UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the Fiscal Year ended March 31, 1998
Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-10955
------------------------------
ENVIRONMENTAL ELEMENTS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 52-1303748
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3700 Koppers St., Baltimore, Maryland 21227
(Address of Principal Executive Offices) (Zip Code)
(410) 368-7000
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common stock, par value $0.01 per share, New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X]
NO [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10K. [ ]
The aggregate market value of Common Stock held by non-affiliates of the
registrant as of June 5, 1998 was approximately $19.8 million based upon the
closing price of $3.875 The number of shares outstanding of the registrant's
Common Stock as of June 5, 1998 was 7,036,332.
Documents Incorporated by Reference
Portions of the definitive Proxy Statement relating to registrant's Annual
Meeting of Stockholders to be held July 31, 1998 are incorporated by reference
in Part III of this Form 10-K, with the exception of portions that are not
incorporated by reference by their terms. Portions of the registrant's Annual
Report to Stockholders for the year ended March 31, 1998 are incorporated by
reference in Parts I, II and IV of this Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
Environmental Elements Corporation (the "Company") designs and supplies
proprietary, large-scale, custom-engineered air pollution control systems which
enable customers to operate their facilities in compliance with regulatory
standards limiting particulate and gaseous emissions. The Company's business
strategy is to provide a broad array of proprietary state-of-the-art
technologies to traditionally intensive users of air pollution control systems,
including two primary customer groups -- electric utilities and private power
generators and pulp and paper producers -- in addition to municipal solid waste
facilities and other industrial customers.
The Company has historically concentrated on systems that reduce particulate
emissions from combustion exhaust streams, specifically electrostatic
precipitators and fabric filter systems (also known as baghouses). For each of
these product lines, the Company has developed proprietary designs for durable,
cost-effective systems. The Company has developed, acquired distribution rights
for, or licensed from others, dry and semi-dry scrubbers for use in gaseous
emissions control.
The Company enters into contracts for original equipment systems, major
rehabilitation and rebuilding services, and ongoing maintenance and repair
services. The Company offers a range of systems and technologies to address the
air pollution control needs of customers in its selected markets. While the
Company, in certain instances, may provide a combination of its systems as an
integrated pollution control solution, its customers typically purchase
individual systems which, in certain instances, may operate in conjunction with
other systems supplied by others. The Company's contracts with its customers
generally require it to design and supply an air pollution control device which
removes specified amounts of gaseous or particulate matter from combustion
exhaust gases. The Company is generally contractually responsible to its
customers for all phases of the design, fabrication, start-up and testing and
(if included in the scope of the Company's contract) field construction of its
systems. The Company's successful completion of its contractual obligations is
generally determined by a performance test or tests of the Company's systems
which are generally conducted by a customer-selected independent testing agency
which verifies that the system is removing gaseous or particulate emissions in
amounts required by the contract. In connection with the expansion of the
Company's technological offerings and a shift in the Company's mix of business,
additional measures of performance may be afforded or required. Such measures
may include availability or reliability guarantees and guarantees with respect
to the consumption of power, reagent, water or other components of variable
operating costs.
The Company generally does not manufacture or fabricate its systems or
engage in field construction activities utilizing its own employees, other than
field supervisory personnel. The Company fabricates, through its joint venture
production facility in the People's Republic of China, precipitator internals
for use by the Company's licensee in China and for our use in other selected
markets. In fiscal 1996, the Company elected to discontinue the manufacturing
and certain direct hire construction activities previously conducted by its
aftermarket subsidiary, Environmental Elements Services Corporation, and
relocated the aftermarket business to the Company's Baltimore headquarters,
where it now conducts such business directly.
The Company performs process engineering for its systems, including but not
limited to, the determination of the size, geometry and mechanical, electrical
and structural characteristics of the device needed to meet its contractual
obligations for gaseous or particulate removal, and performs the detail
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design of and develops specifications for all structural, electrical,
mechanical, piping, and chemical components necessary to make the system. The
Company purchases various components consisting of both off-the-shelf items and
items made to its design and specifications by vendors; enters into subcontracts
for field construction (if included in the scope of the Company's contract),
which it supervises; and manages all technical and commercial aspects of the
performance of its contracts, including the start-up of its systems.
In general, the Company's original equipment contracts vary in length from
12 to 36 months and require performance of a particular project within a
specified time frame. Almost all of the Company's contracts are undertaken on a
fixed price basis. Fixed price contracts require the Company to bear certain
risks of cost overruns, and from time to time the Company experiences a loss in
connection with a contract.
The Company and its predecessor have been engaged in the air pollution
control business since 1946.
PRODUCT LINES AND SERVICES
The Company supplies electrostatic precipitators primarily to power
generation and pulp and paper customers. An electrostatic precipitator removes
particulate matter from combustion exhaust streams. The particulate in the gases
is electrically charged as it passes positively charged high-voltage electrodes
and is then attracted to oppositely charged collecting plates. The collected
material is periodically removed from the plates by rapping or vibration. The
Company's precipitators include computerized power control systems which allow
the precipitators to respond automatically to changing operating conditions. The
Company's installed base of electrostatic precipitators is one of the largest in
North America.
The Company supplies a wide range of fabric filter systems to control and
recover dust and other particulates in a variety of utility and industrial
applications for power-generation, pulp and paper, incineration, and other
industrial customers.
The Company offers state-of-the-art semi-dry scrubbing systems for the
reduction of acid gases such as sulfur oxides and hydrogen chloride emissions. A
semi-dry scrubbing system removes objectionable gaseous pollutants and certain
heavy metals from exhaust emissions by causing a chemical reaction, typically
using lime as a reagent, which transforms the pollutants into a readily
disposable particulate. The Company offers its semi-dry scrubbers primarily for
municipal solid waste incineration facilities.
The Company offers a fluidized bed flue gas desulfurization dry reactor,
(known as a circulating dry scrubber or "CDS"(R)) which has special
application to both the power generation and municipal solid waste incineration
acid rain retrofit markets. During fiscal 1996 and fiscal 1997, the Company
successfully started up its first two CDS(R) systems and successfully
completed its performance obligations. The CDS(R) technology is licensed from
Lurgi GmbH.
The Company supplies original equipment systems, the majority of which are
replacements of aged existing air pollution control systems. In addition,
because of the extreme conditions under which air pollution control systems
operate, maintenance, repair, and rebuilding of these systems is an ongoing
requirement and creates additional demand for the Company's services and
products. The Company engages in complete and partial rehabilitation and
rebuilding of air pollution control systems, often involving design and
installation work, and also provides ongoing maintenance services and spare
parts on a routine or emergency-response basis. Such services may include the
provision of rebuild project materials, construction services, and field
engineering services including inspection, testing, rebuild supervision, and
equipment performance evaluation services.
In fiscal 1997, the Company entered into its first alliance agreement with a
customer under which the Company provides dedicated engineering and field
service personnel who will perform inspection, engage in problem-solving and
material planning, and make parts recommendations on a system-wide
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basis, with a goal of reducing our customer's total life cycle costs. During
fiscal 1998, the alliance resulted in a large order from the customer for new
systems upgrades. The Company intends to continue to focus on opportunities for
similar alliances with other important customers.
INDUSTRY DEMAND FACTORS
The market for air pollution control systems and technologies is directly
dependent upon governmental regulation and enforcement of air quality standards.
During the past two decades, federal, state, and municipal governments have
recognized that contamination of the air poses significant threats to public
health and safety, and, in response, have enacted legislation designed to reduce
or eliminate a variety of air pollutants. The Company believes that governmental
regulation of air pollution and its sources will continue to increase and that
it is well positioned to assist customers in its targeted markets to solve their
air pollution control problems.
Given the existence of stringent domestic air emissions standards, domestic
demand for the Company's systems and technologies generally arises from the
following principle sources: need for replacement, rehabilitation and rebuilding
of air pollution control systems on aging electric utilities and on pulp and
paper manufacturing facilities; construction of new electricity-generating
facilities, particularly those operated under cogeneration and "private power"
arrangements; continued expansion of pulp and paper manufacturing capacity; and
construction of new municipal solid waste incineration facilities. Demand from
any one of these sources may vary significantly from year to year depending on
economic, regulatory, and other factors including industry cycles.
Emerging international demand for the Company's products is driven primarily
by a combination of electric generation and other infrastructure improvement and
the passage or enforcement of existing regulations limiting gaseous and
particulate emissions in developing countries.
MARKETS SERVED
The Company has historically followed a strategy of limiting its business to
systems and technologies for air pollution control and focusing within that
business on selected markets in which the Company believes it can build upon its
reputation for expertise and reliability. The Company's current targeted markets
are electric utilities and private power generators, pulp and paper producers,
developers of municipal solid waste incineration facilities, and certain other
process industries throughout the United States, Canada, and selected areas of
central Europe, Asia and the Pacific Rim. The Company started up two
precipitator projects in Poland in fiscal 1996, and in fiscal 1997, the
Company's baghouse and spray dryer emissions control system for a municipal and
medical waste incinerator in the United Kingdom commenced operations. In its
1997 fiscal year, the Company received and commenced execution of an award to
supply reverse air fabric filter emissions systems at a municipal solid waste
incineration plant in Korea. The Company's precipitator technology will be
installed in a power plant in China, through a contract awarded to the Company's
licensee in fiscal 1997. In fiscal 1998, the Company received two additional
orders for equipment and the Company signed an international license agreement
in South Korea, Finland, Russia and India.
Currently, the Company offers a select line of systems and technologies to
meet the various needs of electric utilities and other electric power generators
for control of air emissions at new and existing facilities. The Company's
principal product sold to the electric-generating market is its Rigitrode(R)
electrostatic precipitator, which combines the reliability traditionally
associated with European heavy-duty, bottom-rapped designs and the cost
efficiency associated with top-rapped American models. (In a top-rapped
precipitator, the force used to dislodge dust from the collection plate is
applied to the top of the plate.) The Company is bidding, and will continue to
bid, a number of large contract opportunities in the utility market.
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The Company also offers to the utility industry a range of fabric filter
systems to control particulate emissions. In recent years, the Company has been
successful in marketing its fabric filter systems to private power projects
which either cogenerate electricity and thermal energy or generate electricity
alone for sale to utilities and in fiscal 1995 started-up a pulse jet fabric
filter system in the utility market. In addition, in response to anticipated
substantial demand for solutions to the requirements of acid rain legislation,
the Company, under license from Lurgi GmbH, has introduced a state-of-the-art
CDS(R) system for the control of sulfur oxide emissions. The Company also offers
a proprietary semi-dry scrubbing system using rotary atomizer technology which
the Company believes offers the advantages of lighter weight, ease of
maintenance, and economy of operation that are particularly significant to
smaller electricity-generating facilities.
The Company has installed over 500 electrostatic precipitators at pulp and
paper plants in the United States and Canada. The Company attributes its success
in this market to the competitive advantages of its Rigitrode(R) precipitator
and to its reputation for reliability and service. The Company has established
long-standing relationships, in many cases covering more than 25 years, with
leading firms in the industry.
Municipal solid waste and private waste-to-energy facilities, as well as
hazardous waste incineration plants, must comply with stringent federal and
state environmental standards. Existing regulations require new solid waste
incineration facilities to control both sulfur oxides and hydrogen chloride
emissions. Such systems generally include an acid gas scrubbing tower and a
modular baghouse for collection of particulates. In fiscal 1997, we successfully
placed into operation our emissions system on a municipal and medical waste
incinerator in England and a waste-to-energy facility in New York. Also in
fiscal 1997, we were awarded a contract to retrofit a waste-to-energy facility
in Georgia. In fiscal 1998, we were awarded a contract to retrofit a
waste-to-energy facility in Florida. The Company has identified the incineration
market as one which will provide an opportunity to market its semi-dry scrubbing
systems in the future.
In addition to serving the principal markets described above, the Company
sells its systems to customers in petroleum refining and certain materials
processing industries, including mining, metals conversion, cement production,
and steel manufacturing. The Company's sales in these markets consist primarily
of wet scrubbers and electrostatic precipitators. The Company believes that it
is competitive in these other markets.
BOOKINGS AND BACKLOG INFORMATION
The information required by this item is contained under the caption
"Bookings and Backlog" in "Management's Discussion and Analysis" in the
Company's 1998 Annual Report to Shareholders.
RESEARCH AND DEVELOPMENT
The Company has an ongoing program for development and commercialization of
new air pollution control technologies and enhancement of existing technologies.
The Company spent approximately $317,000, $139,000, and $347,000, on product
development during fiscal 1998, 1997, and 1996, respectively. Among other
important product development activities, the Company has developed and acquired
patent protection of an advanced technology for the control of sub-micron sized
particulate emissions from utility and industrial boilers in order to respond to
increasingly stringent regulations for fine particulate emissions. This
technology is expected to undergo full-scale commercial demonstration during the
current fiscal year. The Company has also developed and introduced into the
utility market wide plate spacing precipitators and has developed precipitator
dust plates which are shipped and site-assembled more easily than earlier
generation dust plates. The Company, in fiscal 1998, has developed a
software-based voltage controller with adaptive programming capabilities to
enhance precipitator performance.
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The Company has recently advanced its research and development operations
beyond its historical product development activities to funded research
programs. The Company is working on the enhancement of particulate removal
capabilities in certain applications, through a Cooperative Research and
Development Agreement with the U.S. Department of Energy, is augmenting its CDS
capabilities for mercury and fine particulate control under a Department of
Energy SBIR grant, and is studying glow discharge plasma technology under a U.S.
Department of Defense STTR grant.
PATENTS
The Company owns or has the rights to a number of patents, patent
applications, and other proprietary technologies which are important to various
aspects of its business. While many individual patents are not considered
material to the conduct of the Company's business as a whole, the Company views
its newly acquired patent protection with respect to its fine particulate
agglomerator technology as potentially providing the Company with a significant
advantage in the marketing of its precipitators. Generally, however, the Company
believes that its ability to compete in the air pollution control industry
depends primarily on its engineering and technological expertise, rather than on
patent protection.
