits in
excess of billings on contracts in progress, accounts payable and accrued
liabilities and billings in excess of costs and estimated profits on contracts
in progress, the carrying amounts approximate fair value due to their short
maturities. The amounts shown for long-term debt approximate fair value, since
the interest rates are at fair market value. Also, the amounts for capital lease
obligations also approximate fair value because current interest rates offered
to the company for debt of similar maturities are substantially the same.
Uses of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Concentration of credit risk
Financial instruments, which potentially subject the company to concentrations
of credit risk, consist of cash and notes and accounts receivable. The company
places its cash with high quality financial institutions and at times may exceed
the FDIC $100,000 insurance limit. The company offers its services predominately
in the states of Illinois, Iowa, Missouri, Nebraska and Washington, and it
extends credit based on an evaluation of a customer's financial condition,
generally without collateral. Exposure to losses on accounts receivable is
principally dependent on each customer's financial condition. The Company
monitors its exposure for credit losses and maintains allowances for anticipated
losses, if required.
The Company, as a condition for entering into construction contracts, has
outstanding surety bonds totaling approximately $1,698 as of September 30, 1999.
The bonds are collateralized by contract receivables.
Securities Available for Sale
Equity securities are classified as "available for sale" as defined by Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standard
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". In accordance with that Statement, they are reported at aggregate
fair value with unrealized losses excluded from earnings and reported as other
comprehensive income, net of deferred taxes. The cost of securities sold is
determined by the average cost method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is provided over the estimated useful lives of the respective assets
using the straight-line method, generally from five to ten years. Leasehold
improvements are amortized over the life of the lease.
21
<PAGE> 22
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
Goodwill
Goodwill is amortized on a straight-line basis over 20 years. Management
reviews, on an annual basis, the carrying value of goodwill in order to
determine whether an impairment has occurred. Impairment is based on several
factors including the Company's projection of future undiscounted operating cash
flows. If an impairment of the carrying value were to be indicated by this
review, the Company would adjust the carrying value of goodwill to its estimated
fair value.
Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the related carrying amounts
may not be recoverable. When required, impairment losses on assets to be held
and used are recognized based on the fair value of the assets and long-lived
assets to be disposed of are reported at the lower of carrying amount or fair
value less cost to sell.
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 contracts in progress, which are
classified as current assets and liabilities, respectively, in the accompanying
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. Revenues from time and material contracts are recognized
currently as the work is performed.
Stock Based Compensation
The Company uses the intrinsic value method of accounting for stock-based
compensation in accordance with Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees" and related interpretations.
See Note 13 for pro forma disclosure of net income and earnings per share under
the fair value method of accounting for stock-based compensation as proscribed
by SFAS No. 123, "Accounting for Stock-Based Compensation".
Income taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily from different depreciation methods for financial accounting
and income tax purposes and retainage receivables which are recognized when
collected for income tax purposes. The deferred taxes represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Per Share Data
Basic earnings (loss) per share has been calculated on the basis of net earnings
for the year divided by the weighted average number of common shares outstanding
during the period. Fully diluted earnings (loss) per share additionally assumes
all options and warrants have been exercised at the later of the beginning of
the fiscal period or the option issue date. For fiscal year 1999, 895 options
and 96 warrants have been excluded as their impact would have been
anti-dilutive.
Reclassifications
Certain reclassifications have been made to the prior year financial statements
to conform with the current year presentation. Also, since the Company currently
operates only in the environmental services industry, no separate segment data
is presented as determined under the provisions of SFAS No. 14.
2. NOTE RECEIVABLE
<TABLE>
<S> <C>
Kenny Industrial Services, L.L.C., due November 1999, interest at 5%,
collateralized by assets sold, which has been collected. $1,000
Kenny Industrial Services, L.L.C., due November 2002, interest at
5%,collateralized by assets sold. 1,000
Kenny Industrial Services, L.L.C., due in annual installments November 2000
through 2002, interest at 5%, collateralized by assets sold. 3,000
American Temporary Sanitation, Inc., $1,220 note presented net of
unrecognized gain of $776, interest at prime rate plus 2.5%, due in
quarterly installments of $72, collateralized by assets sold, see Note 6. 554
Eco Environmental, Inc., due on demand, interest at 10%, collateralized by
accounts receivable. 300
Miscellaneous 212
---------
6,066
Less: current portion 1,489
---------
Long-term portion $4,577
=========
</TABLE>
22
<PAGE> 23
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
3. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS
Costs and estimated earnings on uncompleted contracts are summarized as follows:
<TABLE>
<S> <C>
Costs incurred on contracts in progress................................. $ 2,279
Estimated earnings...................................................... 558
-------
2,837
Less: billings to date.................................................. 2,762
-------
$ 75
=======
</TABLE>
The amounts above are included in the accompanying balance sheet under the
following captions:
<TABLE>
<S> <C>
Costs and estimated earnings in excess of billings on contracts in progress $ 321
Billings in excess of costs and estimated earnings on contracts in progress (246)
-------
$ 75
=======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of September 30,
1999:
<TABLE>
<S> <C>
Machinery and equipment................................................. $ 1,880
Trucks and automobiles.................................................. 335
Office equipment........................................................ 75
Leasehold improvements.................................................. 60
-------
2,350
Less: accumulated depreciation and amortization........................ 550
-------
$ 1,800
=======
</TABLE>
For the years ended September 30, 1999 and 1998, depreciation expense was $530
and $1,761, respectively.
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts Payable and Accrued Liabilities consisted of the following as of
September 30, 1999:
<TABLE>
<S> <C>
Accounts payable, trade $ 1,215
Due on sale of Manta 1,000
Contingent liabilities 200
Accrued wages 152
Miscellaneous accruals 109
-------
Total $ 2,676
=======
</TABLE>
6. BUSINESS COMBINATIONS AND DISPOSITIONS
JL Manta, Inc. - Effective October 31, 1997, the Company completed its
acquisition of JL Manta, Inc. ("Manta"), an Illinois corporation which provided
specialized maintenance services for clients in the industrial, environmental
and low-level nuclear sectors. Pursuant to the terms of a Stock Purchase
Agreement, the Company acquired all the issued and outstanding common stock, no
par value per share, of Manta (the "Manta Stock") from the stockholders of Manta
(the "Manta Stockholders") for consideration of $4,725 in cash and $2,235 in
convertible promissory notes of the Company. Concurrent with the closing of the
Acquisition, certain Manta stockholders and key employees entered into Retention
Bonus Agreements with the Company providing for bonus payments in the aggregate
amount of $900 to be amortized by
23
<PAGE> 24
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
the Company over a six year period, of which $763 remained as prepaid expenses
as of September 30, 1998. The purchase price and expenses associated with the
acquisition exceed the fair value of net assets acquired by approximately
$2,000.
In November 1998 the Company sold the assets and liabilities of Manta to Kenny
Industrial Services, L.L.C. for $23,000, consisting of a combination of $3,000
of cash, a short term note of $15,000, which was paid December 15, 1998, and
$5,000 in notes. At this time, the name of the Company's subsidiary was changed
to Atnam, Inc. This divestiture resulted in the payment or transfer to the
purchaser of all amounts previously due to Manta Stockholders.
P W Stephens Residential - On December 31, 1998 the Company sold the assets and
liabilities of P. W. Stephens Residential, Inc. ("Residential") to American
Temporary Sanitation, Inc. for $2,400, consisting of $1,004 in cash and a
promissory note for $1,396 payable quarterly through 2004, together with
interest at prime rate plus 2.5% per annum. Since the purchaser is a highly
leveraged entity and its liabilities consist of the amounts due to the Company
and funds borrowed from a third party to finance the down payment, recognition
of the gain on this sale has been deferred in accordance with Staff Accounting
Bulletin Topic 5-U "Gain Recognition on the Sale of a Business or Operating
Assets to a Highly Leveraged Entity".
7. LONG-TERM DEBT
The Company has several notes payable to various lenders for the purchase of
equipment and vehicles. The notes are secured by the equipment and vehicles
purchased. The equipment and vehicle notes payable consisted of the following as
of September 30, 1999:
<TABLE>
<S> <C>
Monthly installments of $1 including principal and interest at 8.55% and 8.65%, due
April 2002........................................................................ $ 53
Monthly installments of $1 including principal and interest at 8.4% and 6.9%, due
November 2002..................................................................... 37
Monthly installments of $1 including principal and interest at 8.3% due December 2002.. 17
Monthly installments of $1 including principal and interest at 8.5% due March 2003..... 24
Monthly installments of $1 including principal and interest at 9.0% due November 2003.. 61
-----
192
Less: current portion.................................................................. 58
-----
Long-term portion...................................................................... $ 134
=====
</TABLE>
The aggregate principal payments on long-term debt during the fiscal years
subsequent to September 30, 1999 are: 2000 - $58; 2001 - $62; 2002 - $56; 2003 -
$16.
8. LEASES
The Company leases office and warehouse space under a non-cancelable operating
lease that expires in December 2004. Also, the Company leases equipment under
non-cancelable equipment leases, which have been recorded as capital lease
obligations. Future minimum lease payments under the non-cancelable operating
and capital leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year Ended September 30, Leases Leases
------------------------ ---------- -----------
<S> <C> <C>
2000 $ 486 $ 147
2001 472 148
2002 321 106
2003 131 46
2004 75 44
---------- -----------
Total minimum lease payments 1,485 $ 491
===========
Less: Amount representing interest 134
-----------
Present value of net minimum lease payments 1,351
Less: current portion 417
-----------
Long-term portion $ 934
===========
</TABLE>
24
<PAGE> 25
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
For the years ended September 30, 1999 and 1998 rent expense was approximately
$44 and $35, respectively.
The following is a summary of equipment held under capital lease obligations as
of September 30, 1999:
<TABLE>
<S> <C>
Machinery and equipment $ 1,529
Less: Accumulated depreciation 145
-------
Net $ 1,384
=======
</TABLE>
The Company's principal corporate office is located in Houston, Texas, which
consists of office space shared with AEC at no incremental cost to the Company.
As Lessor
The Company entered into an agreement to sub-lease an office and warehouse
facility to an outside party from January 1, 1998 to July 31, 2002. Future
minimum rents receivable under non-cancelable leases are: 2000 - $101; 2001 -
$102; and 2002 - $60.
9. SECURITIES AVAILABLE FOR SALE
Securities available for sale consisted of 180 shares of common stock of AEC as
of September 30, 1998. These shares were issued to the Company in lieu of cash
in conjunction with the Amendment dated September 30, 1997 to the existing line
of credit, which increased the maximum borrowing amount under the line to
$20,000. These securities reflected a value of $2.28 per share as of September
30, 1998 on the consolidated balance sheet, which reflected the market value.
The Company intended to sell these securities to settle certain of the company's
existing obligations.
Proceeds and gross realized gains (losses) from the sale of securities
classified as available for sale for the years ended September 30, 1999 and 1998
was as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Gross proceeds $ -- $ 4,264
Gross realized gain (loss) $ (1,298) $ 55
</TABLE>
10. FEDERAL INCOME TAX
The components of the provision (benefit) for income taxes are as follows for
the years ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current tax expense:
U.S. Federal $ -- $ 234
State and local 38 77
------ -------
Total current 38 311
------ -------
Deferred tax expense (benefit)
U.S. Federal 1,000 (4,153)
State and local -- --
------ -------
Total deferred 1,000 (4,153)
------ -------
Total tax provision (benefit)
from continuing operations $1,038 $(3,842)
====== =======
</TABLE>
The reconciliation of the effective income tax rate to the Federal statutory
rate is as follows for the years ended September 30, 1998 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Federal income tax rate (34.0)% (34.0)%
State and local income tax rate -- (10.0)%
Effect of reversal of deferred
tax valuation allowance -- (458.9)%
Effect of deferred tax
valuation allowance 53.2% --
------ ------
Effective income tax rate 19.2% (502.9)%
====== ======
</TABLE>
Deferred tax assets and liabilities reflect the net tax effect of temporary
differences between the carrying amount of asset and liabilities for financial
reporting purposes and amounts used for income tax purposes. Significant
components of the Company's deferred tax assets are as follows as of
September 30, 1999:
<TABLE>
<S> <C>
Deferred tax assets
Loss carryforwards $4,420
Less: valuation allowance 1,000
------
Net deferred tax assets 3,420
Less: current portion 275
------
Long-term portion $3,145
======
</TABLE>
At September 30, 1999, the Company had net carryforward losses of approximately
$10,000. Net operating loss carryforwards expire starting in 2016 through 2020.
Per year availability may be subject to change of ownership limitation under
Internal Revenue Code Section 382.
25
<PAGE> 26
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
11. LITIGATION, COMMITMENTS AND CONTINGENCIES
The nature and scope of the Company's business operations bring it into regular
contact with the general public, a variety of businesses and government
agencies. These activities inherently subject the Company to potential
litigation, which are defended in the normal course of business. At September
30, 1999, there were various claims and disputes incidental to the business. The
Company believes that the disposition of all such claims and disputes,
individually or in the aggregate, should not have a material adverse affect upon
the Company's financial position, results of operations or cash flows. As of
September 30, 1999, the Company has not been named as a responsible party for
any environmental issues under the Federal Superfund Law.