SALES AND MARKETING
The Company's sales and marketing efforts are organized along market
lines--power industry, industrial, and aftermarket. The Company has integrated
field service resources of the original equipment and aftermarket divisions into
regional sales representation for each of its markets, allowing it to build
long-term customer relationships. The sales efforts are technical in nature and
involve its sales and marketing professionals, supported by the Company's senior
technical and management professionals. A significant portion of the Company's
sales are made through architectural and engineering firms, which play an
important role in the preparation of specifications for air pollution control
systems. The Company's sales and marketing group consists of industry and
regional sales managers and sales representatives.
Although the Company seeks to obtain repeat business from its customers, it
does not depend on any single customer to maintain its level of activity from
year to year. No customer accounted for more than 10% of the Company's sales in
fiscal 1998, three customers accounted for 33% of the Company's sales in fiscal
1997; and another customer accounted for 21% of the Company's sales in fiscal
1996. At fiscal year end 1998, approximately 43% of the Company's accounts and
retainages receivable were due from companies within the pulp and paper industry
and approximately 33% were due from companies within the power industry.
All of the Company's foreign sales are generated through royalties from
international licensees or from export sales, which were less than 10% of
consolidated sales in fiscal years 1998, 1997, and 1996. In order to take
advantage of certain overseas market opportunities, the Company has established
licensing agreements with companies in the People's Republic of China, India,
Russia, South Korea, Finland, and Brazil under which the Company is entitled to
royalties based upon sales in the licensed territory. These agreements do not
currently represent a material source of income. In addition to the license, the
Company has established, with its Chinese licensee, a production joint venture
in China which commenced production, in fiscal 1998, of certain precipitator
components for use by the Company and its licensee.
SUPPLIERS AND SUBCONTRACTORS
Like other companies in its industry, the Company relies on outside
suppliers, manufacturers and fabricators to supply parts and components in
accordance with the Company's specifications. In addition, in cases in which the
Company's scope of work includes installation of equipment, the Company selects
and supervises subcontractors for this work. To date, the Company has not
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experienced difficulties either in obtaining fabricated components incorporated
in its systems or in obtaining qualified subcontractors. It has been the
Company's recent experience, however, that in times of recession or other
industry downturns, the Company is more likely to be faced with subcontractor
performance problems and construction claims asserted by certain of its
subcontractors. In response, the Company is required to more aggressively manage
its construction activities and contracts, and, in some cases, be subject to
unanticipated costs.
The Company's vendor sources for various components, materials and parts
used in its systems, including control switches, electrical components, and
other components, include a substantial number of firms. The Company does not
depend on any one of these vendors to a material extent, and in any event the
Company believes that alternative vendors would be available if needed. With
respect to fabricators, the Company has satisfactory relationships with
fabricators throughout the United States and Canada. Similarly, with respect to
installation subcontractors, the Company has satisfactory relations with firms
throughout the United States and Canada. Based on the number of vendors,
fabricators, and subcontractors and the availability of alternative sources, the
Company does not believe that the loss of its relationship with any one firm
would have a material adverse effect on its business.
The Company operates under an agreement with Teco Industries of Maryland,
Inc., an equipment manufacturer, pursuant to which the manufacturer meets the
Company's domestic requirements for production of certain internal components of
electrostatic precipitators (i.e., electrodes and collecting plates) at
pre-determined prices and terms. The loss of this supplier, or the supplier's
inability to perform, could subject the Company to a temporary delay and
possible cost increases. The Company does not believe, however, that such loss
would have a material adverse effect on the Company because the Company has
other adequate sources for these components, including the fabrication facility
of which it is a joint venture partner in Anhui Province, China.
COMPETITION
The Company faces substantial competition in each of its principal markets.
Some of the Company's competitors are larger and have greater financial and
other resources than the Company. The Company competes primarily on the basis of
its engineering and technological expertise and quality of equipment and service
provided. The Company believes that the cost of entry into most of its markets,
its experience and reputation for reliability and service, and its knowledge of
the plants and operations of its customers are principal factors that enhance
its ability to compete effectively for rehabilitation and rebuild contracts as
well as new installations. Additionally, the Company believes that the
successful performance of its installed systems is a key factor in dealing with
its customers, which typically prefer to make significant purchases from a
company with a solid performance history.
Virtually all contracts for the Company's systems and technologies are
obtained through competitive bidding. Customers typically purchase these systems
and technologies after a thorough evaluation of price, service, experience, and
quality. Although price is an important factor and may in some cases be the
governing factor, it is not always determinative, and contracts are often
awarded on the basis of life cycle costs and/or product reliability.
REGULATION
Significant environmental laws have been enacted in response to public
concern about the environment. These laws and the implementing regulations
affect nearly every industrial activity. The need to comply with these laws
creates demand for the Company's services. The principal federal legislation
that has created a substantial and growing demand for the Company's systems and
technologies and therefore has the most significant effect on the company's
business is the Clean Air Act of 1970, as amended (the "Clean Air Act"). This
legislation requires compliance with ambient air
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quality standards and empowers the Environmental Protection Agency ("EPA") to
establish and enforce limits on the emission of various pollutants from specific
types of facilities. The states have primary responsibility for implementing
these standards and, in some cases, have adopted standards more stringent than
those established by the EPA.
In 1990, amendments to the Clean Air Act were adopted which address, among
other things, the country's acid rain problem by imposing strict controls on the
emissions of sulfur oxides caused by the combustion of coal and other solid
fuels. The power generation market is the first to face the compliance standards
set by the amendments. Under the legislation, coal-burning power plants are
required to comply with new emissions standards in two phases. The first phase,
beginning with enactment of the amendments and generally ending in 1995 or 1996,
required reduced emissions levels leading to full compliance, with limited
exceptions, by the end of the second phase in the year 2000. During 1997 EPA
approved regulations which are expected to significantly increase the number of
companies subject to regulation for ozone related emissions, and for emissions
of particles at a much smaller size than previously regulated.
In its operations, the Company is subject to federal, state and local laws
and regulations concerning environmental, safety, occupational and health
standards. Expenditures required in fiscal 1998 by such laws were not material
to the Company's business and the Company is not at a competitive disadvantage
by reason of compliance with such laws.
BONDING AND INSURANCE
The Company is from time to time required to provide bonds guaranteeing that
it will enter into contracts as bid, guaranteeing performance of its contract
obligations, and/or guaranteeing prompt payment of its suppliers and
subcontractors. The Company's current surety commitment is, in management's
opinion, sufficient to support the Company's current levels of bonded business.
In addition, the Company has a bank revolving credit and letter of credit
agreement which provides for issuance of letters of credit for various purposes,
including as substitutes for performance or payment bonds.
The Company currently maintains different types of insurance, including
comprehensive liability and property coverages. The Company does not carry a
separate errors and omissions policy, but limited errors and omissions coverage
is provided under its comprehensive liability policy. While a successful claim
or claims in an amount in excess of the Company's insurance coverage or for
which there is no coverage (including claims arising out of the provision by the
Company of engineering services without a product) could have a material adverse
effect on the Company, the Company believes that it presently maintains adequate
insurance coverage for its business as presently constituted. To the extent that
the Company performs or will perform engineering only services for customers,
the Company will, to the extent practicable, obtain the benefit of contractual
terms which limit or eliminate the exposure which would otherwise be insured by
an errors and omissions policy.
EMPLOYEES
As of March 31, 1998, the Company had 131 full-time employees, of whom more
than 75% were engineers and other professionals and technical employees. The
Company also hires contract and other temporary personnel to meet the
requirements of particular contracts, as well as contract personnel to carry out
construction supervisory functions. The Company's professional staff includes
chemical engineers, electrical engineers, mechanical engineers, civil engineers,
and computer scientists. Although the Company depends on professional employees
for performance of its services, it has not experienced any difficulty in
employing such personnel to satisfy its requirements. None of the Company's
employees is represented by a union. The Company considers its relations with
its employees to be good.
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ITEM 2. PROPERTIES
Substantially all of the Company's operations, including administration,
engineering, design, and sales operations are conducted from its Baltimore
headquarters, located in a modern office building with approximately 100,000
square feet of leased space. The Company occupies approximately 50,000 square
feet of this space and subleases a portion of the remaining space. See Note 6 of
the "Notes to Consolidated Financial Statements" in the Company's 1998 Annual
Report to Shareholders, incorporated by reference herein, for a description of
the rent and other lease terms.
The Company additionally leases approximately 30,000 square feet of office
and warehouse space in Baltimore, Maryland for its research and development, and
inventory operations.
The Company is a party to a joint venture which, commencing in the 1998
fiscal year, operates a factory in Bengbu, Anhui Province, China, which
fabricates precipitator components.
Shortly after the close of fiscal 1997, the Company sold a 20,000 square
foot office and light manufacturing facility located in Jeffersonville, Indiana,
which was previously used in its aftermarket business, which was relocated to
Baltimore during fiscal 1996.
The Company believes that its existing facilities are adequate to meet its
current needs and that suitable additional or substitute space will be available
as needed to accommodate any expansion of operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time a party to various legal actions arising in
the ordinary course of its business, some of which may involve claims for
substantial sums. Management considers that any liability from pending lawsuits
and claims will not have any material effect on the financial position or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "EEC."
As of June 5, 1998, there were 229 record holders of the Company's Common
Stock. The closing price of the Common Stock on June 5, 1998 was $3.875.
The additional information required by this item is contained under
"Investor Information" on page 25 and in Note 10 of the "Notes to Consolidated
Financial Statements" on page 21 of the Company's 1998 Annual Report to
Shareholders. Such information is incorporated herein by reference to the Annual
Report.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data provided on page 24 of the
Company's 1998 Annual Report to Shareholders should be read in conjunction with
"Management's Discussion and Analysis" and the Consolidated Financial Statements
and the "Notes to Consolidated Financial Statements" included in the Company's
1998 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is contained on pages 10 and 11 of the
Company's 1998 Annual Report to hareholders. Such information is incorporated
herein by reference to the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is contained in the Consolidated
Financial Statements and Notes to Consolidated Financial Statements appearing on
pages 12 through 21 of the Company's 1998 Annual Report to Shareholders and the
Quarterly Financial Data appearing in Note 10 of the "Notes to Consolidated
Financial Statements" appearing on page 21 of the Company's 1998 Annual Report
to Shareholders. Such information is incorporated herein by reference to the
Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors - The information with respect to Directors required by this
item is incorporated by reference to the Registrant's 1998 Proxy Statement to be
filed with the Securities and Exchange Commission, under the headings "Election
of Directors," "Directors Continuing in Office," and "Certain Information
Regarding the Board of Directors and Committees of the Board."
(b) Executive Officers - Information regarding certain executive officers
of the Company appears in the Company's definitive proxy statement for
the 1998 Annual Meeting of Stockholders.
(c) In addition, the following information is being provided in response to
the requirements of Item 405 of Regulation S-K. To the Registrant's
knowledge, during the fiscal year ended March 31, 1998, all filing
requirements applicable to officers, directors, and greater than 10%
beneficial owners of the common shares of the Registrant under Section
16(a) of the Securities Exchange Act of 1934, as amended, were complied
with.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the Registrant's 1998 Proxy Statement to be filed with the Securities and
Exchange Commission, under the headings "Executive Compensation and Related
Information."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the Registrant's 1998 Proxy Statement to be filed with the Securities and
Exchange Commission, under the heading "Security Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the Registrant's 1998 Proxy Statement to be filed with the Securities and
Exchange Commission, under the heading "Certain Relationships and Related
Transactions" and under the heading "Employment and Non-Competition Agreements."
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. The following consolidated financial statements included in the 1998
Annual Report to Shareholders for the year ended March 31, 1998 are incorporated
herein by reference under Item 8 of this Report:
Page Number in
Annual Report
Consolidated Statements of Operations for the years
ended March 31, 1998, 1997, and 1996 12
Consolidated Balance Sheets as of March 31, 1998
and 1997 13
Consolidated Statements of Cash Flows for the
years ended March 31, 1998, 1997, and 1996 14
Consolidated Statements of Stockholders' Investment
as of March 31, 1998, 1997, and 1996 15
Notes to Consolidated Financial Statements 16-21
Management's Responsibility for Financial Statements 22
Report of Independent Public Accountants 23
Page Number
in 10-K
2. Financial Statement Schedules (included on pages
S-1 of this Report):
Report of Independent Public Accountants on Schedules S-1
Valuation and Qualifying Accounts for the years ended
March 31, 1998, 1997, and 1996 (Schedule II) S-2
12
<PAGE>
All other schedules have been omitted, since the required information is
included in the consolidated financial statements, including the notes thereto,
or the circumstances requiring inclusion of such schedules are not present.
3. Exhibits
3.1 - Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Form S-1 Registration Statement
(File No. 33-35802) filed with the Commission on May 25,
1990).
3.2 - Certificate of Amendment of the Registrant (incorporated by
reference to Form 10-K filed with the Commission on June 24,
1991).
3.3 - Bylaws of the Registrant (incorporated by reference to Form
S-1 Registration Statement (File No. 33-35802) filed with the
Commission on May 25, 1990).
4.1 - Articles IV, V, VI, VIII, IX, X and XI of the Registrant's
Restated Certificate of Incorporation, as amended (included in
Exhibit 3.1 and Exhibit 3.2).
4.2 - Articles I, II, V and VII of the Registrant's Bylaws
(included in Exhibit 3.3).
10.1 - Articles of Lease dated April 15, 1975 between Balkop
Properties Corp., as landlord, and Koppers Company, Inc., and
Assignment of Lease dated June 20, 1989 to Registrant, as
assignee, and Beazer Materials and Services, Inc., as assignor
(incorporated by reference to Form S-1 Registration Statement
(File No. 33-35802) filed with the Commission on May 25,
1990).
10.2 - The Registrant's Retirement Plan, as amended (incorporated
by reference to Form 10-K filed with the Commission on
June 28, 1995).
10.2(a) - First Amendment, dated December 28, 1995, to the
Registrant's Retirement Plan, as amended (incorporated by
reference to Form 10-K filed with the Commission on June 26,
1996).
10.2(b) - Second Amendment, dated December 28, 1995, to the
Registrant's Retirement Plan, as amended (incorporated by
reference to Form 10-K filed with the Commission on June 26,
1996).
10.3 - The Registrant's 401(k) Retirement Savings Plan, as amended
(incorporated by reference to the Registrant's Form 10-K filed
with the Commission on June 28, 1995).
10.3(a) - First Amendment, dated December 28, 1995, to the
Registrant's 401(k) Retirement Savings Plan, as amended
(incorporated by reference to Form 10-K filed with the
Commission on June 26, 1996).
10.3(b) - The Registrant's Replacement 401(k) Retirement Savings Plan,
dated July 1, 1997, filed herewith.
10.4 - The Registrant's Employee Stock Option Plan, as amended,
(incorporated by reference to Form S-8 Registration Statement
(File No. 33-38400) filed with the Commission on December 21,
1990).
10.5 - Environmental Elements Corporation Supplemental Pension
Agreement dated March 1, 1995, between Registrant and
Richard E. Hug (incorporated by reference to Form 10-K filed
with the Commission on June 26, 1996).
` 10.5(a) Environmental Elements Corporation Supplemental Pension
Agreement dated July 1, 1996 between Registrant and John C.
Nichols, (incorporated by reference to Form 10-K filed with
the Commission on June 23, 1997).
13
<PAGE>
10.6 - Revolving Credit and Letter of Credit Agreement dated
November 24, 1993 between the Registrant and Mercantile-Safe
Deposit and Trust Company (incorporated by reference to Form
10-Q filed with the Commission on February 14, 1994).
10.6(a) - Waiver and Amendment dated May 26, 1994, to the Revolving
Credit and Letter of Credit Agreement dated November 24, 1993
between the Registrant and Mercantile-Safe Deposit and Trust
Company (incorporated by reference to Form 10-K filed with the
Commission on June 29, 1994).
10.6(b) - Extension Agreement dated November 18, 1994 to the Revolving
Credit and Letter of Credit Agreement dated November 23, 1993
between the Registrant and Mercantile-Safe Deposit and Trust
Company (incorporated by reference to Form 10-K filed with the
Commission on June 28, 1995).
10.6(c) - Second Amendment to Revolving Credit and Letter of Credit
Agreement, First Amendment to Line of Credit Promissory Note
and Security Agreement, dated October 25, 1995 between the
Registrant and Mercantile-Safe Deposit and Trust Co
(incorporated by reference to Form 10-Q filed with the
Commission on February 14, 1996).
10.6(d) - Amendment to Revolving Credit and Letter of Credit Agreement
dated May 10, 1996 between the Registrant and Mercantile-Safe
Deposit and Trust Company (incorporated by referenced to Form
10-K filed with the Commission on June 26, 1996).
10.6(e) - Letter Amendment dated May 5, 1997 to Revolving Credit and
Letter of Credit Agreement between the Registrant and
Mercantile-Safe Deposit and Trust Company dated November 23,
1993, (incorporated by reference to Form 10-K filed with the
Commission on June 23, 1997).
10.6(f) - First Amendment to Security Agreement, Second Amendment to
Line of Credit Promissory Note, and Third Amendment to
Revolving Credit and Letter of Credit Agreement dated June 12,
1998, between Registrant and Mercantile-Safe Deposit and Trust
Company, filed herewith.
10.7 - License, Cooperation and Supply Agreement dated May 5, 1988
between the Registrant and Komline-Sanderson Engineering
Corporation (incorporated by reference to Form S-1
Registration Statement (File No. 33-35802) filed with the
Commission on May 25, 1990).
10.8 - Omitted.
10.9 - Shareholders' Agreement dated February 2, 1990 by and among
the Registrant and certain shareholders of the Registrant
(incorporated by reference to Amendment No. 1 to Form S-1
Registration Statement (File No. 33-35802) filed with the
Commission on July 5, 1990).
10.10 - Employment Agreement dated March 29, 1996 between Registrant
and E. H. Verdery (incorporated by reference to Form 10-K
filed with the Commission on June 26, 1996).
10.11 - Separation and Non-Competition Agreement dated April 1, 1997
between Registrant and F. Bradford Smith, (incorporated by
reference to Form 10-K filed with the Commission on
June 23, 1997).
10.12 - Agreement dated May 26, 1993 between the Registrant and Teco
Industries of Maryland, Inc. filed with the Commission on
August 13, 1993.
11 - Statement re: Computation of Income per Share, filed
herewith.
13 - A copy of the 1998 Annual Report to Shareholders is attached
hereto. Such report, except for those portions thereof which
are incorporated by reference in this Form 10-K, is furnished
for the information of the Commission and is not deemed
"filed."
14
<PAGE>
21 - Subsidiaries of the Registrant (incorporated by reference to
Form 10-K filed with the Commission on June 26, 1996.)
(b) No reports on Form 8-K were filed during the quarter ended March 31, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Environmental Elements Corporation
(Registrant)
/s/ James B. Sinclair
__________________________________
James B. Sinclair
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ E. H. Verdery June 22, 1998
__________________________________ _____________
E. H. Verdery Date
Chairman of the Board of Directors,
President and Chief Executive Officer
/s/ Richard E. Hug June 22, 1998
__________________________________ _____________
Richard E. Hug Date
Director
/s/ Barry Koh June 22, 1998
__________________________________ _____________
Barry Koh Date Date
Director
/s/ John C. Nichols June 22, 1998
__________________________________ _____________
John C. Nichols Date
Director and Secretary
/s/ James S. Potts June 22, 1998
__________________________________ _____________
James S. Potts Date
Director
/s/ F. Bradford Smith June 22, 1998
__________________________________ _____________
F. Bradford Smith Date
Director
/s/ Samuel T. Woodside June 22, 1998
__________________________________ _____________
Samuel T. Woodside Date
Director
15
<PAGE>
/s/ Russell R. Jones June 22, 1998
__________________________________ _____________
Russell R. Jones Date
Director
16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Board of Directors and Shareholders of the Environmental Elements
Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in the Environmental Elements
Corporation and subsidiaries' annual report to shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated May 15,
1998. Our audits were made for the purpose of forming an opinion on those
consolidated financial statements taken as a whole. The schedule listed in the
index above is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen, LLP
____________________
Arthur Andersen, LLP
Baltimore, Maryland,
May 15, 1998
S-1
<PAGE>
SCHEDULE II
ENVIRONMENTAL ELEMENTS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
RESERVE FOR
ALLOWANCE FOR DISCONTINUED
DOUBTFUL ACCOUNTS OPERATIONS
----------------- ----------
Balance, March 31, 1995 $ 250,000 $ 108,000
Charged (credited) to profit and loss 46,000 --
(Deductions) additions -- (17,000)
--------- ---------
Balance, March 31, 1996 296,000 91,000
Charged (credited) to profit and loss (59,000) --
(Deductions) additions (124,000) (91,000)
--------- ---------
Balance, March 31, 1997 113,000 --
Charged (credited) to profit and loss -- --
(Deductions) additions 105,000 --
--------- ---------
Balance, March 31, 1998 $ 218,000 $ --
========= =========
S-2
<PAGE>
EXHIBIT INDEX
3. Exhibits
3.1 - Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Form S-1 Registration Statement
(File No. 33-35802) filed with the Commission on May 25,
1990).
3.2 - Certificate of Amendment of the Registrant (incorporated by
reference to Form 10-K filed with the Commission on June 24,
1991).
3.3 - Bylaws of the Registrant (incorporated by reference to Form
S-1 Registration Statement (File No. 33-35802) filed with the
Commission on May 25, 1990).
4.1 - Articles IV, V, VI, VIII, IX, X and XI of the Registrant's
Restated Certificate of Incorporation, as amended (included in
Exhibit 3.1 and Exhibit 3.2).
4.2 - Articles I, II, V and VII of the Registrant's Bylaws
(included in Exhibit 3.3).
10.1 - Articles of Lease dated April 15, 1975 between Balkop
Properties Corp., as landlord, and Koppers Company, Inc., and
Assignment of Lease dated June 20, 1989 to Registrant, as
assignee, and Beazer Materials and Services, Inc., as assignor
(incorporated by reference to Form S-1 Registration Statement
(File No. 33-35802) filed with the Commission on May 25,
1990).
10.2 - The Registrant's Retirement Plan, as amended (incorporated
by reference to Form 10-K filed with the Commission on
June 28, 1995).
10.2(a) - First Amendment, dated December 28, 1995, to the
Registrant's Retirement Plan, as amended (incorporated by
reference to Form 10-K filed with the Commission on June 26,
1996).
10.2(b) - Second Amendment, dated December 28, 1995, to the
Registrant's Retirement Plan, as amended (incorporated by
reference to Form 10-K filed with the Commission on June 26,
1996).
10.3 - The Registrant's 401(k) Retirement Savings Plan, as amended
(incorporated by reference to the Registrant's Form 10-K filed
with the Commission on June 28, 1995).
10.3(a) - First Amendment, dated December 28, 1995, to the
Registrant's 401(k) Retirement Savings Plan, as amended
(incorporated by reference to Form 10-K filed with the
Commission on June 26, 1996).
10.3(b) - The Registrant's 401(k) Replacement Retirement Savings Plan,
dated July 1, 1997, filed herewith.
10.4 - The Registrant's Employee Stock Option Plan, as amended,
(incorporated by reference to Form S-8 Registration Statement
(File No. 33-38400) filed with the Commission on December 21,
1990).
10.5 - Environmental Elements Corporation Supplemental Pension
Agreement dated March 1, 1995, between Registrant and
Richard E. Hug (incorporated by reference to Form 10-K filed
with the Commission on June 26, 1996).
10.5(a) - Environmental Elements Corporation Supplemental Pension
Agreement dated July 1,
<PAGE>
1996 between Registrant and John C. Nichols, (incorporated by
reference to Form 10-K filed with the Commission on
June 23, 1997).
10.6 - Revolving Credit and Letter of Credit Agreement dated
November 24, 1993 between the Registrant and Mercantile-Safe
Deposit and Trust Company (incorporated by reference to Form
10-Q filed with the Commission on February 14, 1994).
10.6(a) - Waiver and Amendment dated May 26, 1994, to the Revolving
Credit and Letter of Credit Agreement dated November 24, 1993
between the Registrant and Mercantile-Safe Deposit and Trust
Company (incorporated by reference to Form 10-K filed with the
Commission on June 29, 1994).
10.6(b) - Extension Agreement dated November 18, 1994 to the Revolving
Credit and Letter of Credit Agreement dated November 23, 1993
between the Registrant and Mercantile-Safe Deposit and Trust
Company (incorporated by reference to Form 10-K filed with the
Commission on June 28, 1995).
10.6(c) - Second Amendment to Revolving Credit and Letter of Credit
Agreement, First Amendment to Line of Credit Promissory Note
and Security Agreement, dated October 25, 1995 between the
Registrant and Mercantile-Safe Deposit and Trust Co
(incorporated by reference to Form 10-Q filed with the
Commission on February 14, 1996).
10.6(d) - Amendment to Revolving Credit and Letter of Credit Agreement
dated May 10, 1996 between the Registrant and Mercantile-Safe
Deposit and Trust Company (incorporated by referenced to Form
10-K filed with the Commission on June 26, 1996).
10.6(e) - Letter Amendment dated May 5, 1997 to Revolving Credit and
Letter of Credit Agreement between the Registrant and
Mercantile-Safe Deposit and Trust Company dated November 23,
1993, (incorporated by reference to Form 10-K filed with the
Commission on June 23, 1997).
10.6(f) - First Amendment to Security Agreement, Second Amendment to
Line of Credit Promissory Note, and Third Amendment to
Revolving Credit and Letter of Credit Agreement dated June 12,
1998, between Registrant and Mercantile-Safe Deposit and Trust
Company, filed herewith.
10.7 - License, Cooperation and Supply Agreement dated May 5, 1988
between the Registrant and Komline-Sanderson Engineering
Corporation (incorporated by reference to Form S-1
Registration Statement (File No.33-35802) filed with the
Commission on May 25, 1990).
10.8 - Omitted.
10.9 - Shareholders' Agreement dated February 2, 1990 by and among
the Registrant and certain shareholders of the Registrant
(incorporated by reference to Amendment No. 1 to Form S-1
Registration Statement (File No. 33-35802) filed with the
Commission on July 5, 1990).
10.10 - Employment Agreement dated March 29, 1996 between Registrant
and E. H. Verdery (incorporated by reference to Form 10-K
filed with the Commission on June 26, 1996).
10.11 - Separation and Non-Competition Agreement dated April 1, 1997
between Registrant and F. Bradford Smith, (incorporated by
reference to Form 10-K filed with the Commission on
June 23, 1997).
10.12 - Agreement dated May 26, 1993 between the Registrant and Teco
Industries of Maryland, Inc. filed with the Commission on
August 13, 1993.
<PAGE>
11 - Statement re: Computation of Income per Share, filed
herewith.
13 - A copy of the 1998 Annual Report to Shareholders is attached
hereto. Such report, except for those portions thereof which
are incorporated by reference in this Form 10-K, is furnished
for the information of the Commission and is not deemed
"filed."
21 - Subsidiaries of the Registrant (incorporated by reference to
Form 10-K filed with the Commission on June 26, 1996.)