12. RELATED PARTY TRANSACTIONS
The Company is involved in various related party transactions. These
transactions are summarized as follows:
Pursuant to a Management Services Agreement effective May 1, 1999, between AEC
and the Company, AEC had agreed to provide certain services to the Company in
exchange for a management fee to be paid on a monthly basis. The services
include providing the Company with management guidance in addition to
guaranteeing certain of the Company's obligations with its creditors, in order
to allow the Company to receive favorable terms with its creditors. The
agreement provides for a monthly payment of $40. For the year ended September
30, 1999, total management fees were $200, which are included in due to
affiliates in the consolidated balance sheet, as further described below.
During fiscal year 1999 the Company borrowed $643 of funds from AEC to pay
general operating expenses. This amount is due on demand and is included in due
to affiliates.
For the year ended September 30, 1998, the Company incurred costs of $292 to AEC
in return for AEC guaranteeing certain debt relating to the acquisition of
Manta. In addition the Company incurred interest expense with AEC in the amount
of $1,096 for the year ended September 30, 1998.
For the year ended September 30, 1998, the Company received rent and fee income
in the amount of $81 from two companies related to Manta.
26
<PAGE> 27
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
13. EQUITY
Stock split
Effective June 22, 1998, the Company effected a one-for-ten reverse stock split,
reducing the number of shares of outstanding common stock from 24,618 to 2,468.
All applicable share and per share data have been adjusted for the stock split.
Warrants
During the year ended September 30, 1999, the company issued warrants, related
to financing fees, for the purchase of 96 shares of the Company's common stock
at $1.50 price per share, for 5 years. The warrants had an aggregate fair value
at date of grant of $48. The fair value for the warrants was estimated at the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: weighted-average risk-free interest rate of 6.1%;
dividend yield of 9%; weighted-average volatility factors of the expected market
price of the Company's common stock of 183%; and a weighted average expected
life of the warrants of 2.5 years.
Stock Options
The company's board of directors approved the 1998 Stock Option Plan (the
"Plan"). The Plan covers two types of options: incentive stock options and
non-qualified stock options. The aggregate number of shares that may be issued
pursuant to the Plan may not exceed 1,000 shares. The exercise price for the
options shall be determined by the Plan administrator at the date of grant, but
shall not be less than the fair market value of the stock at the date of grant.
The option period can be no more than 10 years and the options will vest over a
period of time determinable by the committee.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, "Accounting for Stock-Based Compensation", and has been determined
as if the Company had accounted for its employee stock options under the fair
value method of that Statement. The weighted average fair values at date of
grant for options granted during 1999 and 1998 were $0.31 and $4.12, and were
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for both 1999 and 1998: weighted
average risk-free interest rates of 6.1%; dividend yields of 0%; weighted
average volatility factors of the expected market price of the Company's common
stock of 183%; and a weighted average expected life of the option of 2.5 years.
This option valuation model requires input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing model does not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The Company has adopted only the disclosure provisions of SFAS No. 123. It
applies Accounting Principles Bulletin ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in accounting for its
plans and does not recognize compensation expense for its stock-based
compensation plans other than for restricted stock and options issued to outside
third parties. If the Company had elected to recognize compensation expense
based upon the fair value at the grant date for awards under these plans
consistent with the methodology prescribed by SFAS 123, the Company's net
earnings (loss) would be decreased (increased) by approximately $534 and $329
for the years ended September 30, 1999 and 1998, respectively, to the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net earnings (loss)
As reported $ (3,096) $ 4,401
Pro forma $ (3,630) $ 4,072
</TABLE>
The following summarizes the Company's stock option transactions under the stock
option plan:
27
<PAGE> 28
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
SHARE OPTIONS WEIGHTED AVERAGE
OUTSTANDING EXERCISE PRICE
--------------- ------------------------
<S> <C> <C>
Outstanding, September 30, 1997 -- --
Granted 240 $4.46
---------------
Outstanding, September 30, 1998 240 $4.46
Granted 655 $0.44
---------------
Outstanding, September 30, 1999 895 $1.52
===============
Options Exercisable, September 30, 1998 160 $4.46
===============
Options Exercisable, September 30, 1999 815 $1.23
===============
</TABLE>
Following table summarizes the outstanding and exercisable options grouped by
range of exercise prices as of September 30, 1999:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Range of Exercise Remaining
Exercise Prices Price Life
--------------------------------- -------------- -------------
<S> <C> <C>
$0.41 to $1.10 $0.44 3.12
$3.40 to $4.74 $4.46 1.5
</TABLE>
14. RETIREMENT PLANS
A majority of the Company's laborers are covered by union sponsored,
collectively bargained multi-employer pension plans. The Company contributed and
charged to expense approximately $160 and $65 in fiscal years 1999 and 1998,
respectively, for such plans. The plans' administrators do not provide
sufficient information to enable the Company to determine its share, if any, of
unfunded vested benefits.
15. DISCONTINUED OPERATIONS
Residential
In December 1998, the Company sold the assets and liabilities of Residential to
American Temporary Sanitation, Inc. The results of operations for the respective
periods presented are reported as a component of discontinued operations in the
consolidated statement of operations. The following table summarizes results of
operations for Residential for the years ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net revenues......................................................... $ 1,690 $ 6,054
Operating earnings................................................... 146 187
Earnings from discontinued operations................................ 224 189
</TABLE>
Manta
In November 1998, the Company sold the assets and liabilities of Manta to Kenny
Industrial Services, L.L.C. The results of operations for the respective periods
presented are reported as a component of discontinued operations in the
consolidated statement of operations. The following table summarizes results of
operations for Manta for the years ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net revenues......................................................... $ 11,220 $ 46,642
Operating earnings (loss) ........................................... (253) 853
Earnings (loss) from discontinued operations......................... (208) 489
</TABLE>
28
<PAGE> 29
U.S. INDUSTRIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
Commercial Asbestos
In May 1997, the company decided to discontinue the commercial asbestos
abatement operations of P. W. Stephens contractors, Inc. ("PWSC") and QHI
Stephens, Inc. ("QHI"). The results of operations for the respective periods
presented are reported as a component of discontinued operations in the
consolidated statement of operations. The following table summarizes results of
operations for PWSC and QHI for the years ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net revenues......................................................... $ -- $ --
Operating earnings .................................................. -- 645
Earnings from discontinued operations............................... -- 645
</TABLE>
16. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Numerator:
Net earnings (loss) for basic earnings per share ............................... $(3,096) $ 4,401
Effect of dilutive securities - convertible debt ............................... -- 268
------- -------
Numerator for diluted earnings per share, after assumed conversions ....... $(3,096) $ 4,669
======= =======
Denominator:
Denominator for basic earnings per share, weighted-average shares ......... 8,764 3,636
Effect of dilutive securities - convertible debt .......................... -- 737
------- -------
Denominator for diluted earnings per share - adjusted weighted-average
shares and assumed conversions ............................................ 8,764 4,373
======= =======
Basic earnings (loss) per share ................................................ $ (0.35) $ 1.21
Diluted earnings (loss) per share .............................................. $ (0.35) $ 1.07
</TABLE>
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share", and restated for all periods presented. All earnings per
share amounts presented have been restated to reflect the one-for-ten reverse
stock split.
17. CONCENTRATION OF CREDIT RISK
Revenues
For the year ended September 30, 1999, the Company had three significant
customers that accounted for approximately 19%, 15% and 14% of total sales. At
September 30, 1999, the amounts due from these three customers was approximately
$371, $27, and $259, respectively. For the year ended September 30, 1998, the
Company had no significant customers.
Labor
As of September 30, 1999 the Company employed approximately 169 hourly workers
and 46 salaried workers in its St. Louis operations. A portion of the hourly
employees are represented by various unions. The collective bargaining
agreements with these unions expire on various dates.
18. SUBSEQUENT EVENT
In November 1999, the company purchased a building for $217. The purchase was
financed by the issuance of a note payable to a financial institution. The note
is for $255 at 9.0% interest per annum, with monthly principal and interest
payments of $2, and a final payment of $207, due November 1, 2004. The note is
secured by a deed of trust against the building purchased and is guaranteed by
the Parent.
The Company has identified a transaction that when concluded would involve a
strategic merger with an industrial service provider whereby a significant
number of additional shares of the Company would be issued to the strategic
merger partner pending the Company bringing its filings current with the
Securities and Exchange Commission. Management has the ability and intent to
consummate this transaction. This transaction is subject to customary due
diligence, board, and shareholder approval.
29
<PAGE> 30
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On November 23, 1999, the Board of Directors of the Company appointed
Merdinger, Fruchter, Rosen & Corso, P.C. as its independent certifying
accountants for the fiscal year ended September 30, 1999. The Company chose not
to continue the engagement of its present accountants, Karlins, Arnold & Corbitt
P.C. ("Karlins"), the independent certifying accounting firm which audited the
financial statements of the Company during fiscal years ended September 30, 1998
and 1997. The reports of Karlins for either of the past two fiscal years did not
contain an adverse opinion or a disclaimer of opinion or were qualified or
modified as to uncertainty, audit scope, or accounting principles.
30
<PAGE> 31
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
As of March 31, 2000, the directors and executive officers of the
Company were:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
<S> <C> <C>
Michael E. McGinnis 50 Chairman of the Board, President and CEO
Michael Appling Jr. 33 Director, Chief Financial Officer
Andreas O. Tobler 48 Director
</TABLE>
The terms of the Board of Directors will expire annually at the next
stockholders meeting. The Company's officers are elected by the Board of
Directors and hold office at the will of the Board. There is no family
relationship between any of the officers or directors.
Executive Officers
MICHAEL E. MCGINNIS has been a director of the Company since February
1996, having served as its Chairman of the Board from June 1996 to October 1997,
and as its President from March 1996 to August 1996. He has been Chief Executive
Officer and a director of American Eco since 1993 and 1994, respectively, and
has been President since December 1998, having served as President from 1993 to
July 1998. He was President and Chief Executive Officer of Eco Environmental,
Inc. from 1992 until it was acquired by American Eco in 1993. For 27 year prior
thereto, he served in various operational and administrative capacities for The
Brand Companies, one the largest asbestos abatement contractors in the United
States.
MICHAEL APPLING JR. has served as director and Chief Financial Officer
since November 1999. Also, Mr. Appling served as Chief Financial Officer and
Vice President of American Eco Corporation during that period. Prior to joining
the Company, from September 1997 to May 1999, Mr. Appling served as Vice
President, Finance and Accounting and Director of Corporate Development for
ITEQ, Inc., an industrial service and manufacturing company. From 1991 to 1997,
Mr. Appling worked for the audit practice of Arthur Andersen LLP most recently
as manager where he served several public companies extensively involved in
mergers and acquisitions.
MR. DAVID L. NORRIS served on the Board from January 28, 1999 until he
resigned on November 3, 1999.
Outside Directors
ANDREAS O. TOBLER has served as a director of the Company since
November 1993. He served as Vice President and Treasurer of the Company from
January 1995 and November 1993, respectively, to February 1997. Since September
1998, Mr. Tobler has served as Chief Executive Officer and Director of the Board
of Sector Communications Inc., a U.S. public company focusing on
telecommunication and related businesses with operations in Switzerland and
Bulgaria. Since October 1996, Mr. Tobler has served as a principal and an
officer of Online Capital GmbH, a private financial advisory company
headquartered in Switzerland. He also served as the Managing Director of its
affiliate Cornerstone Financial Corporation, a U.S. private financial company
until September 1998. From 1989 to 1991, Mr. Tobler was Managing Partner of
Royal Trust (Switzerland).
Significant Employees
William Hladick has served as President of P.W. Stephens St. Louis
since 1996. Mr. Hladick has served as Vice President, Director of Operations,
and Business Development Manager of P.W. Stephens St. Louis since 1990.
The Board of Directors of the Company held three meetings during the
fiscal year ended September 30, 1999, and each director attended all of the
meetings.
31
<PAGE> 32
ITEM 10. EXECUTIVE COMPENSATION
Compensation
The following table discloses the compensation awarded to or earned by
the Chief Executive Officer and the other most highly compensated executive
officers of the Company as of the end of fiscal 1999 whose annual salary plus
other forms of compensation exceeded $100,000 ("Named Executive Officers"):
<TABLE>
<CAPTION>
FISCAL 1999 ANNUAL COMPENSATION
-----------------------------------------------
NAME
AND OTHER ANNUAL
POSITION SALARY BONUS COMPENSATION(1)
-------- ------- ------ ---------------
<S> <C> <C> <C>
Michael E. McGinnis
President, CEO -0- -0- -0-
</TABLE>
No other officers received compensation during fiscal year 1999.
Employment Contracts
There are no employment agreements with any executive officers.
Stock Options
The following table provides information with respect to stock options
granted to the Named Executive Officers during fiscal 1999.
STOCK OPTIONS GRANTED
IN FISCAL YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Market
% of Total Value of
Options Securities
Securities Granted to Underlying
Under Employees in Options on
Options Financial Exercise the Date of Expiration
Name Granted (#) Year Price Grant Date
---- ----------- ------------ -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Andreas Tobler 30,000 20% $1.10 $33,000 1/28/04
100,000 $0.41 $41,000 5/07/04
Michael McGinnis 250,000 38% $0.41 $102,500 5/07/04
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of March 31, 2000 concerning (i)
persons known to the Company to be the beneficial owners of more than 5% of the
outstanding Common Stock, (ii) by each director and (iii) by all directors and
officers as a group.