EXHIBIT 10.3(b)
PUTNAM FLEXIBLE 401(K) AND PROFIT SHARING PLAN
PLAN AGREEMENT #001
This is the Plan Agreement for a Putnam nonstandardized prototype 401(k) plan
with optional profit sharing plan provisions. Please consult a tax or legal
advisor and review the entire form before you sign it. If you fail to fill out
this Putnam Plan Agreement properly, the Plan may be disqualified. By executing
this Plan Agreement, the Employer establishes a 401(k) and profit sharing plan
and trust upon the terms and conditions of Putnam Basic Plan Document #07, as
supplemented and modified by the provisions elected by the Employer in this Plan
Agreement. THIS PLAN AGREEMENT MUST BE ACCEPTED BY PUTNAM IN ORDER FOR THE
EMPLOYER TO RECEIVE FUTURE AMENDMENTS TO THE PUTNAM FLEXIBLE 401(K) AND PROFIT
SHARING PLAN.
* * * * *
<TABLE>
<S><C>
1. Employer Information. The Employer adopting this Plan is:
A. Employer Name: Environmental Elements Corporation
B. Employer Identification Number: 52-1303748
C. Employer Address: 3700 Koppers Street
Baltimore, MD 21227
D. SIC Code: 8911
E. Employer Contact: Name: John C. Nichols
Title: Corporate Secretary Phone #: 410-368-7384
F. Fiscal Year: 4/1 through 3/31
(month/day) (month/day)
G. Type of Entity (check one):
X
_______Corporation _______Partnership _______Subchapter S Corporation
_______Sole proprietorship _______Other_________________________________________
H. Plan Name: Environmental Elements Corporation 401(k) Retirement Savings Plan
I. Plan Number: 003 (complete)
</TABLE>
<PAGE>
<TABLE>
<S><C>
Plan Information.
A. Plan Year. Check one:
X
_____ (1) The Calendar Year.
_____ (2) The Plan Year will be the same as the Fiscal
Year of the Employer shown in 1.F. above. If
the Fiscal Year of the Employer changes, the
Plan Year will change accordingly.
_____ (3) The Plan Year will be the period of 12 months
beginning on the first day of
___________________(month) and ending on the
last day of ___________________(month).
_____ (4) A short Plan Year commencing on
________________(month/day/year) and ending on
______________(month/day/year) and immediately
thereafter the 12-consecutive month period
commencing on ________________(month/day).
The Plan Year will also be your Plan's Limitation Year for
purposes of the contribution limitation rules in Article 6 of
the Plan.
B. Effective Date of Adoption of Plan.
(1) Are you adopting this Plan to replace an existing plan?
X
_________(a) Yes. _________(b) No.
(2) If you answered Yes in 2.B(1) above, the Effective
Date of your adoption of this Replacement Plan will
be the first day of the current Plan Year unless you
elect a later date in (2)(b) below. Please complete
the following:
(a) 10/1/89
Original Effective Date of the Plan you are Replacing
(b) 7/1/97
Effective Date of this Replacement Plan
(3) If you answered No in 2B(1) above, the Effective Date
of your adoption of this Plan will be the day you
select below (not before the first day of the current
Plan Year, and not before the day your Business
began):
(a) The Effective Date is: __________________________
month/day/year
</TABLE>
2
<PAGE>
<TABLE>
<S><C>
C. Identifying Highly Compensated Employees. Check either (1) or (2).
X
_____ (1) The Plan will use the regular method under Plan Section 2.58(a) for
identifying Highly Compensated Employees.
If you selected this option and your Plan
Year is the calendar year, do you wish to
make the regular method's "calendar year
election" for identifying your Highly
Compensated Employees?
X
__________(a) Yes. __________(b) No.
_____ (2) The Plan will use the simplified method under Plan
Section 2.58(b) for identifying Highly Compensated
Employees.
3. Eligibility for Plan Participation (Plan Section 3.1). Employees will
be eligible to participate in the Plan when they complete the
requirements you select in A, B, C and D below.
A. Classes of Eligible Employees. The Plan will cover all employees who have met the age and
service requirements with the following exclusions:
_____ (1) No exclusions. All job classifications will be eligible.
X
_____ (2) The Plan will exclude employees in a unit of
Employees covered by a collective bargaining
agreement with respect to which retirement benefits
were the subject of good faith bargaining, with the
exception of the following collective bargaining
units, which will be included:
none at this time.
X
_____ (3) The Plan will exclude employees who are non-resident
aliens without U.S. source income.
_____ (4) Employees of the following Affiliated Employers
(specify):
X
_____ (5) Leased Employees.
_____ (6) Employees in the following other classes (specify):
</TABLE>
3
<PAGE>
<TABLE>
<S><C>
B. Age Requirement (check and complete (1) or (2)):
_____ (1) No minimum age required for participation.
X
_____ (2) Employees must reach age 18 (not over 21) to participate.
C. Service Requirements.
(1) Elective Deferrals. To become eligible, an employee must complete (choose one):
_____ (a) No minimum service required.
X
_____ (b) One 6-month Eligibility Period.
_____ (c) One ___-month Eligibility Period (must be less than 12).
_____ (d) One 12-month Eligibility Period.
(2) Employer Matching Contributions. To become eligible,
an employee must complete (choose one):
_____ (a) No minimum service required.
X
_____ (b) One 6-month Eligibility Period.
_____ (c) One ___-month Eligibility Period (must be less than 12).
_____ (d) One 12-month Eligibility Period.
_____ (e) Two 12-month Eligibility Periods
(may only be chosen if you adopt the
vesting schedule under item
9.A(3)(a) to provide 100% full and
immediate vesting of Employer
Matching Contributions).
_____ (f) Not applicable. The Employer will
not make Employer Matching
Contributions.
(3) Profit Sharing Contributions. To become eligible, an
employee must complete (choose one):
_____ (a) No minimum service required.
X
_____ (b) One 6-month Eligibility Period.
_____ (c) One ___-month Eligibility Period (must be less than 12).
_____ (d) One 12-month Eligibility Period.
_____ (e) Two 12-month Eligibility Periods
(may only be chosen if you adopt the
vesting schedule under item
9.A(3)(a) to provide for 100% full
and immediate vesting of Profit
Sharing Contributions).
</TABLE>
4
<PAGE>
<TABLE>
<S><C>
_____ (f) Not applicable. The Employer will
not make Profit Sharing
Contributions.
(4) If the Employer acquired a business on or before the
Effective Date of this Plan and the Eligibility
Periods selected in (1), (2) and (3) for former
employees of that acquired business will include the
former employees' periods of employment with that
business, list the business below. Any acquired
business which had a plan which the Employer now
maintains must be listed below.
(5) If the Employer acquires a business after the
Effective Date, the Eligibility Periods for an
employee of the acquired business will be the periods
selected in (1), (2) and (3) beginning on (check (a)
or (b)):
_____ (a) the date the employee began work with
the acquired business.
X
_____ (b) the date of the acquisition
(i.e., the date the employee begins
work for the Employer).
(6) Hours of Service for Eligibility Periods.
(a) 6-Month Eligibility Period. To receive
credit for a 6-month Eligibility Period, an
employee must complete 6 months of service,
during which he completes at least:
X
_______ (i) 500 Hours of Service.
_______ (ii) ___________ Hours of Service.
(under 500)
(b) 12-Month Eligibility Period. To receive credit
for a 12-month Eligibility Period, an employee
must complete 12 months of service, during
which he completes at least:
_______ (i) 1,000 Hours of Service.
_______ (ii) _____________ Hours of Service.
(under 1,000)
(c) Other Eligibility Period. To receive credit
for the Eligibility Period selected in
3.C(1)(c), 3.C(2)(c) and/or 3.C(3)(c) above,
an employee must complete during it at least:
_______ (i) _____________ Hours of Service.
(under 1,000)
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
(7) Method of Crediting Hours of Service For Eligibility
and Vesting. Hours of Service will be credited to an
employee by the following method (check one):
X
_____ (a) Actual hours for which an employee is paid.
_____ (b) Any employee who has one actual paid
hour in the following period will be
credited with the number of Hours of
Service indicated (check one):
_______ (i) Day (10 Hours of Service).
_______ (ii) Week (45 Hours of Service).
_______ (iii) Semi-monthly payroll period (95 Hours of Service).
_______ (iv) Month (190 Hours of Service).
(8) Entry Dates. Each employee in an eligible class who
completes the age and service requirements specified
above will begin to participate in the Plan on (check
one):
_____ (a) The first day of the month in which he
fulfills the requirements.
X
_____ (b) The first of the following dates
occurring after he fulfills the
requirements (check one):
_______ (i) The first day of
the month
following the date
he fulfills the
requirements
(monthly).
X
_______ (ii) The first day
of the first,
fourth, seventh
and tenth months
in a Plan Year
(quarterly).
_______ (iii) The first day of
the first month
and the seventh
month in a Plan
Year (semiannually).
_____ (c) Other: ________________________________(May
be no later than (i) the first day
of the Plan Year after which he
fulfills the requirements, and
(ii) the date six months after
the date on which he fulfills the
requirements, which ever occurs
first.)
D. (FOR NEW PLANS ONLY) Will all eligible Employees as of the
Effective Date be required to meet the age and service
requirements for participation specified in B and C above?
_____ (a) Yes.
_____ (b) No. Eligible Employees will be eligible to
become Participants as of the Effective Date
even if they have not satisfied (check one
or both):
</TABLE>
6
<PAGE>
<TABLE>
<S><C>
_______ (i) the age requirement.
_______ (ii) the service requirement.
4. Contributions.
A. Elective Deferrals (Plan Section 5.2). Your Plan will allow
employees to elect pre-tax contributions under Section 401(k)
of the Code. You must complete this part A.
(1) A Participant may make Elective Deferrals for each
year in an amount not to exceed (check one):
X
_____ (a) 15% of his Earnings.
_____ (b) ___% of his Earnings not to exceed $________
(specify a dollar amount).
_____ (c) $________ (specify a dollar amount).
(2) Will a Participant be required to make a minimum
Elective Deferral in order to make Elective Deferrals
under the Plan? (check one and complete as
applicable)
_____ (a) No.
X
_____ (b) Yes. The minimum Elective
Deferral will be 1% of the
Participant's Earnings.
(3) A Participant may begin to make Elective Deferrals,
or change the amount of his Elective Deferrals, as of
the following dates (check one):
_____ (a) First business day of each month (monthly).
X
_____ (b) First business day of the first,
fourth, seventh and tenth months of
the Plan Year (quarterly).
_____ (c) First business day of the first and
seventh months of the Plan Year
(semiannually).
_____ (d) First business day of the Plan Year
only (annually).
_____ (e) Other: _____________________________
(4) Will Participants be permitted to make separate
Elective Deferrals of bonuses, even if bonuses have
otherwise been excluded from Compensation for the
purpose of Elective Deferrals under 7.A(1)?
X
_____ (a) Yes. _____ (b) No.
B. Employer Matching Contributions. (Plan Section 5.8). Complete
this part B only if you will make Employer Matching
Contributions under the Plan.
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(1) The Employer will contribute and will allocate to
each Qualified Participant's Employee Matching
Account an Employer Matching Contribution on the
basis set forth below:
X
_____ (a) Discretionary matching
contributions. (The Employer may
select this option in addition to
option (b) if the Employer wishes to
have the option to make
discretionary matching contributions
in addition to fixed matching
contributions.)
_____ (b) Fixed matching contributions.
_______ (i) based on Elective Deferrals:
_____ (A) ___% of Elective Deferrals
_____ (B) ___% of Elective Deferrals up to ___% of Earnings.
_____ (C) ___% of Elective Deferrals
up to ___% of Earnings and
___% of Elective Deferrals over that percentage
of Earnings and up to ___% of Earnings. (The
third percentage number must be less than
the first percentage number.)
_____ (D) ___% of Elective Deferrals up to $________ of
Elective Deferrals.
_____ (E) ___% of Elective Deferrals up to $________ of
Elective Deferrals and ___% of Elective
Deferrals over that dollar amount and up to
$_______ of Elective Deferrals. (The last
percentage must be less than the first
percentage).
_______ (ii) based on after-tax Participant Contributions:
_____ (A) ___% of Participant Contributions.
_____ (B) ___% of Participant Contributions up to ___%
of Earnings.
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_____ (C) ___% of Participant Contributions up to ___%
of Earnings and ___% of Participant
Contributions over that percentage of
Earnings and up to ___% of Participant
Contributions. (The third percentage must be
less than the first percentage)
_____ (D) ___% of Participant Contributions up to $_______
of Participant Contributions.
_____ (E) ___% of Participant Contributions up to $_______
of Participant Contributions and
___% of Participant Contributions
over that dollar amount and up to $_______
of Participant Contributions.
(The last percentage must be less
than the first percentage).
(2) Qualified Participant. In order to receive an
allocation of Employer Matching Contributions for a
Plan Year, an Employee must be a Qualified
Participant for that purpose. Select below either (a)
alone, or any combination of (b), (c) and (d).
_____ (a) To be a Qualified Participant
eligible to receive Employer
Matching Contributions for a Plan
Year, an Employee must (check (i) or
(ii)):
_______ (i) Either be employed
on the last day of
the Plan Year,
complete more than
500 Hours of
Service in the
Plan Year, or
retire, die or
become disabled in
the Plan Year.
_______ (ii) Either be employed
on the last day of
the Plan Year or
complete more than
500 Hours of
Service in the
Plan Year.
Stop here if you checked (a). If you did not check
(a), check (b), (c) or (d), or any combination of
(b), (c) and (d).
To be a Qualified Participant eligible to receive
Employer Matching Contributions for a Plan Year, an
Employee must:
X
_____ (b) Be credited with 1 (choose 1, 501 or 1,000) Hours of Service in the
Plan Year.
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_____ (c) Be an Employee on the last day of the Plan Year.
_____ (d) Retire, die or become disabled during
the Plan Year.
(3) Will the Employer have the option of making all or
any portion of its Employer Matching Contributions in
Employer Stock?
X
_____ (a) Yes. _____ (b) No.
C. Profit Sharing Contributions. (Plan Sections 4.1 and 4.2)
(1) Profit Limitation. Will Profit Sharing Contributions
to the Plan be limited to the current and accumulated
profits of your Business? Check one:
X
_____ (a) Yes. _____ (b) No.
(2) Amount. The Employer will contribute to the Plan for each
Plan Year (check one):
X
_____ (a) An amount chosen by the Employer from year to year.
_____ (b) ___% of the Earnings of all Qualified
Participants for the Plan Year.
_____ (c) $_______ for each Qualified Participant per _________
(enter time period, e.g. payroll
period, plan year).
(3) Allocations to Participants
(a) Allocation to Participants. Profit Sharing Contributions will be allocated:
X
_______ (i) Pro rata (percentage based on compensation).
_______ (ii) Uniform Dollar amount.
_______ (iii) Integrated With Social Security (complete (b) and (c) below).
(b) Integration with Social Security. (Complete
only if you have elected in 4.C(3)(a) to
integrate your Plan with Social Security.)
Profit Sharing Contributions will be
allocated to Qualified Participants as you
check below:
_______ (i) Profit Sharing
Contributions will be
allocated according to the
Top-Heavy Integration
Formula in Plan Section
4.2(c)(1) in every Plan
Year, whether or not the
Plan is top-heavy.
_______ (ii) Profit Sharing
Contributions will be
allocated according to the
Top-Heavy Integration
Formula in Plan Section
4.2(c)(1) only in Plan
Years in which the Plan is
top-
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heavy. In all other
Plan Years, contributions
will be allocated according
to the Non-Top-Heavy
Integration Formula in Plan
Section 4.2(c)(2).
(c) Integration Level. (Complete only if you
have elected in 4.C(3)(a) to integrate your
Plan with Social Security.) The Integration
Level will be (check one):
_______ (i) The Social Security Wage
Base in effect at the
beginning of the Plan Year.
_______ (ii) ___% (not more than 100%) of
the Social Security Wage
Base in effect at the
beginning of the Plan Year.
_______ (iii) $_______ (not more than the Social
Security Wage Base).
Note: The Social Security Wage Base is indexed annually to
reflect increases in the cost of living.
(4) Qualified Participants. In order to receive an
allocation of Profit Sharing Contributions for a Plan
Year, an Employee must be a Qualified Participant for
this purpose. Select below either (a) alone, or any
combination of (b), (c) and (d).
_____ (a) To be a Qualified Participant
eligible to receive an allocation of
Profit Sharing Contributions for a
Plan Year, an Employee must (check
(i) or (ii)):
_______ (i) Either be employed
on the last day of
the Plan Year,
complete more than
500 Hours of
Service in the
Plan Year, or
retire, die or
become disabled in
the Plan Year.
_______ (ii) Either be employed
on the last day of
the Plan Year or
complete more than
500 Hours of
Service in the
Plan Year.
Stop here if you checked (a). If you did not check
(a), check (b), (c) or (d), or any combination of
(b), (c) and (d).
To be a Qualified Participant eligible to receive an
allocation of Profit Sharing Contributions for a Plan
Year, an Employee must:
X
_____ (b) Be credited with 1000 (choose 1, 501 or 1,000) Hours of Service in
the Plan Year.
X
_____ (c) Be an Employee on the last day of the Plan Year.
X
_____ (d) Retire, die or become disabled during the Plan Year.
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D. Participant Contributions (Plan Section 4.6). Will your Plan
allow Participants to make after-tax contributions?
X
_____ (1) Yes. _____ (2) No.
E. Qualified Matching Contributions (Plan Section 2.61). Skip
this part E if you will not make Qualified Matching
Contributions.
(1) Qualified Matching Contributions will be made with respect
to (check one):
_____ (a) Elective Deferrals made by all Qualified Participants.
X
_____ (b) Elective Deferrals made only by
Qualified Participants who are not
Highly Compensated Participants.
(2) The amount of Qualified Matching Contributions made
with respect to a Participant will be:
X
_____ (a) discretionary.
_____ (b) fixed (check and complete (i), (ii) or (iii))
_______ (i) ___% of Elective Deferrals.
_______ (ii) ___% of Elective Deferrals that do
not exceed ___% of Earnings.
_______ (iii) ___% of Elective Deferrals that do
not exceed $_______.
F. Qualified Nonelective Contributions (Plan Section 2.62): Skip
this part F if you will not make Qualified Nonelective
Contributions.
(1) Qualified Nonelective Contributions will be made on behalf
of (check one):
_____ (a) All Qualified Participants.
X
_____ (b) Only Qualified Participants who are not Highly
Compensated Employees.
(2) The amount of Qualified Nonelective Contributions for a
Plan Year will be (check one):
_____ (a) ___% (not over 15%) of the Earnings of
Participants on whose behalf
Qualified Nonelective Contributions
are made.
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X
_____ (b) An amount determined by the
Employer from year to year, to be
shared in proportion to their
Earnings by Participants on whose
behalf Qualified Nonelective
Contributions are made.
G. Forfeitures
(1) Employer Matching Contributions. Forfeitures of Employer Matching Contributions will
be used as follows (check and complete (a) or (b)):
X
_____ (a) Applied to reduce the following
contributions required of the
Employer (check (i) and/or (ii)):
X
_______ (i) Employer Matching Contributions.
X
_______ (ii) Profit Sharing Contributions.
_____ (b) Reallocated as follows (check (i) or (ii)):
_______ (i) As additional Employer Matching Contributions.
_______ (ii) As additional Profit Sharing Contributions.
(2) Profit Sharing Contributions. Forfeitures of Profit
Sharing Contributions will be used as follows (check
(a) or (b)):
X
_____ (a) Applied to reduce the following
contributions required of the
Employer (check (i) and/or (ii)):
X
_______ (i) Profit Sharing Contributions.
X
_______ (ii) Employer Matching Contributions.
_____ (b) Reallocated as additional Profit Sharing Contributions.
5. Top-Heavy Minimum Contributions (Plan Section 14.3). Skip paragraphs A
and B below if you do not maintain any other qualified plan in addition
to this Plan.
A. For any Plan Year in which the Plan is Top-Heavy, the
Top-Heavy minimum contribution (or benefit) for Non-Key
employees participating both in this Plan and another
qualified plan maintained by the Employer will be provided in
(check one):
X
_____ (1) This Plan. _____ (2) The other qualified plan.
B. If you maintain a defined benefit plan in addition to this
Plan, and the Top-Heavy Ratio (as defined in Plan Section
14.2(c)) for the combined plans is between 60% and 90%, you
may elect to provide an increased minimum allocation or
benefit pursuant to Plan Section 14.4. Specify your election
by completing the statement below:
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The Employer will provide an increased (specify contribution
or benefit) benefit in its (specify defined contribution or
defined benefit) defined benefit plan as permitted under Plan
Section 14.4.
6. Other Plans. You must complete this section if you maintain or ever
maintained another qualified plan in which any Participant in this Plan
is (or was) a participant or could become a participant.
The Plan and your other plan(s) combined will meet the contribution
limitation rules in Article 6 of the Plan as you specify below:
A. If a Participant in the Plan is covered under another
qualified defined contribution plan maintained by your
Business, other than a master or prototype plan (check one):
_____ (1) The provisions of Section 6.2 of the Plan
will apply as if the other plan were a
master or prototype plan.
_____ (2) The plans will limit total annual additions
to the maximum permissible amount, and will
properly reduce any excess amounts, in the
manner you describe below.
B. If a Participant in the Plan is or has ever been a participant
in a defined benefit plan maintained by your Business, the
plans will meet the limits of Article 6 in the manner you
describe below:
Annual additions to defined contribution plan 401(k) will be
reduced before reducing benefits to defined benefit plan.
If your Business has ever maintained a defined benefit plan,
state below the interest rate and mortality table to be used
in establishing the present value of any benefit under the
defined benefit plan for purposes of computing the top-heavy
ratio:
Interest rate: % PBGC interest rate as of the first
day of plan year containing termination date
Mortality Table: PBGC mortality table formulas
7. Compensation (Plan Section 2.8).
A. Amount.
(1) Elective Deferrals and Employer Matching
Contributions. Compensation for the purposes of
determining the amount and allocation of Elective
Deferrals and Employer Matching Contributions will be
determined as follows (choose either (a) or (b), and
(c) and/or (d) as applicable).
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X
_____ (a) Compensation will include Form W-2 earnings
as defined in Section 2.8 of the Plan.
_____ (b) Compensation will include all compensation included
in the definition of Code Section 415 Compensation in
Plan Section 6.5(b) of the Plan.
X
_____ (c) In addition to the amount provided in either
(a) or (b) above, Compensation will also
include any amounts withheld from the
employee under a 401(k) plan, cafeteria
plan, SARSEP, tax sheltered 403(b)
arrangement, or Code Section 457 deferred
compensation plan, and contributions
described in Code Section 414(h)(2) that are
picked up by a governmental employer.
_____ (d) Compensation will also exclude the following
amount (choose each that applies):
_______ (i) overtime pay.
_______ (ii) bonuses.
_______ (iii) commissions.
_______ (iv) other pay (describe): ___________. .
_______ (v) compensation in excess of $_______.
(2) Profit Sharing Contributions. Compensation for the
purposes of determining the amount and allocation of
Profit Sharing Contributions shall be determined as
follows (choose either (a) or (b), and (c) and/or
(d), as applicable).
X
_____ (a) Compensation will include Form
W-2 earnings as defined in Section
2.8 of the Plan.
_____ (b) Compensation will include all
compensation included in the
definition of Code Section 415
Compensation in Section 6.5(b) of
the Plan.
X
_____ (c) In addition to the amount
provided in either (a) or (b) above,
compensation will also include any
amounts withheld from the employee
under a 401(k) plan, cafeteria plan,
SARSEP, tax sheltered 403(b)
arrangement, or Code Section 457
deferred compensation plan, and
contributions described in Code
Section 414(h)(2) that are picked up
by a governmental employer.
_____ (d) Compensation will also exclude the
following amounts (choose each that
applies):
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_______ (i) overtime pay.
_______ (ii) bonuses.
_______ (iii) commissions.
_______ (iv) other pay describe: _______.
_______ (v) compensation in excess of $_______.
Note: No exclusion under (d) may be selected
if Profit Sharing Contributions will be
integrated with Social Security under
4.C(3)(a)(iii). In addition, no exclusion
under (d) will apply for purposes of
determining the top-heavy minimum
contribution if the Plan is top-heavy.
B. Measuring Period. Compensation will be based on the Plan Year.
However, for an Employee's initial year of participation in
the Plan, Compensation will be recognized as of:
_____ (1) the first day of the Plan Year.
X
_____ (2) the date the Participant enters the Plan.
8. Distributions and Withdrawals.
A. Retirement Distributions.
(1) Normal Retirement Age (Plan Section 7.1). Normal retirement age will be the later of
55 (not over age 65) or _______ (not more than 5) years of participation in the
Plan.
(2) Early Retirement (Plan Section 7.1). Select one:
X
_____ (a) No early retirement will be permitted.
_____ (b) Early retirement will be permitted at age___.
_____ (c) Early retirement will be permitted
at age _______ with at least _______ Years of
Service.
(3) Annuities (Plan Section 9.3). Will your Plan permit
distributions in the form of a life annuity? You must
check Yes if this Plan replaces or serves as a
transferee plan for an existing Plan that permits
distributions in a life annuity form.
X
_____ (a) Yes _____ (b) No
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B. Hardship Distributions (Plan Section 12.2). Will your Plan permit
hardship distributions?
_____ (1) No.
X
_____ (2) Yes. Indicate below from which Accounts hardship withdrawals will
be permitted (check all that apply):
X
_____ (a) Elective Deferral Account.
X
_____ (b) Rollover Account.
_____ (c) Employer Matching Account.
_____ (d) Employer Contribution Account (i.e. Profit Sharing
Contributions).
C. Withdrawals after Age 59 1/2 (Plan Section 12.3). Will your
Plan permit employees over age 59 1/2 to withdraw amounts upon
request? You must check Yes if this Plan replaces an existing
Plan that permits withdrawals after age 59 1/2.
X
_____ (1) Yes. _____ (2) No.
Please note: In our present plan, can take out elective contributions only.
D. Withdrawals following Five Years of Participation or Two Years
after Contribution (Plan Section 12.4). Will your Plan permit
employees to withdraw amounts from the vested portion of their
Employer Matching Contribution Accounts and Employer
Contribution Accounts (i.e., Profit Sharing Contributions) if
either (i) the Participant has been a Participant for at least
five years, or (ii) the amount withdrawn from each of these
Accounts is limited to the amounts that were credited to that
Account prior to the date two years before the withdrawal? You
must check yes if this Plan replaces a Plan which permits
withdrawals in these circumstances.
X
_____ (1) Yes. _____ (2) No.
E. Loans (Plan Section 12.5). Will your Plan permit loans to
employees from the vested portion of their Accounts?
_____ (1) No.
X
_____ (2) Yes. Indicate below whether loans will
be permitted for any reason or only on
account of hardship:
X
_____ (a) Any reason.
_____ (b) Hardship only.
F. Automatic Distribution of Small Accounts (Plan Section 9.1).
Will your Plan automatically distribute vested account
balances not exceeding $3,500, within 60 days after the end of
the Plan Year in which a Participant separates from
employment?
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X
_____ (1) Yes. _____ (2) No.
9. Vesting (Plan Article 8).
A. Time of Vesting (select (1) or (2) below and complete vesting schedule).
X
_____ (1) Single Vesting Schedule:
The vesting schedule selected below will
apply to both Employer Matching Contributions and
Profit Sharing Contributions.