<TABLE>
<CAPTION>
STATUS OF AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT
- ------------------------ ---------------- ----------------------- -------
<S> <C> <C> <C>
American Eco Corporation Beneficial owner of more 7,175,858(3) 81.9%
than 5% of Common Stock
Michael E. McGinnis Chairman of the Board, 7,175,858(2)(3) 81.9%
Director, President & CEO
Andreas Tobler Director 2,845 *
Michael Appling Jr. Director, CFO -- --
</TABLE>
* Represents less than 1% of the issued and outstanding shares of
Common Stock.
32
<PAGE> 33
** The principal executive offices of American Eco are 154 University
Avenue, Toronto, Ontario, Canada M5H 3Y9.
1) Unless otherwise noted, all of the shares shown are held by
individuals or entities possessing sole voting and investment
power with respect to such shares. The number of shares
beneficially owned includes shares which each beneficial owner has
the right to acquire within 60 days of March 31, 2000.
2) Includes 7,175,858 shares beneficially owned by American Eco, of
which Mr. McGinnis is President and CEO. Mr. McGinnis disclaims
beneficial ownership of the Company's securities owned by American
Eco.
3) On January 21, 2000, American Eco and USIS entered into a
Settlement Agreement with Deere park Capital, L.L.C. ("Deere
Park"), settling a litigation that Deere Park had instituted
against American Eco based upon guarantees that American Eco had
given to Deere Park of certain indebtedness to Deere Park.
American Eco agreed to pay $2.8 million to Deere Park on or before
May 15, 2000, and secured its payment obligation by a pledge of
all shares of USIS.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of July 24, 1998, American Eco sold the Notes to USIS Acquisition,
L.L.C. (the "Holder") for $5.0 million in cash and a secured promissory note for
$12.9 million repayable on January 29, 1999. The Holder converted the Notes into
5,295,858 shares of the Company's Common Stock, and secured its promissory note
to American Eco with a pledge of the 5,295,858 shares. In November 1998, the
Holder advised American Eco that the Holder would not be able to pay its note at
maturity, and American Eco took ownership of the pledged shares in discharge of
the Holder's note. At December 31, 1998, American Eco owned 7,175,858 shares of
the Company's Common Stock representing 81.9% of the outstanding shares, Item
11, Security Ownership of Certain Beneficial Owners and Management. Michael E.
McGinnis, who is a director and officer of USIS, is President and CEO of
American Eco.
As of September 30, 1998, Frank J. Fradella, former President and a
director of the Company, owed the Company $424,655. This amount had been part of
a loan which was originally transferred from American Eco to the Company when
Mr. Fradella assumed his position as President of the Company in May 1997. The
amount represented the remaining balance of a forgivable loan made to Mr.
Fradella upon his employment with American Eco in September 1996. The increase
during the year ended September 30, 1998 resulted from additional borrowings by
Mr. Fradella. The revised total balance of $424,655 is being amortized over the
next four years, as Mr. Fradella will serve as a consultant to the Company in
pursuing and reviewing acquisition candidates for the Company. The amount due
bears no interest and is unsecured. During fiscal year 1999 the unamortized
balance of this note was reserved for financial statement purposes.
ITEM 13. EXHIBIT AND REPORTS ON FORM 8-K
- ------- -------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
Regulation S-B
Exhibit Number Description of Exhibit
- -------------- ----------------------
<S> <C>
2.1 Exchange of Stock Agreement and Plan of Reorganization between
EIF Holdings, Inc. and P.W. Stephens Contractors, Inc. [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].
2.2 Acquisition Agreement between EIF and Von Guard Holdings, Inc.
and its subsidiaries [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].
2.3 Sale of Stock Agreement by and between EIF, Kelar Controls,
Inc. and its shareholders [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].
2.4 Agreement and Plan of Merger, dated March 2, 1998 between USIS
and EIF Holdings [filed as Exhibit 10.1 to the Current Report
on form 8-K for the Date of Event June 18, 1998 and
incorporated herein by reference].
3.1 Certificate of Incorporation [filed as Exhibit 3.1 to the
Current Report on form 8-K for the Date of Event June 19, 1998
and Incorporated herein by reference].
3.2 By-Laws [filed as Exhibit 3.2 to the Current Report on form
8-K for the Date of Event June 19, 1998 and Incorporated
herein by reference].
4.1 1998 Stock Option Plan.
10.1 Promissory Note Line of Credit Agreement, dated March 1, 1996,
with American Eco Corporation ("American Eco") [filed as an
Exhibit to the Annual Report of the Company on Form 10-KSB for
the year ended September 30, 1996 and incorporated herein by
reference].
10.2 Agreement, dated February 2, 1996, between EIF and American
Eco [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].
10.3 Management Agreement effective October 1, 1996 between the
Company and American Eco [incorporated by reference to Exhibit
10.1 to the Registrant's Form 10-QSB for the quarter ended
December 31, 1996].
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C>
10.4 Settlement Agreement and Mutual Release, dated April 4, 1996,
among Kelar, Kelly McMahon, and Larry Thomas (as plaintiffs)
and EIF and the other defendants [filed as an Exhibit to the
Annual Report of the Company on Form 10-KSB for the year ended
September 30, 1996 and incorporated herein by reference].
10.5 Agreement and General Release, dated as of November 8, 1996,
among Richard Austin, EIF, PW Stephens and American Eco [filed
as an Exhibit to the Annual Report of the Company on Form
10-KSB for the year ended September 30, 1996 and incorporated
herein by reference].
10.6 Lease Agreement, dated January 9, 1997, between Aetna Life
Insurance Company and EIF, for premises in Anaheim, California
[filed as an Exhibit to the Annual Report of the Company on
Form 10-kSB for the year ended September 30, 1996 and
incorporated herein by reference].
10.7 Promissory Note dated December 13, 1996 between the Company
and Truman Harty. [incorporated by reference to Exhibit 10.2
to the Registrant's Form 10-QSB for the quarter ended December
31, 1996].
10.8 Revolving Line of Credit dated September 1, 1996 between the
Company and Turner Holdings, Inc. [incorporated by reference
to Exhibit 10.3 to the Registrant's Form 10-QSB for the
quarter ended December 31, 1996].
10.9 Acquisition Agreement by and between the Company and Regal Oak
Properties, Inc. dated June 30, 1997 for the sale of Kelar
Controls, Inc. [incorporated by reference to Exhibit 10.1 to
the Registrant's Form 10-QSB for the quarter ended June 30,
1997].
10.10 Secured Promissory Note between the Company and Regal Oak
Properties, Inc. dated June 30, 1997. [incorporated by
reference to Exhibit 10.2 to the Registrant's Form 10-QSB for
the quarter ended June 30, 1997].
10.11 Security Agreement Pledge between the Company and Regal Oak
Properties, Inc. dated June 30, 1997. [incorporated by
reference to Exhibit 10.3 to the Registrant's Form 10-QSB for
the quarter ended June 30, 1997].
10.12 Renewal, Extension and Enlargement Promissory Note between the
Company and Truman Harty dated April 4, 1997. [incorporated by
reference to Exhibit 10.4 to the Registrant's Form 10-QSB for
the quarter ended June 30, 1997].
10.13 Stock Purchase Agreement, dated September 30, 1997, among EIF
and each of the stockholders of JL Manta, Inc. [incorporated
by reference to Exhibit 10.1 to the Registrant's Form 8-K for
the date of event November 19, 1997].
10.14 $6.5 Million Convertible Promissory Note issued by EIF to
Deere Park Capital Management, Inc., as nominee for EIFH Joint
Venture, L.L.C. and Certain Reg. D Hedge Funds. [incorporated
by reference to Exhibit 10.2 to the Registrant's Form 8-K for
the date of event November 19, 1997].
10.15 $2.5 Million Convertible Promissory Note from EIF to Deere
Park Capital Management, Inc. ("Deere Park"). [incorporated by
reference to Exhibit 10.3 to the Registrant's Form 8-K for the
date of event November 19, 1997].
10.16 Convertible Promissory Note of EIF, issued to Leo J. Manta.
[incorporated by reference to Exhibit 10.4 to the Registrant's
Form 8-K for the date of event November 19, 1997].
10.17 Pledge Agreement by and among EIF, Deere Park Equities, L.L.C.
and Deere Park Capital Management, Inc., as nominee for EIFH
Joint Venture, L.L.C. and certain Reg. D Hedge Funds,
regarding $6.5 Million Promissory Note from EIF. [incorporated
by reference to Exhibit 10.13 to the Registrant's Form 8-K for
the date of event November 19, 1997].
10.18 Security Agreement executed by the Company in favor of Harris
[incorporated by reference to Exhibit 10.14 to the
Registrant's Form 8-K for the date of event November 19,
1997].
10.19 Subordination Agreement between Harris and Deere Park Capital
Management, Inc. [incorporated by reference to Exhibit 10.15
to the Registrant's Form 8-K for the date of event November
19, 1997].
10.20 Subordination Agreement between Harris and EIF. [incorporated
by reference to Exhibit 10.16 to the Registrant's Form 8-K for
the date of event November 19, 1997].
10.21 Security Agreement between Deere Park and EIF. [incorporated
by reference to Exhibit 10.17 to the Registrant's Form 8-K for
the date of event November 19, 1997].
10.22 Registration Rights Agreement between EIF and each of the
Sellers. [incorporated by reference to Exhibit 10.18 to the
Registrant's Form 8-K for the date of event November 19,
1997].
10.23 Employment Agreement between EIF and Michael J. Chakos.
[incorporated by reference to Exhibit 10.19 to the
Registrant's Form 8-K for the date of event November 19,
1997].
10.24 Form of Registration Rights Agreement. [incorporated by
reference to Exhibit 10.20 to the Registrant's Form 8-K for
the date of event November 19, 1997].
10.25 Form of Guaranty. [incorporated by reference to Exhibit 10.21
to the Registrant's Form 8-K for the date of event November
19, 1997].
</TABLE>
34
<PAGE> 35
<TABLE>
<S> <C>
10.26 Renewal, Extension and Modification Revolving Line of Credit
Note effective July 1, 1997 between EIF and American Eco
Corporation [incorporation by reference to Exhibit 10.37 to
the Registrant's Form 10-KSB for the year ended September 30,
1997 and incorporated herein by reference].
10.27 Second Amendment Revolving Line of Credit Note effective
September 30, 1997 between EIF and American Eco [incorporated
by reference to Exhibit 10.38 to the Registrant's Form 10-KSB
for the year ended September 30, 1997 and incorporated herein
by reference].
10.28 Asset Purchase Agreement, dated November 30, 1998, among USIS
and Kenny Industrial Services, L.L.C. and Manta [incorporated
by reference to Exhibit 2 to the Registrant's Form 8-K for an
event of November 30, 1998].
10.29 Form 8-K for an event of July 27, 1998 to report a change in
control and conversion of debt.
10.30 Form 8-K for an event of December 29, 1999 to report a reduction
in the number of authorized shares in the Preferred Stock.
10.31 Form 8-K for an event of November 23, 1999 to report a change
in auditors from Karlins, Arnold & Corbitt P.C. to Merdinger,
Fruchter, Rosen & Corso, P.C.
*10.32 Asset Purchase Agreement between American Temporary
Sanitation, Inc. and P.W. Stephens Residential, Inc. dated
December 4, 1998.
*21 Subsidiaries of the Registrant
*27 Financial Data Schedule
</TABLE>
------------------
* Filed herewith
(b) Reports on Form 8-K
The Company filed a Current Report on 8-K for an event of December 29,
1999 to report a reduction in the number of authorized shares in the Preferred
Stock.
The Company filed a Current Report on 8-K for an event of November 23,
1999 to report a change in auditors from Karlins, Arnold & Corbitt P.C. to
Merdinger, Fruchter, Rosen & Corso, P.C.
35
<PAGE> 36
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, US Industrial
Services, Inc. caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
US Industrial Services, Inc.
(Registrant)
By: /s/ Michael E. McGinnis
-----------------------
Michael E. McGinnis
Chief Executive Officer
Dated: April 26, 2000
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/ Michael E. McGinnis Dated: April 26, 2000
-----------------------
Michael E. McGinnis
Chairman, CEO & President
By: /s/ Michael Appling Jr. Dated: April 26, 2000
-----------------------
Michael Appling Jr.
CFO
By: /s/ Andreas O. Tobler Dated: April 26, 2000
---------------------
Andreas O. Tobler
Director
36
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.32 Asset Purchase Agreement between American Temporary
Sanitation, Inc. and P.W. Stephens Residential, Inc. dated
December 4, 1998.
21 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
37
<PAGE> 1
EXHIBIT 10.32
ASSET PURCHASE AGREEMENT,
BETWEEN
AMERICAN TEMPORARY SANITATION, INC.
AND
P.W. STEPHENS RESIDENTIAL, INC.
DATED DECEMBER 4, 1998
<PAGE> 2
ASSET PURCHASE AGREEMENT
This Agreement ("Agreement") is made as of this 4th day of December,
1998, between AMERICAN TEMPORARY SANITATION, INC., a New York corporation, whose
address is 17 Reardon Road, Queensbury, NY 12804 ("Purchaser"), and P.W.
STEPHENS RESIDENTIAL, INC., a California corporation, whose address is 15201
Pipeline Lane, Suite B, Huntington Beach, CA 92649, ("Seller"). Purchaser and
Seller are collectively sometimes referred to in this Agreement as "Parties" or,
individually, as a "Party".
INTRODUCTION
WHEREAS, Purchaser wishes to purchase from Seller, and Seller wishes to
sell to Purchaser, substantially all of the assets of Seller used in the
[industrial services business] conducted by the Seller as of the date hereof
(the "Business"), which sale and purchase shall hereinafter be referred to as
the "Acquisition";
NOW THEREFORE, in consideration of the following representations,
warranties, covenants and agreements, the parties agree as follows:
DEFINITIONS
"Accounts Receivable" means the accounts receivable of the Business as
of the Closing Date, including work in progress that has been accrued but not
yet invoiced as of the Closing Date, as shown on the Accounts Receivables
Schedule.
"Accounts Receivable Schedule" means the schedule of the Seller's
accounts receivable as of the Closing Date to be delivered by Seller to the
Purchaser pursuant to Section 2.4.
"Acquisition" has the meaning set forth in the preface above.
"Acquisition Proposal" means any proposal for a merger, consolidation
or other business combination involving the Seller for the acquisition or
purchase of any equity interest in or material portion of the assets of the
Seller, other than the transactions with Purchaser contemplated by this
Agreement.
"Adjustment Amount" has the meaning set forth in Section 2.3.1 below.
"Adverse Consequences" has the meaning set forth in Section 4.1.1
below.
"Assets" has the meaning set forth in Section 2.1 below.
"Assumed Liabilities" has the meaning set forth in Section 3.1.6 below.
"Benefit Plan" has the meaning set forth in Section 5.1.14 below.
"Bill of Sale" has the meaning set forth in Section 2.8.1 below.
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<PAGE> 3
"Business" has the meaning set forth in the preface above.
"Business Data" has the meaning set forth in Section 2.1.7 below.
"Cash Consideration" has the meaning set forth in Section 2.3.
"Closing Date" has the meaning set forth in Section 1.1 below.
"Completed Project" means a project in which, as of the Closing Date,
the Company has within the one-year period immediately preceding the Closing,
completed all services required to be performed thereunder and that has been
closed out and fully invoiced.
"Contract Value" means the amount (including expenses) that each party
with whom the Seller is engaged in a Project is required to pay to the Seller
upon completion of such Project, as set forth on the Job Summary Schedule.
"Contracts" as the meaning set forth in Section 2.1.3 below.
"Encumbrances" means all liens, security interests, pledges, mortgages,
deeds of trust, claims, rights of first refusal, options, charges, restrictions
or conditions to transfer or assignment, liabilities, obligations, privileges,
equities, easements, rights of way, limitations, reservations, restrictions, and
other encumbrances of any kind or nature.
"Environmental Laws" means: (i) the Comprehensive Environmental
Response Compensation and Liability Act, 42 U.S.C. sec 9601 et seq., the
Resource Conservation and Recovery Act, 42. U.S.C. sec 6901 et seq., the Clean
Water Act, 33 U.S.C. sec 1251 et seq., the Clean Air Act, 42 U.S.C. sec 7401 et
seq., the Toxic Substances Control Act, 15 U.S.C. sec 2601 et seq.; the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. sec 136; the Occupational
Safety and Health Act, 29 U.S.C. sec 651 et seq. ("OSHA"); the Pollution
Prevention Act, 42 U.S.C. sec 13101 et seq.; the Oil Pollution Act, 33 U.S.C.
sec 2701 et seq.; the Safe Drinking Water Act, 42 U.S.C. sec 300 et seq.; and
(ii) national, state, regional and local counterparts to any of the foregoing
statutes, both within and outside the U.S.; (iii) national, state, regional and
local enactments which regulate or address Environmental Matters, both within
and outside of the U.S.; and, (iv) regulations, codes, plans, orders, decrees,
judgments, notices guidelines, authoritative interpretations or demands issued,
entered, promulgated or approved under any of the foregoing.
"Environmental Matters" means all matters relating in any way to (i)
soil, air and water and groundwater pollution or contamination, including
without limitation, any on-site or off-site pollution or contamination; (ii)
damages to the natural environment or natural resources; (iii) releases or
discharges of waste, Hazardous Materials, or pollutants or contaminants; (iv)
occupational health and safety; or (v) the generation, transport, storage,
recycling or disposal of Hazardous Materials or wastes (including, without
limitation, garbage, refuse, slag, sludge and other discarded materials, whether
solid, liquid, semisolid or gaseous and whether on-site or off-site).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Hazardous Materials" means those elements, compounds and substances
identified in any of the Environmental Laws as "hazardous materials", "hazardous
substances", or "hazardous wastes", as well as any other elements, compounds or
substances which are listed or identified as "pollutants",
2
<PAGE> 4
"contaminants", "hazardous" or "toxic" (or by other terms of similar meaning)
under any of the Environmental Laws. The term "Hazardous Materials"
specifically includes, without limitation, radioactive materials, petroleum
products and asbestos.
"Indemnifying Party" has the meaning set forth in Section 4.2 below.
"Intellectual Property" means all of the Seller's rights to the names
under which it is incorporated or under which it currently conducts its
business, and all of the Seller's rights to any patents, patent applications,
trademarks and service marks (including registrations and applications
therefor), trade names, logos, copyrights and written know-how, trade secrets,
licenses and sublicenses and all similar proprietary data and the goodwill
associated therewith.
"Inventory and Supplies" has the meaning set forth in Section 2.1.5 below.
"Job Summary Schedule" means the schedule of Projects and their related
Contract Values, Recognized Billings and Recognized Costs to be delivered by
the Seller to the Purchaser three days before the Closing Date in accordance
with Section 2.5.
"Leased Properties" has the meaning set forth in Section 2.1.3 below.
"Licenses and Permits" has the meaning set forth in Section 2.1.6 below.
"Material" means any amount, effect, changed circumstance or condition
significant or substantive to the business, operations, assets or financial
condition or results of operations of the Party or Parties at issue, unless
such amount, effect, changed circumstance or condition is due to general changes
in the economy or the general industry in which the Party at issue operates.
"Ongoing Project" means a project that is not a Completed Project and for
which the Seller has incurred Recognized Billings and Recognized Costs, but has
not received the entire Contract Value therefor.
"Personal Property" has the meaning set forth in Section 2.1.2 below.
"Project" means any project that has been assigned a job number in the
Company's accounting system and in which the Seller is performing services
pursuant to the Business as of the date of the Job Summary Schedule, all of
which are set forth on the Job Summary Schedule.
"Properties" has the meaning set forth in Section 2.1.3 below.
"Purchase Price" means an amount equal to the Cash Consideration and the
initial principal amounts of the Secured Note.
"Purchaser" has the meaning set forth in the preface above.
"Real Property" has the meaning set forth in Section 2.1.1 below.
"Recognized Billings" means the amount of revenue, calculated in
accordance with the Seller's accounting procedures recognized on the Job
Summary Schedule, with respect to each Project.
3
<PAGE> 5
"Recognized Costs" means the amount of Seller's costs, calculated in
accordance with Seller's accounting procedures, recognized on the Job Summary
Schedule with respect to each Project.
"Retained Assets" has the meaning set forth in Section 2.2 below.
"Secured Note" has the meaning set forth in Section 2.3 below.
"Seller" has the meaning set forth in the preface above.
"Title Policy" has the meaning set forth in Section 3.2 below.
"Transaction Documents" means this Agreement, the Secured Note, the
Security Agreement-Pledge and the Employment Agreements.
1. CLOSING
1. Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place on a date mutually acceptable to Seller and
Purchaser no later than 30 days after all of the conditions precedent described
in Sections 10 and 11 hereof have been satisfied or waived (the "Closing Date"),
but in no event shall the Closing be later than December 31, 1998. The Closing
shall take place at 10:00 a.m. on the Closing Date at the offices of__________.
2. PURCHASE, SALE AND RELATED MATTERS
2.1. Assets. At Closing, Seller will sell, transfer, convey, assign and
deliver to Purchaser, and Purchaser will purchase and acquire from Seller, all
of Seller's assets (the "Assets"), including, but not limited to, the following
assets:
2.1.1. Real Property. The real property set forth in Schedule
2.1.1 together with all buildings, improvements, easements,
restrictions and fixtures relating thereto (collectively, the "Real
Property");
2.1.2. Machinery and Equipment. All machinery, equipment,
vehicles, furniture, office equipment, computers and computer
accessories, spare parts and all other items of tangible personal
property owned or used (but excluding leased personal property) by
Seller in the Business, including without limitation those items set
forth in Schedule 2.1.2 (collectively, the "Personal Property");
2.1.3. Contracts and Leased Properties. To the extent
transferable or assignable, without further consideration, the
contracts, purchase orders, leases, lease improvements, noncompete
agreements, vendor approvals, confidentiality agreements, insurance
policies, performance bonds, claims, benefits under all liens, warrants
and guarantees, bids and proposals (whether or not awarded), work in
progress and other agreements associated with the Business, including
without limitation those set forth in Schedule 2.1.3 (collectively, the
"Contracts"). Schedule 2.1.3 also identifies all leases of real
property used or occupied by Seller (the "Leased Properties"; the Real
Property and Leased Properties are collectively referred to in this
Agreement as the "Properties");
4
<PAGE> 6
2.1.4. Intellectual Property. The Intellectual Property and
associated licenses and sublicenses used by the Seller and Seller's
rights to the Intellectual Property, all material items of which are
listed on Schedule 2.1.4, remedies against infringements of the
Intellectual Property, and rights to protection of the Intellectual
Property under the laws of all jurisdictions;
2.1.5. Inventory and Supplies. To the extent owned by Seller,
all work-in-process, inventory, materials, finished products, supplies
(including marketing materials and brochures), and packaging supplies,
including, without limitation, those set forth in Schedule 2.1.5
(collectively, the "Inventory and Supplies");
2.1.6. Licenses and Permits. To the extent transferable, all
governmental licenses, permits, authorizations and approvals,
franchises, consents, filings and applications for any of the
foregoing, used by Seller in the Business, including without limitation
those set forth in Schedule 2.1.6 (collectively, the "Licenses and
Permits");
2.1.7. Business Data. All information, documents and records
(such as customer files, pricing data and supplier data) used by Seller
in connection with the Business or used in connection with any of the
Assets (collectively, the "Business Data");
2.1.8. Accounts Receivable. The accounts receivable of the
Business as of the Closing Date as shown on the Accounts Receivable
Schedule;
2.1.9. Lock Boxes. To the extent transferable, any and all
lock-boxes of Seller, all of which are listed on Schedule 2.1.9;
2.1.10. Tax and Accounting Records. All tax and accounting
records and files relating to the Business;
2.1.11. Personnel Files. All personnel files and records
related to any employee of Seller who gives permission to Seller to
transfer such records to Purchaser;
2.1.12. Prepaid Expenses. The expenses of the Seller and the
Business, to the extent pre-paid as of the Closing, including, but not
limited to, pre-paid taxes, pre-paid rent, pre-paid service contracts,
and pre-paid miscellaneous expenses;
2.1.13. Cash. All cash;
2.1.14. Other Assets. All other assets shown on the worksheet
attached as Schedule 2.1.14., and all of the additional privileges,
rights, interests, properties and assets of the Seller of every kind
and description and wherever located that are used in the Business or
intended for use in the Business in connection with, or that are
necessary for the continued conduct of, the Business.
2.2. Retained Assets. Seller shall retain all right, title and interest
in and to the following assets (collectively, the "Retained Assets"), all of
which are itemized on Schedule 2.2.
2.2.1. Tax Refunds and Other Credits. All tax refunds,
insurance proceeds and credits
5
<PAGE> 7
attributable to the Business before the Closing Date or resulting from the
consummation of the transactions contemplated herein;
2.2.2 Personnel Files. All personnel files and records related to any
employee of Seller who does not give permission to provide such records to
Purchaser;
2.2.3 Employee Benefit Plans. All right, title, or interest in any
employee benefit plan of Seller;
2.2.4 Corporate Charter and Related Documents. The corporate charter,
qualifications to conduct business as a foreign corporation, arrangements
with registered agents relating to foreign qualifications, taxpayer and
other identification numbers, seals, minute books, stock transfer books,
blank stock certificates, and other documents relating to the organization,
maintenance, and existence of Seller as a corporation;
2.2.5 Lawsuits. All records relating to pending lawsuits to which
Seller is a party (provided that copies of non-privileged material and that
relate to or involve the Business shall, upon request, be furnished to
Purchaser);
2.2.6 Property Unrelated to the Business. All owned or leased real
and personal property that is not associated with the Business, together
with all of the structures, fixtures and improvements located thereon;
2.2.7 Purchase Price. The consideration to be delivered to Seller
pursuant to this Agreement.
2.2.8 Seller's Contractual Rights. Any of the rights of Seller under
this Agreement (or under any side agreement between Seller on the one hand
and the Purchaser on the other hand entered into on or after the date of
this Agreement); and,
2.2.9 Assets Unrelated to the Business. Every other asset that is not
an Asset relating to the Business.