_____ (2) Dual Vesting Schedules:
The vesting schedule marked with an "MC"
below will apply to Employer Matching
Contributions and the vesting schedule
marked with a "PS" below will apply to
Profit Sharing Contributions.
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(3) Vesting Schedules:
_____ (a) 100% vesting immediately upon participation in the Plan.
_____ (b) Five-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
--- --- --- --- ----
Years of Service 1 2 3 4 5
_____ (c) Seven-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
--- --- --- --- ----
Years of Service 3 4 5 6 7
_____ (d) Six-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
--- --- --- --- ----
Years of Service 2 3 4 5 6
_____ (e) Three-Year Cliff Schedule:
Vested Percentage 0% 100%
--- ----
Years of Service 0-2 3
_____ (f) Five-Year Cliff Schedule:
Vested Percentage 0% 100%
--- ----
Years of Service 0-4 5
X
_____ (g) Other Schedule (must be at least as
favorable as Seven-Year Graded Schedule or
Five-Year Cliff Schedule):
(i) Vested Percentage 0% 100% ___% ___% ___%
--- ----
(ii) Years of Service 0-4 5 ___ ___ ___
--- ----
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(4) Top Heavy Schedule:
(a) If you selected above an "Other Schedule,"
specify in the space below the schedule that
will apply in Plan Years that the Plan is
top-heavy. The schedule you specify must be
at least as favorable to employees, at all
years of service, as either the Six-Year
Graded Schedule or the Three-Year Cliff
Schedule. The top-heavy vesting schedule
will be:
_____ (i) the same "Other Schedule" selected above.
X
_____ (ii) the following schedule:
Vested Percentage 20% 40% 60% 80% 100%
-- -- -- -- ---
Years of Service 1 2 3 4 5
-- -- -- -- ---
_____ (iii) Six-Year Graded Schedule.
_____ (iv) Three-Year Cliff Schedule.
(b) If the Plan becomes top-heavy in a Plan
Year, will the top-heavy vesting schedule
apply for all subsequent Plan Years?
X
_____ (i) Yes. _____ (ii) No.
B. Service for Vesting (select (1) or (2), and complete (3)).
X
_____ (1) All of an employee's service will be
used to determine his Years of Service for
purposes of vesting.
_____ (2) An employee's Years of Service for vesting
will include all years except (check all
that apply):
_____ (a) (New plan) service before the effective date of the plan.
_____ (b) (Existing plan) service before the effective date
of the existing plan.
_____ (c) Service before the Plan Year in which an employee reached age 18.
(3) Will an employee's service for a business acquired by
the Employer that was performed before the
acquisition be included in determining an employee's
Years of Service for vesting?
X
_____ (a) Yes. _____ (b) No.
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List below any business acquired on or before the
Effective Date for which an employee's service will
be included in determining an employee's Years of
Service for vesting. Service of an employee for a
predecessor employer (which includes an acquired
business) whose plan the Employer maintains must be
included as service for the Employer under this Plan.
Therefore, also list below any predecessor employer
whose plan the Employer maintains:
C. Hours of Service for Vesting. The number of Hours of Service
required for crediting a Year of Service for vesting will be
(check one):
X
_____ (1) 1,000 Hours of Service.
_____ (2) ____________________ Hours of Service.
(under 1,000)
Hours of Service for vesting will be credited according to the
method selected under 3.C(6).
D. Year of Service Measuring Period for Vesting (Plan Section
2.52). The periods of 12 months used for measuring Years of
Service will be (check one):
X
_____ (1) Plan Years.
_____ (2) 12-month Eligibility Periods.
Note: If you are adopting this Plan to replace an existing plan,
employees will be credited under this Plan with all service credited to
them under the plan you are replacing.
10. Investments (Plan Sections 13.2 and 13.3).
A. Available Investment Products (Plan Section 13.2). The investment options available under the
Plan are identified in the Service Agreement or such other written instructions between the
Employer and Putnam, as the case may be. All Investment Products must be sponsored,
underwritten, managed or expressly agreed to in writing by Putnam. If there is any amount in
the Trust Fund for which no instructions or unclear instructions are delivered, it will be
invested in the default option selected by the Employer in its Service Agreement with Putnam,
or such other written instructions as the case may be, until instructions are received in good
order, and the Employer will be deemed to have selected the option indicated in its Service
Agreement, or such other written instructions as the case may be, as an available Investment
Product for that purpose.
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B. Instructions (Plan Section 13.3). Investment instructions for
amounts held under the Plan generally will be given by each
Participant for his own Accounts and delivered to Putnam as
indicated in the Service Agreement between Putnam and the
Employer. Check below only if the Employer will make
investment decisions under the Plan with respect to the
following contributions made to the Plan. (Check all
applicable options.)
_____ (1) The Employer will make all investment decisions with
respect to all employee contributions, including
Elective Deferrals, Participant Contributions,
Deductible Employee Contributions and Rollover
Contributions.
_____ (2) The Employer will make all investment decisions with
respect to all Employer contributions, including
Profit Sharing Contributions, Employer Matching
Contributions, Qualified Matching Contributions and
Qualified Nonelective Contributions.
_____ (3) The Employer will make investment decisions with
respect to Employer Matching Contributions and
Qualified Matching Contributions.
_____ (4) The Employer will make investment decisions with
respect to Qualified Nonelective Contributions.
_____ (5) The Employer will make investment decisions with
respect to Profit Sharing Contributions.
_____ (6) Other (Describe. An Employer may elect to
make investment decisions with respect to a specified
portion of a specific type of contribution to the
Plan.):
C. Changes. Investment instructions may be changed (check one):
X
_____ (1) on any Valuation Date (daily).
_____ (2) on the first day of any month (monthly).
_____ (3) on the first day of the first, fourth,
seventh and tenth months in a Plan Year
(quarterly).
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D. Employer Stock. (Skip this paragraph if you did not designate
Employer Stock as an investment under the Service Agreement.)
(1) Voting. Employer Stock will be voted as follows:
_____ (a) In accordance with the Employer's instructions.
X
_____ (b) In accordance with the Participant's instructions.
Participants are hereby appointed named
fiduciaries for the purpose of the voting of
Employer Stock in accordance with Plan
Section 13.8.
(2) Tendering. Employer stock will be tendered as follows:
_____ (a) In accordance with the Employer's instructions.
X
_____ (b) In accordance with the Participant's instructions.
Participants are hereby appointed named
fiduciaries for the purpose of the tendering
of Employer Stock in accordance with Plan
Section 13.8.
11. Administration.
A. Plan Administrator (Plan Section 15.1). You may appoint a
person or a committee to serve as Plan Administrator. If you
do not appoint a Plan Administrator, the Plan provides that
the Employer will be the Plan Administrator.
The initial Plan Administrator will be (check one):
_____ This person: ___________________________________________
_____ A committee composed of these people:
________________________________________________________
________________________________________________________
________________________________________________________
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B. Recordkeeper (Plan Section 15.4). Unless Putnam expressly
permits otherwise, you must appoint Putnam as Recordkeeper to
perform certain routine services determined upon execution of
a written Service Agreement between Putnam and the Employer.
The initial Record keeper will be:
Putnam Fiduciary Trust Company
------------------------------
(Name)
Putnam Retail 401(k) B-2-B
--------------------------
859 Willard St.
---------------
Quincy, MA 02269-9110
----------------------
(Address)
12. Determination Letter Required. You may not rely on an opinion letter
issued to Putnam by the National Office of the Internal Revenue Service
as evidence that the Plan is qualified under Section 401 of the
Internal Revenue Code. In order to obtain reliance with respect to
qualification of the Plan, you must receive a determination letter from
the appropriate Key District Office of Internal Revenue. Putnam will
prepare an application for such a letter upon your request at a fee
agreed upon by the parties.
Putnam will inform you of all amendments it makes to the prototype
plan. If Putnam ever discontinues or abandons the prototype plan,
Putnam will inform you. This Plan Agreement #001 may be used only in
conjunction with Putnam's Basic Plan Document #07.
* * * * *
If you have any questions regarding this Plan Agreement, contact Putnam
at:
Putnam Defined Contribution Plans
One Putnam Place B2B
859 Willard Street
Quincy, MA 02269
Phone: 1-800-752-5766
o
</TABLE>
24
<PAGE>
* * * * *
EMPLOYER'S ADOPTION OF PUTNAM
FLEXIBLE 401(k) AND PROFIT SHARING PLAN
The Employer named below hereby adopts a PUTNAM FLEXIBLE 401(k) AND PROFIT
SHARING PLAN, and appoints Putnam Fiduciary Trust Company to serve as Trustee of
the Plan. The Employer acknowledges that it has received copies of the current
prospectus for each Investment Product available under the Plan, and represents
that it will deliver copies of the then current prospectus for each such
Investment Product to each Participant before each occasion on which the
Participant makes an investment instruction as to his Account. The Employer
further acknowledges that the Plan will be acknowledged by Putnam as a Putnam
Flexible 401(k) and Profit Sharing Plan only upon Putnam's acceptance of this
Plan Agreement.
Investment Options
- ------------------
The Employer hereby elects the following as the investment options available
under the Plan:
<TABLE>
<S><C>
Putnam Stable Value Fund Putnam Income Fund
- ------------------------ ------------------
The George Putnam Fund of Boston The Putnam fund for Growth and Income
- -------------------------------- -------------------------------------
Putnam OTC Emerging Growth Fund Putnam International Growth Fund
- ------------------------------- --------------------------------
Environmental Elements Corporation Company Stock Putnam Vista Fund
- ------------------------------------------------ -----------------
The following investment option shall be the default option: Putnam Stable Value
Fund (select the default option from among the investment options listed above).
Employer signature(s) to adopt Plan: Date of signature:
______________________________________________________ _____________________________
______________________________________________________ _____________________________
Please print name(s) of authorized person(s) signing above:
__________________________________________________________
__________________________________________________________
</TABLE>
25
<PAGE>
* * * * *
ACCEPTANCE OF PUTNAM FIDUCIARY TRUST COMPANY AS TRUSTEE
The Trustee accepts appointment in accordance with the terms and conditions of
the Plan, effective as of the date of execution by the Employer set forth above.
Putnam Fiduciary Trust Company, Trustee
By: ___________________________________________________________________________
26
<PAGE>
* * * * *
ACCEPTANCE BY PUTNAM
Putnam hereby accepts this Employer's Plan as a prototype established under
Putnam Basic Plan Document #07.
Putnam Mutual Funds Corp.
By: ____________________________________________
27
EXHIBIT 10.6(f)
FIRST AMENDMENT TO SECURITY AGREEMENT
THIS FIRST AMENDMENT is made as of this 12 day of June, 1998 by and
among ENVIRONMENTAL ELEMENTS CORPORATION, a Delaware corporation ("Borrower")
and MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY, a Maryland banking corporation
("Bank").
RECITALS
A. The Bank previously agreed to extend credit to the Borrower pursuant
to a certain Revolving Credit and Letter of Credit Agreement dated November 24,
1993, as amended by a letter agreement dated May 26, 1994 from Nicholas C.
Richardson to Thomas B. McCord, and a Second Amendment to Revolving Credit and
Letter of Credit Agreement dated October 25, 1995, and a Third Amendment to
Revolving Credit and Letter of Credit Agreement of even date herewith
(collectively, the "Agreement"), in the form of a line of credit facility in an
original principal amount not to exceed Ten Million Dollars ($10,000,000.00),
which was reduced to Seven Million Dollars ($7,000,000.00), and is currently
being increased to Twelve Million Dollars ($12,000,000.00).
B. The indebtedness under the Agreement is evidenced by a Line of
Credit Promissory Note dated November 24, 1993 from Borrower to Bank, as amended
by a certain First Amendment to Line of Credit Promissory Note dated October 25,
1995, and certain letter agreements between the Bank and the Borrower, and a
certain Second Amendment to Line of Credit Promissory Note of even date herewith
(collectively, the "Note").
C. The repayment of the indebtedness evidenced by the Note is secured
by a Security Agreement dated October 25, 1995 between Borrower and Bank.
D. The Buyer has requested that the Bank extend the term and increase
the amount of such line of credit facility, and the Bank has agreed, and the
parties now wish to amend the Security Agreement.
WITNESSETH
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree that the Security Agreement is hereby modified and amended as follows (the
Security Agreement, as amended, is hereinafter referred to as the "Security
Agreement"):
1. Recitals. The parties acknowledge and agree that the foregoing
Recitals are true and correct, and are incorporated herein by reference.
<PAGE>
2. Amendments to Security Agreement.
A. The aggregate amount of the credit facility described in
the Recitals of the Security Agreement and secured by the Security Agreement is
hereby increased from Seven Million Dollars ($7,000,000.00) to Twelve Million
Dollars ($12,000,000.00).
B. All references in the Security Agreement to the "Note"
shall mean the Line of Credit Promissory Note, as heretofore amended and as
amended on even date, and all references to the Loan Agreement shall mean the
Revolving Credit and Letter of Credit Agreement, as heretofore amended and as
amended on even date, as well as any future amendments or modifications thereof.
3. Effect of Amendment. Except as modified and amended herein, the
Security Agreement shall be and remain in full force and effect. In the event of
any conflict between the terms and provisions of the Security Agreement and this
First Amendment, the terms and provisions of this First Amendment shall prevail.
Nothing contained herein shall constitute a novation under the Note.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed and sealed, intending this to be a sealed instrument, as of the date
first above written.