2.3 Purchase Price. As consideration for the Assets, the Purchaser shall
pay to the Seller $2,400,000. The Purchase Price shall be adjusted after the
Closing in accordance with Section 2.3.1 by adding the Adjustment Amount to the
Purchase Price.
2.3.1 Adjustment Amount. The Adjustment Amount (which may be a
positive or negative number) will be equal to (a) Accounts Receivable less
i) allowance for bad debt and ii) Accounts Payable, minus (b) $1,250,000.
2.4 Uncollectible Accounts Receivable. At the Closing, Seller shall
deliver to the Purchaser the Accounts Receivable Schedule, which shall show the
Accounts Receivable of the Business as of the Closing Date, along with a
breakdown of all invoiced Accounts Receivable and all accrued Accounts
Receivable that have not been invoiced.
2.4.1 With respect to any Accounts Receivable on the Accounts
Receivable Schedule that relate to Completed Projects, if any such Accounts
Receivable prove to be uncollectible
6
<PAGE> 8
within 120 days of the Closing Date, the Purchaser shall assign such
Accounts Receivable to the Seller or its designee and the principal
amount of the Purchase Price shall be reduced by the amount, if any, by
which the amount of such Accounts Receivable exceeds the accrual for
bad debts as of the Closing Date.
2.4.2. With respect to any other Accounts Receivable on the
Accounts Receivable Schedule: (i) if any such Accounts Receivable
prove to be uncollectible within 120 days of the later of the invoice
date or the Closing Date; and, (ii) if the collectibility of such
Accounts Receivable shall not have been adversely affected by the act
or omission of the Purchaser on or after the Closing, the Purchaser
shall assign such Accounts Receivable to the Seller or its designee and
the principal amount of the Purchase Price will be reduced by the
amount, if any, by which the amount of such Accounts Receivable exceeds
the accrual for bad debts as of the Closing Date.
2.4.3. The total of all reductions in the principal amount of
the Purchase Price pursuant to sections 2.4.1 and 2.4.2 above, the
Seller shall pay to the Purchaser the amount by certified or bank check
within 30 days of receiving Purchaser's invoice for such amount
accompanied by an assignment of the Accounts Receivable in question.
2.5. Recognized Costs. No less than three days before the Closing, the
Seller shall deliver to the Purchaser a schedule (the "Job Summary Schedule")
setting forth, with respect to each Project, the Contract Value, the Recognized
Costs, and the identification of the Project as a Completed Project or an
Ongoing Project.
2.5.1. With respect to each Completed Project, if there are
costs attributable to such Completed Project in excess of the
Recognized Costs set forth on the Job Summary Schedule, the Purchaser
shall provide to Seller documentation substantiating such costs and
the principal amount of the Purchase Price shall be reduced by the
amount of such costs; provided, however, that there shall be no
adjustment of the principal amount of the Purchase Price until the
aggregate amount of such costs for all Completed Projects exceeds
$10,000. If and when the aggregate amount of such costs for all
Completed Projects exceeds $10,000, the principal amount of the
Purchase Price shall be reduced by the amount of the total of all such
costs.
2.5.2. With respect to each Ongoing Project, if there are
costs that were incurred before the date of the Job Summary Schedule
attributable to such Ongoing Project in excess of the Recognized Costs
set forth on the Job Summary Schedule, the Purchaser shall provide to
Seller documentation substantiating such costs and the principal
amount of the Purchase Price shall be reduced by the amount of such
costs; provided, however, that there shall be no adjustment of the
principal amount of the Purchase Price until the aggregate amount of
such costs for all Ongoing Projects exceeds $10,000. If and when the
aggregate amount of such costs for all Ongoing Projects exceeds
$10,000, the principal amount of the Purchase Price shall be reduced by
the amount of the total of all such costs.
2.5.3. The total of all reductions in the principal amount of
the Purchase Price pursuant to Sections 2.5.2 and 2.5.3 above, the
Seller shall pay to the Purchaser the excess amount by certified or
bank check within 30 days of receiving Purchaser's invoice for such
amount accompanied by the substantiating documentation.
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2.6. Allocation of the Purchase Price. Seller and Purchaser shall use
their best efforts to agree, within 90 days of the Closing Date, to an
allocation of the Purchase Price (together with liabilities assumed hereunder
and other relevant items) among the Assets. Seller and Purchaser represent,
warrant and agree that such allocation will be determined through arm's length
negotiations. If the Parties are unable to agree on the allocation, the
allocation shall be determined by an independent accounting firm acceptable to
Purchaser and Seller, such agreement not to unreasonably withheld, conditioned
or delayed, whose resolution shall be binding and enforceable against the
Parties hereto. Such allocation will comply with the requirements of Section
1060 of the Code. Purchaser will prepare IRS Form 8594 for Seller's review and
comment. Seller and Purchaser each agrees that, to the extent permitted by
applicable law, it will adopt and use the amounts allocated to each asset or
class of assets for purposes of all Federal, state and other income Tax returns
or reports of any nature filed by it, and that it will not voluntarily take any
position inconsistent therewith upon examination of any such Tax returns or
reports, in any claim for refund, in any litigation or otherwise with respect
to such Tax returns or reports. Notwithstanding any other provisions of this
Agreement, the foregoing agreement shall survive the Closing Date without
limitation.
2.7. Further Assurances. At the Closing, and from time to time after the
Closing:
2.7.1. Conveyance Documents. At the request of Purchaser, and without
further consideration, Seller shall promptly execute and deliver to
Purchaser such certificates and other instruments of sale, conveyance,
assignment and transfer, and take such other action, as may reasonably be
requested by Purchaser to sell, convey, assign and transfer to and vest in
Purchaser or to put Purchaser in possession of the Assets;
2.7.2. Assumption Documents. At the request of Seller and without
further consideration, Purchaser shall promptly execute and deliver to
Seller such certificates and other instruments of assumption, and take such
other action, as may reasonably be requested by Seller more effectively to
confirm and carry out the assumption by Purchaser of the obligations of
Seller assumed by Purchaser hereunder.
2.7.3. Consents and Related Matters. To the extent that any consents,
waivers or approvals necessary to convey items of Assets to Purchaser are
not obtained before the Closing, Seller shall use its reasonable best
efforts to:
2.7.3.1. Benefits of Assets. Provide to Purchaser, at the request
of Purchaser, the benefits of any such Asset;
2.7.3.2. Cooperation. Cooperate in any reasonable and lawful
arrangement, approved by Purchaser, designed to provide such benefits
to Purchaser; and
2.7.3.3. Exercise of Rights. Enforce and perform, at the request
and expense of Purchaser, and for the liability and account of
Purchaser, any rights or obligations of Seller arising from any such
Asset against or in respect of any third person (including a
government or governmental unit), including the right to elect to
terminate any contract, arrangement or agreement in accordance with
the terms thereof upon the advice of Purchaser;
2.8. Instruments of Conveyance, Transfer, Assumption, Etc. Seller shall
properly execute
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and deliver to Purchaser at the Closing:
2.8.1. Bill of Sale. The Bill of Sale, substantially the form
of Exhibit B, evidencing the sale of the Assets to the Purchaser,
assigning to the Purchaser the assignable Contracts, the assignable
leases for the Leased Properties, and the Licenses and Permits, and
transferring to Purchaser all of Seller's right, title and interest in
and to the Intellectual Property included in the Assets.
2.8.2. Deeds. Deeds in the form of Exhibit C; and,
2.8.3. Other. Such other necessary documents as Purchaser may
reasonably request.
2.9. Risk of Loss. The risk of loss or damage to all Assets shall
remain with Seller until consummation of the Closing.
3. CERTAIN LIABILITIES
3.1. Liabilities Assumed. At the Closing, and on and subject to the
terms and conditions of this Agreement, the Purchaser shall assume and become
responsible for only the following liabilities:
3.1.1. Accounts Payable. Seller's accounts payable as of the
Closing, including purchase orders issued in the ordinary course of
business, but not yet booked as an account payable as of the Closing
Date;
3.1.2. Unpaid Taxes. All liabilities of Seller for unpaid
taxes with respect to periods after the Closing;
3.1.3. Employees. All liabilities and obligations for all
periods as of and after the Closing Date with respect to Seller's
employees who become employed by Purchaser, including all liabilities
and obligations with respect to such employees for disability or
workers' compensation claims, that arise out of incidents occurring
after the Closing Date, it being understood that the Seller will retain
all liabilities and obligations for all periods before the Closing Date
with respect to Seller's employees, including all liabilities and
obligations with respect to such employees for disability or workers'
compensation claims that arose out of events occurring before the
Closing Date;
3.1.4. Liabilities Relating to the Assets. Other than the
liabilities and obligations identified on Schedule 3.1.4, all
liabilities and obligations of Seller under the agreements, contracts,
leases, licenses, and other arrangements referred to in the definition
of Assets;
3.1.5. Environmental Liabilities. All liabilities relating to
Environmental Matters arising out of acts or omissions occurring as of
or after the Closing Date; it being understood that the Seller will
remain obligated for any liabilities relating to Environmental Matters
arising out of acts or omissions occurring before the Closing Date.
3.1.6. Other. All other liabilities and obligations of Seller
or the Business arising as of or after the Closing (collectively, and
together with amounts described in Section 3.2, the "Assumed
Liabilities").
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3.2. Transfer Taxes and Expenses. Purchaser assumes liability for and
shall pay all sales, use, privilege and other transfer or similar Taxes imposed
on it by law as a result of the transactions contemplated hereby. Purchaser
shall pay all recording fees and costs, and all transfer taxes or revenue stamps
incidental to the recordation of the deed(s) conveying the Real Property. Seller
shall pay all survey costs and Purchaser shall pay all title commitment (the
"Title Policy") and title insurance premiums in connection with the Real
Property.
4. INDEMNIFICATION AND RELATED COVENANTS.
4.1. Indemnification.
4.1.1. Indemnification by the Seller. Seller shall indemnify
the Purchaser from and against any and all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, reasonable amounts paid in settlement,
liabilities, obligations, taxes, liens, losses, expenses, and fees,
including court costs and reasonable attorneys' fees and expenses
(collectively, "Adverse Consequences") that the Purchaser shall suffer
through and after the date of the claim for indemnification (but
excluding any Adverse Consequences the Purchaser shall suffer after the
end of any applicable survival period) caused by: (i) Seller's breach
of any of its representations, warranties, covenants or agreements
contained in this Agreement; or (ii) any liability of Seller that is
not an Assumed Liability (including any liability of Seller that
becomes a liability of the Purchaser under any bulk transfer law of any
jurisdiction, under any common law doctrine of defacto merger or
successor liability (including, but not limited to ERISA), or otherwise
by operation of law); provided, however, that Seller shall not have any
obligation to indemnify the Purchaser under this Section 4.1.1:
4.1.1.1. Deductible. Until the Purchaser has suffered
Adverse Consequences by reason of all such breaches in excess
of a $10,000 aggregate deductible (after which point Seller
will be obligated only to indemnify the Purchaser from and
against further such Adverse Consequences); or,
4.1.1.2. Limits on Indemnification. To the extent the
Adverse Consequences the Purchaser has suffered by reason of
all such breaches exceeds a ceiling equal to the Purchase
Price (after which point Seller will have no obligation to
indemnify the Purchaser from and against further such Adverse
Consequences).
4.1.2. Indemnification by Purchaser. Purchaser shall indemnify
Seller from and against any and all Adverse Consequences Seller shall
suffer through and after the date of the claim for indemnification (but
excluding any Adverse Consequences Seller shall suffer after the end of
any applicable survival period) arising from or relating to Purchaser's
breach any of its representations, warranties, covenants or agreements
contained in this Agreement; any Assumed Liability; or, the Business or
the Assets (other than those matters for which Seller shall indemnify
Purchaser under Section 4.1.1 above); provided, however, that Purchaser
shall not have any obligation to indemnify the Seller under this
Section 4.1.2:
4.1.2.1. Deductible. Until the Seller has suffered
Adverse Consequences by reason of all such breaches in excess
of a $10,000 aggregate deductible (after which point Purchaser
will be obligated only to indemnify the Seller from and
against further
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such Adverse Consequence);
4.1.2.2. Limitation on Indemnification. To the extent
the Adverse Consequences the Seller has suffered by reason of
all such breaches exceeds a ceiling equal to the Purchase
Price (after which point Purchaser will have no obligation to
indemnify the Seller from and against further such Adverse
Consequences).
4.2. Indemnification Procedure. If any Party hereto discovers or
otherwise become aware of a claim with respect to which a claim for
indemnification may be made pursuant to Sections 4.1.1 or 4.1.2 of this
Agreement (including any third party claim) (the "Indemnified Party"), such
Indemnified Party shall give written notice to the other Party (the
"Indemnifying Party"), specifying such claim; provided, however, that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of any obligations hereunder to the extent the
Indemnifying Party is not Materially prejudiced thereby. Further, promptly after
receipt by an Indemnified Party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for indemnification
may be made pursuant to this Section 4, such Indemnified Party shall, if a claim
in respect thereof is to be made against any Indemnifying Party, give written
notice to the latter of the commencement of such action; provided, however, that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of any obligations hereunder to the extent the
Indemnifying Party is not Materially prejudiced thereby. In case any such action
is brought against an Indemnified Party, the Indemnifying Party shall assume the
defense thereof to the extent that it may wish, with counsel reasonably
satisfactory to such Indemnified Party, and after such notice from the
Indemnifying Party to such Indemnified Party of its assumption of the defense
thereof, the Indemnifying Party shall not be liable to such Indemnified Party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof unless the Indemnifying Party has failed to
assume the defense of such claim and to employ counsel reasonably satisfactory
to such Indemnified Party. An Indemnifying Party who does not assume the defense
of a claim shall not be liable for the fees and expenses of more than one
counsel in any single jurisdiction for all parties indemnified by such
Indemnifying Party with respect to such claim or with respect to claims separate
but similar or related in the same jurisdiction arising out of the same general
allegations. Notwithstanding any of the foregoing to the contrary, the
Indemnified Party will be entitled to select its own counsel and assume the
defense of any action brought against it if the Indemnifying Party fails to
select counsel reasonably satisfactory to the Indemnified Party, the expenses of
such defense to be paid by the Indemnifying Party. No Indemnifying Party shall
consent to entry of any judgment or enter into any settlement with respect to a
claim without the consent of the Indemnified Party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such claim. No
Indemnified Party shall consent to entry of any judgment or enter into any
settlement of any such action, the defense of which has been assumed by an
Indemnifying Party, without the consent of such Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All costs and expenses to
be paid by an Indemnifying Party on behalf of an Indemnified Party shall be paid
on a current basis as incurred.
4.3. Determination of Adverse Consequences. The Purchaser and Seller
shall make appropriate adjustments for insurance coverage in determining Adverse
Consequences for purposes of this Section 4. All indemnification payments made
by the Seller under this Section 4 shall be deemed adjustments to the Purchase
Price.
4.4. Exclusive Remedy. The Purchaser and Seller acknowledge and agree
that other
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than as set forth in Sections 2.4 and 2.5, the foregoing
indemnification provisions in this Section 4 shall be the exclusive
remedy of the Purchaser and Seller with respect to the transactions
contemplated by this Agreement.
4.5. Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in this
Agreement, other than the representations and warranties of the Seller
contained in Sections 5.1.13 and 5.1.14, shall survive the Closing
(even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and
continue in full force and effect for a period of two years thereafter.
The representations and warranties of the Seller contained in Sections
5.1.13 and 5.1.14 of this Agreement shall survive the Closing (even if
the damaged Party knew or had reason to know of any misrepresentation
or breach of warranty at the time of Closing) and continue in full
force and effect until the statute of limitations relating to the
action giving rise to the potential liability has expired.
5.1. Representations and Warranties. Seller represents and warrants to
the Purchaser as follows:
5.1.1. Organization and Good Standing. Seller is a corporation
duly organized, validly existing and in good standing under the laws of
Venezuela has full requisite corporate power and authority to carry on
its business as it is currently conducted, and to own and operate the
properties currently owned and operated by it, and is duly qualified or
licensed to do business and is in good standing as a foreign
corporation authorized to do business in all jurisdictions in which the
character of the properties owned or the nature of the businesses
conducted by it would make such qualification or licensing necessary.
5.1.2. Agreements Authorized and their Effect on Other
Obligations. Seller has requisite power and authority to execute and
deliver this Agreement and the other Transaction Documents to which it
is a party. The execution and delivery of this Agreement and the other
Transaction Documents to which the Seller is a party have been
authorized by all necessary corporate, shareholder and other action on
the part of the Seller, and this Agreement and the other Transaction
Documents to which the Seller is a party are the valid and binding
obligations of the Seller, enforceable against the Seller in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, debtor relief or similar laws
affecting the rights of creditors generally and subject to normal
equitable principles. The execution, delivery and performance of this
Agreement and the other Transaction Documents to which the Seller is a
party, and the consummation of the transactions contemplated hereby and
thereby, will not conflict with or result in a violation or breach of
any term or provision of, nor constitute a default under (i) the
charter or bylaws (or other organizational documents) of the Seller,
(ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which the Seller is a party or by which
the Seller or its properties are bound; or (iii) any provision of any
law, rule, regulation, order, permit, certificate, writ, judgment,
injunction, decree, determination, award or other decision of any
court, arbitrator, or other governmental authority to which the Seller
or any of its properties are subject.
5.1.3. Subsidiaries. The Seller does not have any subsidiary
corporations or any interest in any other organization, incorporated or
unincorporated, partnership or any other entity of any type.
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5.1.4. Contracts. Schedule 2.1.3 hereto sets forth a true, complete
and accurate list of all Material Contracts of the Seller, including leases
under which the Seller is lessor or lessee, which relate to the Assets or
the Business and are to be performed in whole or in part after the date
hereof. All of the Material Contracts are in full force and effect, and
constitute valid and binding obligations of the Seller. The Seller is not,
and to Seller's knowledge, no other party to any of the Material Contracts
is, in Material default thereunder, and no event has occurred that (with or
without notice, lapse of time, or the happening of any other event) would
constitute a Material default thereunder.
5.1.5. Title to and Condition of Assets. The Seller has good title to
all of the Assets, free and clear of any Encumbrances. The Seller will
transfer good title to the Assets and the Purchaser will acquire such good
title upon consummation of the transactions contemplated hereby. All of the
Assets are in a state of good operating condition and repair, ordinary wear
and tear excepted, and are free from any known defects except as may be
repaired by routine maintenance and such minor defects as to not
substantially interfere with the continued use thereof in the conduct of
normal operations. All of the Assets Materially conform to all applicable
laws governing their use. No notice of any violation of any law, statute,
ordinance, or regulation relating to any of the Assets has been received by
the Seller, except such as have been complied with in all Material
respects.
5.1.6. Intellectual Property. Schedule 2.1.4 hereto sets forth a true,
complete and accurate list of all of the Intellectual Property. Except as
set forth on Schedule 2.1.4, (i) the Intellectual Property is owned or
licensed by the Seller free and clear of any Encumbrances; (ii) the Seller
has not granted to any other person any license to use any Intellectual
Property; and (iii) the Seller has not received any notice of infringement,
misappropriation, or conflict with the intellectual property rights of
others in connection with the use by the Seller of the Intellectual
Property.
5.1.7. Licenses and Permits. Schedule 2.1.6 hereto sets forth a true,
complete and accurate list of all of the Licenses and Permits. Except as
set forth on Schedule 5.1.7, each of the Licenses and Permits and the
Seller's rights with respect thereto is valid and subsisting, in full force
and effect, and enforceable by the Seller subject to administrative powers
of regulatory agencies having jurisdiction. Except as set forth on Schedule
5.1.7, the Seller is in Material compliance with the terms of each of the
Licenses and Permits. None of the Licenses and Permits have been, or to the
knowledge of the Seller, are threatened to be, revoked, canceled, suspended
or modified. Upon consummation of the transactions contemplated hereby, all
of the Licenses and Permits that are assignable without the consent of any
governmental or other agency shall be assigned to the Purchaser.
5.1.8. Financial Statements. The Seller has delivered to the Purchaser
copies of the Seller's unaudited balance sheet as of October 31, 1998 and
related statements of income and shareholders' equity as of and for the
eight months ended October 31, 1998 (collectively, the "Financial
Statements"), copies of which are attached hereto as Schedule 5.1.8. The
Financial Statements are true, correct and complete in all Material
respects and present fairly and fully the financial condition of the Seller
as of the dates and for the periods indicated thereon, and have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis, except as noted therein. The accounts
receivable reflected on the Financial Statements, or which have been
thereafter acquired by the Seller, have been collected or are collectible
at the aggregate recorded amounts thereof less applicable reserves, which
reserves are adequate.
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5.1.9. Recognized Billings and Costs. The Contract Values, Recognized
Billings, Recognized Costs and the status of each Project set forth in the Job
Summary Schedule will be true, correct and complete in all Material respects as
of the date thereof and present fairly and fully such information regarding
each Project, and have been prepared in accordance with Seller's customary
accounting procedures.
5.1.10. Additional Information. Attached as Schedule 5.1.10.1 through
and including Schedule 5.1.10.12, which, expect for omissions and inaccuracies
that are not, in the aggregate, Material to the Business, are true, complete
and correct lists of the following items:
5.1.10.1. Receivables. All accounts and notes receivable
of the Seller as of October 31, 1998, together with (i) an appropriate
invoice date and due date aging schedule; (ii) the amounts provided for
as an allowance for bad debts; (iii) the identity and location of any
asset in which the Seller holds a security interest to secure payment
of the underlying indebtedness; and (iv) a description of the nature
and amount of any Encumbrances on such accounts and notes receivable;
5.1.10.2. Payables. All accounts and notes payable of the
Seller as of October 31, 1998, together with an appropriate aging
schedule;
5.1.10.3. Bank Accounts. The name of each bank in which the
Seller has an account, the names of all persons authorized to draw
thereon, the account balances and the account numbers of each such
account;
5.1.10.4. Employee Agreements. Any collective bargaining
agreements of the Seller with employees, including amendments,
supplements, and written understandings, and all written employment,
compensation or consulting agreements, of the Seller with any person;
5.1.10.5. Employees. All employees, their positions with the
Company and their compensation (including bonus);
5.1.10.6. Promissory Notes and Indebtedness. All long-term
and short-term promissory notes, installment contracts, loan
agreements, credit agreements and any other agreements of the Seller
relating thereto or with respect to collateral securing the same;
5.1.10.7. Guaranties. All indebtedness, liabilities and
commitments of others and as to which the Seller is a guarantor,
endorser, co-maker, surety, or accommodation maker, or is contingently
liable therefor (excluding liabilities as an endorser of checks and
the like in the ordinary course of business) and all letters of credit,
whether stand-by or documentary, issued by any third party.
5.1.10.8. Other Assets. Schedules 2.1.1, 2.1.2, 2.1.3,
2.1.4, 2.1.5 and 2.1.6 are true complete and correct listings of the
Real Property, Machinery and Equipment, Contracts and Leased
Properties, Intellectual Property, Inventory and Supplies, and
Licenses and Permits of the Company, except to the extent of
inaccuracies that are not Material to the assets of the Business.
5.1.11. Absence of Certain Changes and Events. Other than as a result
of the transactions contemplated by this Agreement or as set forth on Schedule
5.1.11, since October 31, 1998, there has
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not been:
5.1.11.1. Financial Change. Any material adverse change in the Assets,
the Business or the financial condition, operations, liabilities or
prospects of the Seller;
5.1.11.2. Property Damage. Any material damage, destruction, or loss
to any of the Assets or the Business (whether or not covered by insurance);
5.1.11.3. Waiver. Any waiver or release of a material right of or
claim held by the Seller;
5.1.11.4. Change in Assets. Any acquisition, disposition, transfer,
dividend, encumbrance, mortgage, pledge or other encumbrance of any asset
of the Seller other than in the ordinary course of business.
5.1.11.6. Employment Arrangements. Any change in the duration or level
of compensation, bonus or severance payable under any employment or
contract arrangement with the Seller (whether by amendment to any existing
arrangement or by the entering into a new arrangement) outside of the
ordinary course of business; or
5.1.11.7. Other Material Changes. Any other event or condition known
to either the Seller that would or may have a Material adverse effect on
the Seller, the Assets or the Business.
5.1.12. Assets. The Assets constitute all of the assets used by Seller to
conduct the Business as historically conducted by the Seller.
5.1.13. Environmental Matters. Except as set forth on Schedule 5.1.13, none
of the current or past operations of the Business or any of the Assets is being
or has been conducted or used in such a manner as to constitute a Material
violation of any Environmental Law. The Seller has not received any written
notice from any entity, governmental agency or individual regarding any
existing, pending or threatened investigation or inquiry related to violations
of any Environmental Law or regarding any claims for remedial obligations or
contribution for removal costs or damages under any Environmental Law, which, in
the aggregate, would have a Material adverse effect on the Business or
operations of the Assets. There are no writs, injunction decrees, orders or
judgments outstanding, or lawsuits, claims, proceedings or investigations
pending or, to the knowledge of the Seller, threatened, relating to the
ownership, use, maintenance or operation of the Assets or the conduct of the
Business, nor, to the knowledge of the Seller, is there any basis for any of the
foregoing. Schedule 5.1.13 contains a list of all reports and environmental
assessments that the Seller has received with respect to any property owned,
operated or leased by the Seller, and the Seller has provided copies of such
reports and environmental assessments to the Purchaser. Except as set forth on
Schedule 5.1.13, the Seller has no liability at any third party site as a result
of disposing or arranging for the disposal of Hazardous Materials.
5.1.14. Employee Benefit Plans; Labor Issues. The Seller will deliver to
the Purchaser copies of the Employee Plans and any other health, dental and
life insurance plans, bonus, deferred compensation, pension, profit sharing and
retirement plans and all other employee benefit plans, programs or
arrangements providing benefits for employees of the Seller (the "Benefit
Plans").
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5.1.15. Necessary Consents. As of the Closing Date, the Seller will
have obtained and delivered to the Purchaser all consents required to be
obtained from any governmental authority or from any other third party
necessary for the Seller to consummate the transactions contemplated hereby.