WITNESS/ATTEST: ENVIRONMENTAL ELEMENTS CORPORATION
____________________________ By:_______________________(SEAL)
Name:
Title:
MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY
____________________________ By:_______________________(SEAL)
Nicholas C. Richardson,
Vice-President
2
<PAGE>
SECOND AMENDMENT TO LINE OF CREDIT PROMISSORY NOTE
THIS SECOND AMENDMENT (this "Amendment") is made as of this 12 day of
June, 1998 by and among ENVIRONMENTAL ELEMENTS CORPORATION, a Delaware
corporation ("Borrower") and MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY, a
Maryland banking corporation ("Bank").
RECITALS
A. The Bank previously agreed to extend credit to the Borrower pursuant
to a certain Revolving Credit and Letter of Credit Agreement dated November 24,
1993, as amended by a letter agreement dated May 26, 1994 from Nicholas C.
Richardson to Thomas B. McCord, and a Second Amendment to Revolving Credit and
Letter of Credit Agreement dated October 25, 1995 (collectively, the
"Agreement"), in the form of a line of credit facility in an original principal
amount not to exceed Ten Million Dollars ($10,000,000.00), which was reduced to
Seven Million Dollars ($7,000,000.00).
B. The indebtedness under the Agreement is evidenced by a Line of
Credit Promissory Note dated November 24, 1993 from Borrower to Bank, as amended
by a First Amendment to Line of Credit Promissory Note dated October 25, 1995,
and as subsequently amended by letter agreements between the Bank and Borrower
(collectively, the "Note").
C. The Borrower has requested that the Bank extend the term and
increase the amount of such line of credit facility, and the Bank has agreed,
subject to the terms and conditions hereinafter described.
WITNESSETH
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree that the Note is hereby modified and amended as follows (the Note, as
amended, is hereinafter referred to as the "Note"):
1. Recitals. The parties acknowledge and agree that the foregoing
Recitals are true and correct, and are incorporated herein by reference.
2. Amendments to Note.
A. The aggregate principal amount of the credit facility
described in the Note is hereby increased from Seven Million Dollars
($7,000,000.00) to Twelve Million Dollars ($12,000,000.00), and all references
to $7,000,000.00 in the Note (as previously amended) are hereby increased to
$12,000,000.00.
B. The maturity date for the term of the Note, as set forth on
Page 1 of the Note, is hereby extended until July 1, 2000. The Bank agrees to
provide to Borrower at least fifty-four (54) weeks' prior written notice if Bank
elects not to renew the term of the Note on July 1, 2000 (or the expiration of
any renewal term thereafter). The foregoing
<PAGE>
notice shall not be required if the Bank elects to terminate the credit facility
following a default hereunder or under the Agreement.
C. The interest rate under the Note shall remain equal to the
Bank's Prime Rate plus one-half of one (0.5) percentage point per annum until
such time as the Borrower's net worth is equal to or greater than Seven Million
Five Hundred Thousand Dollars ($7,500,000.00); thereafter, the interest rate
under the Note shall be reduced to the Bank's Prime Rate, as announced from time
to time. For purposes hereof, the Borrower's net worth shall be determined at
the end of each calendar quarter, based on the audited financial statements or
the 10-Q financial reports of the Borrower.
D. All references in the Note to the "Agreement" shall mean
the Revolving Credit and Letter of Credit Agreement, as previously amended and
as amended on even date by the Third Amendment to Revolving Credit and Letter of
Credit Agreement, as well as any future amendments or modifications thereof.
3. Effect of Amendment. Except as heretofore and hereby modified and
amended, the Note shall be and remain in full force and effect. In the event of
any conflict between the terms and provisions of the Note and this Amendment,
the terms and provisions of this Amendment shall prevail. Borrower acknowledges
and confirms that it has no right of set-off or defense of any kind or
description regarding the payment of any principal or interest under the
Agreement or the Note, that it has no claims or causes of action against the
Bank, and that upon execution of the Third Amendment to Revolving Credit and
Letter of Credit Agreement there shall exist no default (or any event which,
with the passing of time or giving of notice would constitute a default) under
the Agreement or the Note. This Amendment shall not extinguish or discharge the
indebtedness evidenced by the Note, nor constitute a novation thereof.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed and sealed, intending this to be a sealed instrument, as of the date
first above written.
WITNESS/ATTEST: ENVIRONMENTAL ELEMENTS CORPORATION
____________________________ By:_______________________(SEAL)
Name:
Title:
MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY
____________________________ By:_______________________(SEAL)
Nicholas C. Richardson,
Vice-President
2
<PAGE>
THIRD AMENDMENT TO REVOLVING CREDIT
AND LETTER OF CREDIT AGREEMENT
THIS THIRD AMENDMENT is made as of this 12 day of June, 1998 by and
among ENVIRONMENTAL ELEMENTS CORPORATION, a Delaware corporation ("Borrower")
and MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY, a Maryland banking corporation
("Bank").
RECITALS
A. The Bank previously agreed to extend credit to the Borrower pursuant
to a certain Revolving Credit and Letter of Credit Agreement dated November 24,
1993, as amended by a letter agreement dated May 26, 1994 from Nicholas C.
Richardson to Thomas B. McCord, and a Second Amendment to Revolving Credit and
Letter of Credit Agreement dated October 25, 1995 (collectively, the
"Agreement"), in the form of a line of credit facility in an original principal
amount not to exceed Ten Million Dollars ($10,000,000.00), which was
subsequently reduced to Seven Million Dollars ($7,000,000.00).
B. The indebtedness under the Agreement is evidenced by a Line of
Credit Promissory Note dated November 24, 1993 from Borrower to Bank, as
modified by a certain First Amendment to Line of Credit Promissory Note dated
October 25, 1995, certain letter agreements between the Bank and Borrower, and a
certain Second Amendment to Line of Credit Promissory Note of even date herewith
(collectively, "the Note").
C. The repayment of the indebtedness evidenced by the Note is secured
by a Security Agreement dated October 25, 1995 between Borrower and Bank, as
amended by a First Amendment to Security Agreement of even date herewith.
D. The Borrower has requested that the Bank extend the term and
increase the amount of the line of credit facility, and the Bank has agreed,
subject to the terms and conditions hereinafter described.
WITNESSETH
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree that the Amendment is hereby modified and amended as follows (the
Agreement, as amended, is hereinafter referred to as the "Agreement"):
1. Recitals. The parties acknowledge and agree that the foregoing
Recitals are true and correct, and are incorporated herein by reference.
<PAGE>
2. Amendments to Original Agreement.
A. The aggregate principal amount of the credit facility
described in the first Recital of the Agreement is hereby increased to Twelve
Million Dollars ($12,000,000.00).
B. The definition of "Note" on Page 3 of the Agreement is
hereby modified to mean the Line of Credit Promissory Note, as heretofore
amended and as amended on even date herewith.
C. The definition of "Other Agreements" on Page 4 of the
Agreement is hereby modified to include this Third Amendment, the Second
Amendment to Line of Credit Promissory Note, and the First Amendment to Security
Agreement of even date herewith between the Borrower and Bank.
D. The definition of "Revolving Credit Commitment" on Page 5
of the Original Agreement is hereby deleted in its entirety and the following is
inserted in its place:
"Revolving Credit Commitment" shall mean, at any given time,
an amount equal to up to Twelve Million Dollars ($12,000,000.00), minus
the amount of any Letters of Credit then issued and outstanding under
this Agreement."
E. Section 2.01 of the Agreement is hereby amended by
extending the Line of Credit Termination Date until July 1, 2000, as may be
extended by the Bank in writing from time to time thereafter. Notwithstanding
the foregoing, the parties acknowledge and agree that the Bank will annually
review the financial status of the Borrower and its performance under the terms
and provisions of the Agreement, and the Bank shall have the right as a result
of such review not to renew the term of the Note, in the Bank's sole discretion,
upon at least fifty-four (54) week's prior written notice to Borrower.
F. Section 2.01 of the Agreement is hereby amended by adding
the following provision at the end of Section 2.1:
Notwithstanding anything to the contrary contained herein, the total
advances at any time under the Line of Credit plus the face amount of
outstanding Letters of Credit shall not exceed the aggregate of the
following: (i) seventy-five percent (75%) of eligible Receivables (i.e.
Receivables of 120 days or less); fifty percent (50%) of retainage owed
to Borrower under existing customer contracts; and fifty percent (50%)
of costs incurred by Borrower under existing customer contracts which
have not yet been billed to such customers, but will be billed in the
ordinary course of business.
G. The second sentence of Section 2.02 of the Agreement is
hereby deleted in its entirety.
H. Section 2.04(A) of the Agreement is hereby deleted in its
entirety and the following is inserted in its place:
The principal amount of all advances made hereunder shall bear
interest at a fluctuating rate equal to the Bank's Prime Rate in
<PAGE>
effect from time to time, plus one-half of one (0.5) percentage point
per annum, until such time as the Borrower's net worth is equal to or
greater than Seven Million Five Hundred Thousand Dollars
($7,500,000.00); thereafter, the interest rate shall be reduced to the
Bank's Prime Rate, as announced from time to time. For purposes hereof,
the Borrower's net worth shall be determined at the end of each
calendar quarter, based on the audited financial statements or the 10-Q
financial reports of the Borrower. The interest rate shall be adjusted
as of the effective date of each change in the Bank's Prime Rate.
I. Section 2.06 of the Agreement is hereby deleted in its
entirety and the following is inserted in its place:
The Borrower agrees to pay to the Bank an annual facility fee,
equal to one-half of one percent (0.5%) of the total credit facility
available under the Agreement, which shall be paid quarterly in advance
(i.e. 0.5% of $12,000,000.00 equals $60,000.00, paid quarterly in the
amount of $15,000.00).
J. Section 3.01 of the Agreement is hereby deleted in its
entirety and the following is inserted in its place:
Subject to the terms hereof, the Bank will from time to time
until the Line of Credit Termination Date, make available Letters of
Credit in an aggregate amount not to exceed Tweleve Million Dollars
($12,000,000.00) minus the total principal amount then - outstanding
under the Line of Credit.
K. Section 6.05 of the Agreement is hereby amended by reducing
the required minimum Tangible Net Worth of Borrower to Five Million Seven
Hundred Fifty Thousand Dollars ($5,750,000.00), which shall be reviewed annually
by the Bank.
L. Section 6.06 of the Agreement is hereby deleted in its
entirety.
M. Borrower agrees it shall constitute a default under the
Agreement if the Borrower experiences a net operating loss during any fiscal
year, as determined by the Bank based upon the audited financial statements of
the Borrower.
3. Representations and Warranties. The Borrower hereby confirms that
all of the representations and warranties set forth in Section IV of the
Agreement are accurate, complete and correct as of the date of this Third
Amendment, and are incorporated herein by reference.
4. Effect of Amendment. Except as modified and amended herein, the
Agreement shall be and remain in full force and effect. In the event of any
conflict between the terms and provisions of the Agreement and this Third
Amendment, the terms and provisions of this Third Amendment shall prevail.
Nothing contained herein shall constitute a novation under the Note.
3
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be executed under seal, intending this to be a sealed instrument, as of the
date first above written.
WITNESS/ATTEST: ENVIRONMENTAL ELEMENTS CORPORATION
____________________________ By:_______________________(SEAL)
Name:
Title:
MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY
____________________________ By:_______________________(SEAL)
Nicholas C. Richardson,
Vice-President
4
EXHIBIT 11
ENVIRONMENTAL ELEMENTS CORPORATION
STATEMENT REGARDING COMPUTATION OF INCOME PER SHARE
FOR THE YEARS ENDED MARCH 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
PRIMARY: 1998 1997 1996
---- ---- ----
<S><C>
Common shares outstanding....................... 6,989,739 6,923,688 6,879,699
Dilutive effect of common stock equivalents:
Stock options................................ --- --- ---
--------- --------- ---------
Weighted average number of shares............... 6,989,739 6,923,688 6,879,699
========= ========= =========
FULLY DILUTED:
Common shares outstanding....................... 6,989,739 6,923,688 6,879,699
Dilutive effect of common stock equivalents:
Stock options................................ 108,583 --- ---
--------- --------- ---------
Weighted average number of shares............... 7,098,322 6,923,688 6,879,699
========= ========= =========
</TABLE>
1998 Annual Report
EEC [EEC LOGO]
A breath of fresh air.
<TABLE>
<S><C>
ENVIRONMENTAL ELEMENTS CORPORATION o THE LEADER IN AIR POLLUTION CONTROL TECHNOLOGY
<PAGE>
Financial Highlights for the years ended March 31, 1998 1997
- --------------------------------------------------------------------------------
(in thousands, except per share and employee data)
Continuing operations
Bookings $88,600 $44,000
- --------------------------------------------------------------------------------
Backlog 69,800 33,800
- --------------------------------------------------------------------------------
Sales 52,612 47,654
- --------------------------------------------------------------------------------
Operating income (loss) 711 (3,391)
- --------------------------------------------------------------------------------
Net income (loss) $50 $(4,015)
- --------------------------------------------------------------------------------
Per share data
Net income (loss) $0.01 $(0.58)
- --------------------------------------------------------------------------------
Cash and cash equivalents $958 $1,684
- --------------------------------------------------------------------------------
Working capital 7,050 1,559
- --------------------------------------------------------------------------------
Stockholders' investment 6,265 6,038
- --------------------------------------------------------------------------------
Current ratio 1.35x 1.09x
- --------------------------------------------------------------------------------
Weighted average shares outstanding:
Basic 6,990 6,924
- --------------------------------------------------------------------------------
Diluted 7,098 6,924
- --------------------------------------------------------------------------------
Ending shares outstanding 7,035 6,963
- --------------------------------------------------------------------------------
Number of full-time employees 131 134
- --------------------------------------------------------------------------------
Environmental Elements Corporation has been a leading supplier of air pollution
control systems and services for more than fifty years. The Company designs and
supplies large-scale, custom-engineered equipment and systems that enable its
customers to comply with governmental regulations limiting particulate and
gaseous emissions.