5.1.16. Investigations, Litigation. No investigation or review by any
governmental entity with respect to the Seller or any of the transactions
contemplated by this Agreement is pending or, to the knowledge of the Seller,
threatened, nor has any governmental entity indicated to the Seller an intention
to conduct the same. Except as disclosed on Schedule 5.1.16, there is no
material suit, action, or legal, administrative, arbitration or other
proceeding, or governmental investigation pending to which the Seller is a
party or, to the knowledge of the Seller, might become a party.
5.1.17. Transactions with Management. Except as set forth on
Schedule 5.1.17, the Seller is not a party to any contract, lease or
agreement with any of the officers or directors of the Seller.
5.1.18. Compliance with Other Laws. The Seller is not in
Material violation of or in material default with respect to, or in
alleged violation of or alleged default with respect to OSHA, or any
applicable law or any applicable rule, regulation, or any writ or
decree of any court or any governmental commission, board, bureau,
agency, or instrumentality, or delinquent with respect to any Material
report required to be filed with any governmental commission, board,
bureau, agency or instrumentality except for such defaults or
violations that will not have a Material adverse effect on the Assets
or the Business.
5.1.19. Finder's Fee. Except as set forth on Schedule 5.1.19,
all negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on by the Seller and its counsel
directly with Purchaser and its counsel, without the intervention of
any other person in such manner as to give rise to any valid claim
against any of the Parties hereto for a brokerage commission, finder's
fee or any similar payment.
6. PURCHASER'S REPRESENTATIONS AND WARRANTIES
6.1. Organization and Good Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of Texas, has
full requisite corporate power and authority to carry on its business as it is
currently conducted, and to own and operate the properties currently owned and
operated by it, and is duly qualified or licensed to do business and is in good
standing as a foreign corporation authorized to do business in all jurisdictions
in which the character of the properties owned or the nature of the business
conducted by it would make such qualification or licensing necessary.
6.2. Agreement Authorized and its Effect on Other Obligations. The
Purchaser has requisite power and authority to execute and deliver this
Agreement and the other Transaction Documents to which it is a party. The
execution and delivery of this Agreement and the other Transaction Documents to
which the Purchaser is a party have been authorized by all necessary corporate,
shareholder and other action on the part of the Purchaser, and this Agreement
and the other Transaction Documents to which the Purchaser is a party are the
valid and binding obligations of the Purchaser, enforceable against the
Purchaser in accordance with their respective terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, debtor relief or
similar laws affecting rights of creditors generally and subject to normal
equitable principles. The execution, delivery and
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<PAGE> 18
performance of this Agreement and the other Transactions Documents to which the
Purchaser is a party, and the consummation of the transactions contemplated
hereby and thereby, will not conflict with or result in a violation or breach
of any term or provision of, nor constitute a default under (i) the charter or
bylaws (or other organizational documents) of the Purchaser, (ii) any
obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which the Purchaser is a party or by which the Purchaser or its
properties are bound; or (iii) any provision of any law, rule, regulation,
order, permit, certificate, writ, judgment, injunction, decree, determination,
award or other decision of any court, arbitrator, or other governmental
authority to which the Purchaser or any of its properties are subject.
6.3. Necessary Consents. As of the Closing Date, the Purchaser will have
obtained and delivered to the Seller all consents required to be obtained from
any governmental authority or from any other third party necessary for the
Purchaser to consummate the transactions contemplated hereby.
6.4. Investigations. No investigation or review by any governmental
entity with respect to the Purchaser or any of the transactions contemplated by
this Agreement is pending, or to knowledge of Purchaser, threatened, nor has
any governmental entity indicated to Purchaser an intention to conduct the same.
6.5. Finder's Fee. Except as set forth on Schedule 6.5, all negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried on by the Purchaser and its counsel directly with the Seller and its
counsel, without the intervention of any other person in such manner as to give
rise to any valid claim against any of the Parties hereto for brokerage
commission, finder's fee or any similar payment.
7. SELLER'S COVENANTS
7.1. Seller ~ Covenants. In addition to those covenants of Seller in
Section 4 above, Seller covenants as follows:
7.1.1. Employees.
7.1.1.1. Liability for Retention Bonuses. The Seller acknowledges
that payment of any applicable retention bonuses to induce certain
employees to remain employed by the Business for a specified period of
time following the Closing Date is the obligation of the Seller or its
affiliates, and payment of retention bonuses will not be a liability
of the Purchaser under any circumstances.
7.1.1.2. Non-Solicitation of Employees. Except for those
individuals listed on Schedule 7.1.1.2, if Purchaser extends an offer of
employment to a Seller employee pursuant to Section 8.1.1 below, Seller and
Seller's affiliates shall not make a competing offer of employment in any
capacity to such employee for one year following the Closing Date and will
waive any non-competition or other employment contract obligation that might
otherwise restrict the employee's ability to be employed by Purchaser;
provided, that nothing shall prevent Seller from offering employment to any
present Seller employee who is not offered employment by Purchaser or whose
employment with Purchaser is terminated by Purchaser.
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<PAGE> 19
7.1.13. Medical Insurance. Seller shall arrange for
the benefits administration company currently coordinating the
medical benefits coverage for the Seller's employees to offer
to provide, at the expense of the Purchaser, continuation of
benefits, at Seller's existing pricing terms and conditions,
as of and after the Closing.
7.1.2. Name Change. Within 30 days following the Closing Date,
Seller shall apply to the appropriate governmental authorities to
change its corporate name to a name that is different from "P.W.
Stephens Residential, Inc."
7.1.3. Covenant Against Competition. For a period of five
years following the Closing Date, Seller will not directly or
indirectly through any affiliate or subcontractor, (i) engage in any
manner in a business which is the equivalent of, or is competitive
with, the products and services of the Purchaser, within the United
States or any foreign country (a "Competing Business"), (ii) assist any
other person in engaging in a Competing Business or (iii) solicit or
contact any customer, supplier, employee or other person with a
business relationship with the Purchaser to influence such person or
entity to alter in any manner its or his relationship with the
Purchaser. If at the time of enforcement of this Section 7.1.3, a court
of competent jurisdiction should hold that the restrictions herein are
unreasonable under the circumstances then existing, the Parties agree
that the maximum duration, scope or geographical area legally
permissible under such circumstances will be substituted for the
duration, scope or area stated herein.
7.1.4. Further Assurances. To the extent any Licenses and
Permits are not transferable, the Seller will use its reasonable best
efforts to assist the Purchaser in obtaining newly issued Licenses and
Permits before the Closing Date.
7.1.5. Insurance, Performance Bonds and Guaranties. The
Seller will use its reasonable best efforts to keep in place, at
Purchaser's expense, all insurance policies, performance bonds and
guarantees maintained by, or for the benefit of, the Seller and listed
on Schedule 7.1.5 until the earlier of (i) the expiration of such
insurance policies, performance bonds and guaranties; (ii) until the
Purchaser has obtained substitute insurance policies, performance bonds
or guaranties; or (iii) six months after the Closing. The Purchaser
shall indemnify the Seller against any liabilities incurred by the
Seller under such performance bonds and guarantees listed on Schedule
7.1.5, and shall provide to the Seller backup guarantees, performance
bonds or other sources of security reasonably acceptable to the Seller
to secure the Purchaser's obligations pursuant to this Section 7.1.5.
8. PURCHASER'S COVENANTS
8.1 Purchaser's Covenants. In addition to those covenants of Purchaser
in Section 4 above, Purchaser covenants as follows:
8.1.1. Employees. On the Closing Date, Purchaser shall offer
employment to each of Seller's employees.
8.1.2. Bulk Sales Requirements. Purchaser hereby waives compliance
by Seller with any
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<PAGE> 20
bulk sales notice requirements under applicable law, and Seller shall
indemnify and hold Purchaser harmless from any and all losses, liabilities,
claims and expenses incurred by Purchaser as a result of Seller's failure
to comply with such requirements.
8.1.3. Closing of Seller's Books. Within 60 days of the Closing Date,
Purchaser shall close the books of the Business as of the Closing Date,
consistent with the Seller's past practice, and shall supply Seller with a
copy of the closing documents.
8.1.4. Full Access. On and after the Closing Date, representatives of
Seller shall have, upon reasonable notice, and for reasonable business
purposes (such as defense of litigation, response to inquiries from tax
and regulatory authorities, etc.), access at reasonable times during normal
business hours to the premises, senior management and employees, books,
records, contacts, and documents of Purchaser relating to the Business,
Assets, or any other liability or obligation that is not an Assumed
Liability; provided, however, that the representatives of Seller shall
comply with all security procedures and requirements of Purchaser with
respect to such premises, books, records, contracts, tax matters, and
documents, and that any such activities shall be conducted in a manner that
does not unreasonably interfere with Purchaser's operations.
9. PRE-CLOSING COVENANTS
9.1. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing:
9.1.1. General. Each of the Parties will use its reasonable best
efforts to take all action and to do all things reasonably necessary to
consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing
conditions set forth in Section 10 and Section 11 below).
9.1.2. Agreements of the Seller. Except as expressly contemplated
elsewhere in this Agreement, the Seller agrees that from the date hereof
until the Closing Date, the Seller will:
9.1.2.1. Maintenance of Present Business. Operate its business
only in the usual, regular, and ordinary manner so as to maintain the
goodwill it now enjoys and, to the extent consistent with such
operation, use its reasonable best efforts to preserve intact its
present business organization, keep available the services of its
present officers and employees, and preserve its relationship with
customers, suppliers, jobbers, distributors and others having business
dealings with it;
9.1.2.2. Maintenance of Properties. At its expense, consistently
with historic practices, maintain all of its property and Assets in
customary repair, order and condition, reasonable wear and tear
excepted;
9.1.2.3. Maintenance of Books and Records. Maintain its books of
account and records in the usual, regular, and ordinary manner, in
accordance with its customary accounting principles applied on a
consistent basis;
9.1.2.4. Compliance with Law. Comply with all laws applicable and
Material to the conduct of its business;
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<PAGE> 21
9.1.2.5. Prohibition of Certain Contracts and
Liabilities. Except for orders made and contracts entered into
in the ordinary course of business, not enter into any
contracts, enter into a commitment for expenditures or incur
any liability, in each case exceeding $5,000, unless approved
in writing by the Purchaser, which involve the payment of more
than $5,000 each;
9.1.2.6. Prohibition of Loans. Not incur any
obligations for borrowed money, except for loans in the
ordinary course of business;
9.1.2.7. Disposal of Assets. Not sell, dispose of, or
encumber any property or assets, except in the ordinary course
of business;
9.1.2.8. Maintenance of Insurance. Maintain insurance
upon all its properties and with respect to the conduct of its
business of such kinds and in such amounts as is not less than
that presently carried by it;
9.1.2.9. No Amendments to Charter Documents and
Related Matters. Not amend its charter documents, or merge or
consolidate with or into any person, change in any manner the
rights of its capital stock or the character of its business;
9.1.2.10. Prohibition on Dividends. Not declare any
dividend on shares of its capital stock or make any other
non-cash distribution of assets to the holders thereof;
9.1.2.11. Acquisition Proposals. Not directly or
indirectly (i) solicit, initiate or encourage any inquiry or
Acquisition Proposal from any person or (ii) participate in
any discussions or negotiations regarding, or furnish to any
person other than Purchaser or its representatives any
information with respect to, or otherwise facilitate or
encourage any Acquisition Proposal by any other person. The
Seller shall promptly communicate to Purchaser the terms of
any such written Acquisition Proposal that it may receive or
any written or oral inquiries made to Seller or any of its
directors, officers, representatives or agents.
9.1.3. Notices and Consents. The Seller will give any notices
to third parties, and the Seller will use its reasonable best efforts
to obtain any third party consents, that the Purchaser reasonably may
request in connection with the matters referred to in Section 5.1.15.
Each of the Parties will give any notices to, make any filings with,
and use its reasonable best efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in
connection with the matters referred to in Sections 5.1.15 and 6.3.
9.1.4. Full Access. The Seller will permit representatives of
the Purchaser to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of
the Seller, to all premises, properties, personnel, books, records
(including tax records), contracts, and documents of or pertaining to
the Seller and the Business.
9.1.5. Notice of Developments.
9.1.5.1. The Seller may, by written notice to
Purchaser elect, at any time before Closing, to update any of
the Schedules to this Agreement. Unless the Purchaser has the
right to terminate this Agreement pursuant to Section 12.1.2
below by reason of the update
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<PAGE> 22
and exercises that right within the period referred to in
Section 12.12 below, the written notice pursuant to this
Section 9.1.5.1 will be deemed to have amended the affected
Schedule(s) to have qualified the representations and
warranties contained in Section 5 above, and to have cured any
misrepresentation or breach of warranty that otherwise might
have existed.
9.1.5.2. Each Party will give prompt written notice
to the other Party of any act, omission, event or occurrence,
other than a Seller update described in Section 9.1.5.1,
above, causing a breach of any of its own representations and
warranties contained in this Agreement. No disclosure by any
Party pursuant to this Section 9.1.5.2, however, shall be
deemed to amend or supplement the Schedules or to prevent or
cure any misrepresentation or breach of warranty.
10. SELLER'S CONDITIONS PRECEDENT TO CLOSING
10.1 Seller's Obligation. Seller's obligation to enter into
and complete the Closing is subject to the fulfillment on or before the Closing
Date of each of the following conditions. Seller may waive any or all of these
conditions, in whole or in part, at Seller's sole option.
10.1.1. Representations, Warranties and Covenants.
The representations and warranties of the Purchaser contained
in this Agreement shall be true and correct in all Material
respects as of the date of this Agreement and as of the
Closing Date. Purchaser shall have performed and complied in
all Material respects with all covenants and agreements
required by this Agreement to be performed or complied with by
Purchaser on or before the Closing Date. Purchaser shall have
delivered to Seller a certificate, in form reasonably
satisfactory to Seller, dated as of the Closing Date and
signed by a duly authorized officer of Purchaser, to the
foregoing effect.
10.1.2. Consents. All governmental and third party
consents, approvals and waivers, if any, required for the
consummation of the Acquisition shall have been received.
10.1.3. No Material Litigation. No suit, action, or
other proceeding shall be pending, or to Seller's knowledge,
threatened, before any court or governmental agency in which
it will be, or it is, sought to restrain or prohibit or to
obtain damages or provide other relief in connection with this
Agreement or the consummation of the transactions contemplated
hereby.
10.1.4. Corporate Action. Seller shall have received:
10.1.4.1. Board Resolutions. A copy of the
resolution or resolutions duly adopted by the Board
of Directors of Purchaser authorizing the execution,
delivery and performance by the Purchaser of this
Agreement and the other Transaction Documents to
which the Purchaser is a Party, certified by its
Secretary;
10.1.4.2. Secretary's Certificate. A
certificate of the Secretary of Purchaser, in form
reasonably satisfactory to Seller, certifying the
incumbency and signature of the officers of Purchaser
executing this Agreement and the other Transaction
Documents to which the Purchaser is a Party, and
stating that the foregoing resolutions remain in
effect and unaltered; and
11. PURCHASER'S CONDITIONS PRECEDENT TO CLOSING
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<PAGE> 23
11.1. Purchaser's Obligation. Purchaser's obligation to enter into and
complete the Closing is subject to the fulfillment on or before the Closing Date
of each of the following conditions. Purchaser may waive any or all of these
conditions, in whole or in part, at Purchaser's sole option.
11.1.1. Representations, Warranties and Covenants. The
representations and warranties of Seller contained in this Agreement
shall be true and correct in all Material respects as of the Closing
Date. Seller shall have performed and complied in all Material respects
with all covenants and agreements required by this Agreement to be
performed or complied with by Seller on or before the Closing Date.
Seller shall have delivered to Purchaser a certificate in form
reasonably satisfactory to Purchaser, dated as of the Closing Date and
signed by duly authorized officers of Seller, to the foregoing effect.
11.1.2. No Material Litigation. No suit, action, or other
proceeding shall be pending, or to the Purchaser's knowledge,
threatened, before any court or governmental agency in which it will
be, or it is, sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement or the consummation of
the transactions contemplated hereby.
11.1.3. Consents. All governmental and third party consents,
approvals and waivers, if any, required for the consummation of the
Acquisition shall have been received.
11.1.4. Corporate Action. Purchaser shall have received:
11.1.4.1. Board Resolutions. A copy of the resolution
or resolutions duly adopted by the Board of Directors of Seller
authorizing the execution, delivery and performance by Seller of this
Agreement and the other Transaction Documents to which Seller is a
party, certified by its Secretary;
11.1.4.2. Secretary's Certificate. Certificate of the
Secretary of Seller, in form reasonably satisfactory to Purchaser,
certifying the incumbency and signature of the officers of Seller
executing this Agreement and the other Transaction Documents to which
Seller is a party, and stating that the foregoing resolutions remain in
effect and unaltered; and
11.1.5. Transfer Documents.
11.1.5.1. Bill of Sale and Deeds. Seller shall have
executed and delivered to Purchaser on the Closing Date the items
specified in Sections 2.8.1, 2.8.2 and 2.8.3.
11.1.5.2. Assignments of Contracts and Licenses and
Permits. All of the Contracts and Licenses and Permits that are
assignable as of the Closing Date shall have been validly assigned to
the Purchaser without the consent of any other Party thereto other than
consents that have been obtained as of the Closing Date.
11.1.6. Title Insurance/Surveys. Purchaser shall have received
from a title company and surveyor:
11.1.6.1. Title Policy. With respect to the Real
Property the Title Policy, in form reasonably acceptable to Purchaser,
at standard rates, together with copies of all documents
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<PAGE> 24
affecting title; and
11.1.6.2. Survey. A survey of the Real Property
certified to Purchaser and the title insurance company issuing
the Policy in a manner reasonably acceptable to Purchaser and
such title company.
11.1.7. Additional Agreements. The following additional
agreements shall have been executed and delivered:
11.1.7.1. Employment Agreements. Purchaser and the
other parties thereto shall have entered into the Employment
Agreements.
11.1.7.2. Assignment of Indemnities. The indemnities
under the contracts and agreements listed on Schedule 11.1.7.2
currently running to the Seller or its affiliates shall be effectively
assigned to the Purchaser in such a fashion that the Purchaser will
have the full benefits thereof.
11.1.8. Completion of Due Diligence. The Purchaser
shall have completed and have been satisfied with the results of its
due diligence review of the Seller's Assets and the Business.
11.1.9. Opinion of Counsel. The Purchaser shall have
received from counsel to the Seller an opinion in form and substance
reasonably satisfactory to Purchaser and its counsel, addressed to the
Purchaser, and dated as of the Closing Date.
12. TERMINATION
12.1 Termination of Agreement. Either of the Parties may terminate
this Agreement as provided below:
12.1.1. By Mutual Consent. The Purchaser and the Seller may
terminate this Agreement by mutual written consent at any time before
the Closing.
12.1.2. By Purchaser Due to Material Adverse Effect. The
Purchaser may terminate this Agreement by giving written notice to the
Seller at any time before the Closing if (i) the Seller has within the
then previous 10 days given the Purchaser any notice updating the
Schedules to this Agreement pursuant to Section 9.1.5.1 above and (ii)
the development that is the subject of the notice has had a Material
adverse effect upon the financial condition of the Business or Assets
taken as a whole.
12.1.3. By Purchase Due to Breach of Representation or
Warranty. The Purchaser may terminate this Agreement by giving written
notice to the Seller at any time before the Closing if the Seller has
breached any representation, warranty or covenant contained in this
Agreement in any Material respect.
12.1.4. By Purchaser Due to Failure to Close Before December
31, 1998. The Purchaser may terminate this Agreement by giving written
notice to the Seller if the Closing shall not have occurred on or
before December 3, 1998, by reason of the failure of any condition
precedent under Section 11 hereof (unless the failure results
primarily from the Purchaser itself
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<PAGE> 25
breaching any representation, warranty, or covenant contained in this
Agreement).
12.1.5. By Seller Due to Breach of Representation or Warranty.
The Seller may terminate this Agreement by giving written notice to the
Purchaser at any time before the Closing if the Purchaser has breached
any representation, warranty or covenant contained in this Agreement in
any material respect.
12.1.6. By Seller Due to Failure to Close Before December __
1998. The seller may terminate this Agreement by giving written notice
to the Purchaser if the Closing shall not have occurred on or before
December __ 1998, by reason of the failure of any condition precedent
under Section 10 hereof (unless the failure results primarily from the
Seller itself breaching any representation, warranty, or covenant
contained in this Agreement).
12.2. Effect of Termination. If any Party terminates this Agreement
pursuant to Section 12.1 above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party;
provided, however, that a termination of this Agreement shall not relieve any
party hereto from any liability for damages incurred as a result of a breach by
such party of its representations, warranties, covenants, agreements or other
obligations hereunder occurring before such termination.
13. ACTIONS AT CLOSING
13.1. Actions to be Taken by Seller at the Closing. Seller shall
deliver the items specified for delivery by Seller in Sections 11.1.1, 11.1.3,
11.1.4, 11.1.5, 11.1.6, 11.1.7 and 11.1.9 above, unless delivery has been waived
by Purchaser.
13.2. Action to be Taken by Purchaser at the Closing. Purchaser will
take the following actions at the Closing:
13.2.1. Purchaser shall deliver the items specified for
delivery by Purchaser in Sections 10.1.1, 10.1.4 and 10.1.5 above,
unless delivery has been waived by Seller.
13.2.2. Purchaser shall pay the consideration specified for
payment at Closing in Section 2.3 above.
14. MISCELLANEOUS
14.1. Publicity. Seller and Purchaser shall consult in advance on the
form, timing and contents of any publicity, announcement or disclosure with
respect to the Acquisition, whether to the financial community, governmental
authorities, the public generally or otherwise. Seller and Purchaser shall
issue, at a mutually acceptable date, a joint press release announcing the
change in ownership of the Assets.
14.2. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be addressed as follows and delivered
personally, sent by facsimile transmission or
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<PAGE> 26
sent by certified, registered or express mail, postage prepaid, or by a
nationally recognized overnight courier service marked for overnight delivery.
Any such notice shall be deemed received when so delivered personally; or when
sent by facsimile transmission (with immediate confirmation thereafter); or, if
mailed, upon receipt as confirmed by written receipt; or, if sent by overnight
courier marked for overnight delivery, upon receipt.
If to Purchaser, to: Brian Barber
American Temporary Sanitation, Inc.
17 Reardon Road
Queensbury, NY 12804
If to Seller, to:
P.W. Stephens Residential, Inc.
15201 Pipeline Lane, Suite B
Huntington Beach, CA 92649
Any of the entities referred to above may, by notice given in accordance
with this Section 14.3 to the other entities, designate another address or
person for receipt of notices hereunder.
14.3. Assignment. This Agreement shall be binding upon and shall inure to
the benefit of, the parties hereto their respective successors and permitted
assigns. This Agreement may not be assigned or transferred in whole or in part
by either party hereto without the prior written consent of the other party, and
any attempt to assign or transfer this Agreement or any part of either in
violation of this Section 14.3 shall be void and of no effect.
14.4. Expenses. Each of the parties hereto shall be responsible for and
shall pay all of its own expenses incurred in connection with this Agreement
and the transactions contemplated herein, including without limitation all
legal fees and other expenses incident to the negotiation, preparation and
execution of this Agreement.
14.5. Controlling Law and Venue. This Agreement shall be governed by and
construed in accordance with the laws of the United States and the State of
California, without regard to the conflict of laws principles of that state or
any other jurisdiction. Judicial proceedings arising from or relating to this
Agreement shall only be instituted in the courts of the State of California and
the courts of the United States located in California. The Parties irrevocably
consent to the personal jurisdiction of the courts of State of California and
the Courts of the United States located in California and waive all defenses to
jurisdiction and objections to the propriety or convenience of these courts
that they may have.
14.6. Entire Agreement. This Agreement, the exhibits and schedules hereto,
constitute the entire Agreement and understanding of the parties relating to
the subject matter hereof, and shall supersede all prior and contemporaneous
agreements and understandings, representations and
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<PAGE> 27
warranties, whether oral or written, relating to the subject matter hereof,
including without limitation any Letter of Intent that may have been entered
into by either Party or their agents.
14.7. Modification, Waiver. No waiver, acquiescence or forbearance by
either party hereto of any breach or default this Agreement, and no course of
conduct or dealings between the parties that varies from the terms and
conditions of this Agreement, shall: (i) be deemed a waiver as to any subsequent
and/or similar breach or default by either Party; or, (ii) constitute or be
deemed a modification of this Agreement; or, (iii) affect the rights or
obligations of the Parties under this Agreement in any way. This Agreement
cannot be modified except by a writing executed by both parties and this Section
4.8 cannot be orally modified or waived.
14.8. Severability. If any term, provision, covenant or restrictions
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. The Parties hereto stipulate and declare to
be their intention that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, void or unenforceable.
14.9. Captions. Captions contained in this Agreement are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of any article, section or paragraph hereof.
14.10. Counterparts. Any number of counterparts of this Agreement may
be executed and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
instrument.
14.11. Headings. All headings in this Agreement, including the exhibits
and schedules, have been inserted for convenience only and shall not affect the
interpretation of any provision hereof.
14.12. Mutual Negotiations. This Agreement, including the exhibits and
schedules, has been arrived at through the mutual negotiation of the parties.
Accordingly, no provision shall be construed against one party or in favor of
another party merely because one party or the other drafted the provision.
14.13. IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and year first set forth above.
"SELLER"
P.W. STEPHENS, RESIDENTIAL, INC.
By: /s/ [ILLEGIBLE]
-------------------------------------
Authorized Agent
"BUYER"
AMERICAN TEMPORARY SANITATION, INC.
By: /s/ BRYAN R. BARBER, PRESIDENT
-------------------------------------
Authorized Agent
26
<PAGE> 1
EXHIBIT 21 - LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary Jurisdiction of Incorporation
- ---------- -----------------------------
<S> <C>
P.W. Stephens Contractors, Inc. Missouri
P.W. Stephens Services, Inc. Missouri
Each of those subsidiaries is wholly-owned. This list does not include inactive,
sold or discontinued subsidiaries.
</TABLE>
38
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
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0
0
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</TABLE>