As part of Koppers Company, Inc. from 1946 to 1983, we built a solid reputation
as a premier supplier of air pollution control systems to the pulp and paper
industry and developed a significant share in other industrial, municipal and
power generation markets. Following a leveraged buyout led by senior management
in 1983, EEC was taken public in 1990 and subsequently listed on the New York
Stock Exchange in 1991.
Throughout its long history, the Company has been on the leading edge of
particulate control technology and has led the industry with many innovations in
the design of electrostatic precipitators, fabric filters and scrubbing systems.
The Company continues to develop and refine its technologies and services in
response to customer needs, while optimizing the quality, cost and performance
of its air pollution control systems.
Today, Environmental Elements Corporation is North America's leader in
particulate removal and is gaining strength in the international marketplace.
The Company is well positioned to benefit from the regulatory and economic
trends in the global power and industrial markets.
Environmental Elements Corporation
3700 Koppers Street o Baltimore MD 21227
410-368-7000 o 800-333-4331
Contents
- --------------------------------------------------------------------------------
1 To Our Shareholders
- --------------------------------------------------------------------------------
4 New Directions
- --------------------------------------------------------------------------------
8 Going the Distance
- --------------------------------------------------------------------------------
10 Management's Discussion and Analysis
- --------------------------------------------------------------------------------
12 Consolidated Financial Statements
- --------------------------------------------------------------------------------
16 Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
22 Management's Responsibility for
Financial Statements
- --------------------------------------------------------------------------------
23 Report of Independent Public Accountants
- --------------------------------------------------------------------------------
24 Selected Consolidated Financial Data
- --------------------------------------------------------------------------------
25 Board of Directors and Senior Management
- --------------------------------------------------------------------------------
25 General Information
- --------------------------------------------------------------------------------
[EEC NYSE LOGO]
<PAGE>
To Our Shareholders:
The past year was exceptional in many respects for Environmental Elements
Corporation. Profitable growth and financial stability have been our primary
focus for several years. We are very happy to report that EEC has returned to
profitability and our contract bookings have increased by more than 100 percent.
A continuing program of productivity improvements and innovation in our core
technologies, plus a focused market strategy, has driven the success of our
recovery efforts. As a result, we are now adding new strategic direction to our
vision of the future.
Leading the way
to a cleaner, more profitable
future...what's more--we've
patented it.
Bookings Double, Profitability Returns--Recovery Complete
Sales for the fiscal year grew by 10 percent and for the first time in
three years we earned a profit. More importantly, EEC's total bookings
doubled to $88 million, resulting in a backlog of unfilled orders that
is the highest in six years.
This recovery is the result of three strategic initiatives implemented
over the past five years:
o Deliver exceptional value to customers
in key markets
o Invest in new technologies
o Expand international network
Deliver Exceptional Value to
Customers in Key Markets
As our utility customers faced the impending challenges of
deregulation, we intensified our focus on the domestic power generation
market by reorienting our resources and differentiating our products
and services to offer exceptional value.
Our investment in the power market has paid off this year with large
contracts from Wisconsin Electric and Duke Energy Corporation. More
importantly, this resurgence in the power market is at least partly
driven by economic factors as the utilities seek fuel flexibility to
drive down their costs of electricity generation. EEC captured nearly
half of the contracts available to us in this market during fiscal year
1998.
Innovative design features and our reputation for quality and service
have enabled us to establish and maintain dominant positions in our
target markets for air pollution control equipment. In the pulp and
paper market, EEC has provided more than half of the particulate
collection systems in North America for the past five years. The
recovery in this market is beginning and we expect to maintain our
dominance with a
Environmental Elements Corporation 1
<PAGE>
continued focus on customer satisfaction and innovation. EEC also is
the leading supplier of air pollution control equipment to the
municipal solid waste incineration industry. Over the past five years,
EEC has installed nearly one-third of the total equipment provided to
the domestic municipal solid waste incineration market.
Invest in New Technologies
We continued our substantial investment in the development of new
technologies and innovative engineering applications. This area of our
business has been particularly successful this past year with the award
of two new patents and several research grants from the federal
government. Most significant has been the success of our Fine
Particulate Agglomerator(TM). We have proven this technology through
several pilot projects and are anticipating a
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Fiscal Year March 98 February 98 January 98 December 97
<S><C>
'98 o $3 million in contracts o Signed international o $2 million in contracts o Contract for new fabric
awarded from two pulp license agreement awarded from pulp and filter received from
and paper mills in the in India paper industry Cornell University
central United States o $16 million contract o $6 million contract o Department of Defense
o Patent awarded for the from Duke Energy from Duke Energy awarded grant to
Modulok(R) II dust plate Corporation awarded Corporation awarded develop glow discharge
o Patent received for o $19 million awarded plasma technology for
the Fine Particulate from Wisconsin Electric equipment decontami-
Agglomerator(TM) o Third quarter earnings nation
development announced
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
November 97
- -------------------------
<S><C>
o Contracts totaling
$14 million awarded
from Ogden Martin,
Champion International,
and International Paper
</TABLE>
full-scale commercial demonstration from our installation at Wisconsin
Electric's Presque Isle Station during the current fiscal year. This
technology will allow EEC to alter the dynamics in the current market
for retrofitting existing particulate control equipment, as well as
meet the needs driven by regulations for fine particulate.
Several other high potential developments are underway that will
provide valuable solutions to our customers as they face more stringent
requirements to manage air pollution problems. EEC and our research
staff have received notable attention from the study of glow discharge
plasma technology
Sales and
Operating Income
(In millions $)
[GRAPH APPEARS HERE--SEE PLOT POINTS BELOW]
Sales Operating Income (loss)
FY 94 72.6 -6.9
FY 95 77.9 -1.9
FY 96 61.2 -3.4
FY 97 47.7 -3.4
FY 98 52.6 0.7
for sterilizing microorganisms. In late 1997, we were awarded a
contract from the U.S. Department of Defense for the laboratory
research phase of this program. EEC will hold the commercialization
rights for this non-chemical alternative to decontaminate equipment
exposed to dangerous chemical and biological agents. This is a
potentially new market for EEC and we are excited about the
applications glow discharge plasma technology can address.
Expand International Network
We developed a network of international licensing and joint venture
partners to penetrate high growth international markets for air
pollution control equipment. This strategy strengthens and increases
our participation in large, rapidly growing overseas markets for air
pollution control equipment by combining our innovative engineering and
proven technologies with our partners' local relationships.
Our efforts have positioned us to command an increasing share in the
international arena. During the year, we established licensing
agreements with local partners in South Korea, India, Finland and
Russia. EEC receives royalties by offering our technology and product
experience in exchange for sales in the licensed territory. In addition
to previous licensing agreements in China and Brazil, we anticipate
that these new partners will contribute significantly to EEC's future
results.
World-class sources for material and labor are essential to meet the
competitive pressures in these important global markets. Our
manufacturing joint venture in China now produces components for
delivery in China and other Pacific Rim locations, as well as for
export to North America. Similar joint ventures are planned with other
licensees.
2 Environmental Elements Corporation
<PAGE>
Positioned for the Future
We have seen a reduction of the excess capacity that has existed in our
industry since the Clean Air Act Amendments of 1990 were issued. Much
of the demand anticipated by our industry as a result of those
requirements failed to develop. Consequently, several competitors have
exited the market while EEC has retained its dominant share. As the
market for our products and services increases in the next few years,
we should see business conditions improve.
Looking Ahead
EEC anticipates that the growth we have seen in bookings during fiscal
year 1998 will continue well beyond the next few years for several
reasons.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
October 97 September 97 August 97 July 97 May 97
<S><C>
o $2 million in contracts o Finnish licensee o Three international o EEC announced second o Contracts totaling
awarded from Florida SF Cleanair awarded licenses signed in consecutive profitable $8 million awarded
Rock Industries and contract for APC South Korea, Finland quarter by Black & Veatch
Australian Kaolin equipment and Russia and Lansing Board
o Second quarter earn- June 97 of Water and Light
ings announced (third o Chinese licensee
consecutive profitable received two contracts
quarter) for APC equipment
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------
April 97
<S><C>
o ADP 3200 Automatic
Voltage Controller is
introduced
- ------------------------
</TABLE>
The deregulation of the utility industry, which significantly delayed
capital decision making especially for air pollution control equipment,
has advanced materially. Economic drivers are in place to further
accelerate the value we can bring to the utility market as they select
their fuel strategy for the future. Our investment and success will
continue to provide us with the opportunity to expand our role in this
important and global market. Our continued dominance in the pulp and
paper and municipal solid waste markets will produce improved results
as those markets recover over the next several years. Many of the
implementation uncertainties presented by the 1990 Clean Air Act
Bookings and
Backlog
(In millions $)
[GRAPH APPEARS HERE--SEE PLOT POINTS BELOW]
Bookings Backlog
FY 94 64.7 40.4
FY 95 79.3 41.5
FY 96 57.1 37.4
FY 97 44 33.8
FY 98 88.6 69.8
[PHOTOGRAPH APPEARS HERE]
Edward H. Verdery
Amendments have been resolved. As a result, we expect additional
compliance decisions in our markets to be made in the near term. Our
customers are demanding new technologies and services and EEC is one of
the few companies producing these solutions. The Fine Particulate
Agglomerator(TM) can solve current and future particulate control
problems in both the power and industrial markets.
Our demonstrated ability to develop and commercialize innovative
technologies, coupled with our reputation for reliability and service,
ensures that Environmental Elements will remain in a leadership role
for the current domestic expansion, as well as the globalization of the
air pollution control market already underway.
Finally, our success is attributable to the professionalism and
dedication of our people. From our Board of Directors to our support
staff, EEC is blessed with the best. We look forward, with confidence
and anticipation, to continued growth and financial success as we bring
a breath of fresh air to our customers and value to our shareholders.
Sincerely,
/s/ E. H. Verdery
__________________________
E. H. Verdery
Chairman of the Board and
Chief Executive Officer
June 1998
Environmental Elements Corporation 3
<PAGE>
EEC's Circulating Dry
Scrubber(R) is a highly
efficient sulfur dioxide
removal system. The
system was installed
with a baghouse at the [PHOTOGRAPH APPEARS HERE]
Roanoke Valley Energy
Facility, owned by
Westmoreland-LG&E
Partners.
(C)Roger Miller--
New directions...
Innovation and delivery of
exceptional value help us
dominate our markets.
The growing need for power, changing regulatory atmosphere and
sharpening fuel economies have enforced market changes that have
permitted the Company the freedom to develop new technologies and
design creative solutions for our customers' problems. EEC has
intensified its focus on our core markets--power generation, pulp and
paper manufacturing and other industrial applications--by anticipating
our customers' needs, developing high value air pollution control
systems and providing reliable service. No other company has EEC's
experience, innovative track record or market share. We stand at the
threshold of a bright future.
Power Generation
During the year, EEC won almost half of the power market contracts on
which we bid. Duke Energy Corporation awarded EEC with contracts to
install a new electrostatic precipitator and to convert three other
precipitators. Wisconsin Electric also selected us to provide a new
pulse jet baghouse to service four boilers. The Lansing Board of Water
and Light selected us to install a new electrostatic precipitator to
provide the flexibility to burn a variety of lower cost fuels. Ogden
Martin Systems awarded EEC with a contract to retrofit a spray dryer
absorber and fabric filter to remove acid gases from a waste-to-energy
incinerator plant in Florida.
As the global power generation markets surge ahead, EEC is keeping pace
by helping utilities keep their compliance costs low and improve their
operational productivity. In North America, competitive pressures due
to electric utility deregulation and the need for fuel flexibility have
totally changed the power generation industry in just a few years. EEC
helps our customers by providing low-cost, technologically superior
solutions to meet regulatory requirements. The Company's in-depth
experience with the wide range of coal grades used by utilities
provides us with the application knowledge to optimize the performance
of our equipment.
4 Environmental Elements Corporation
<PAGE>
Pulp and Paper and Other Industrial
The pulp and paper industry has historically been one of the largest
markets for particulate control equipment. EEC has installed over 500
electrostatic precipitators at pulp and paper plants in North America,
making it the leading supplier of particulate emission control systems
to this industry. Because we have established long-standing
relationships, in many cases covering 30 years, EEC is considered the
preferred supplier of particulate control devices to the pulp and paper
industry. Due to the long awaited resolution of the 1990 Clean Air Act
Amendments, we are benefiting from a recovery in this industry. During
the year, EEC received contracts from International Paper Company,
Champion International, Fort James Corporation, Willamette and Harmac
Pacific. We further expect new orders as the impact of these
regulations is realized and pulp and paper companies can plan for air
pollution equipment purchases, upgrades and repairs. Our new Fine
Particulate Agglomerator(TM) will provide measurable benefits to the
market by reducing particulate from recovery boilers at dramatically
lower cost.
In addition, EEC is focusing on other industrial applications in the
cement, steel and petrochemical industries. Cement maker Florida Rock
Industries awarded EEC with a contract for two new precipitators.
Malden Mills Industries, a maker of specialty fabrics, contracted with
EEC to provide a wet electrostatic precipitator.
Fine Particulate Agglomerator(TM) Technology
[DRAWING APPEARS HERE]
Our recently patented
Fine Particulate
Agglomerator(TM)
virtually eliminates
fine, submicron-
sized particulate
from the gaseous
emissions stream.
Environmental Elements Corporation 5
<PAGE>
Environmental
Elements Corporation's
corona discharge
program is being
tested as a method [PHOTOGRAPH APPEARS HERE]
to control volatile
organic compounds,
as well as sulfur
dioxide, mercury and
nitrogen oxides.
Our strength is knowing how
to apply our technology, along
with producing, marketing
and distributing our products.
Research and development serves as the foundation for growth at
Environmental Elements Corporation. Recognizing that value is added
through innovation, the Company continues to invest heavily in its
research operation. EEC has a long and successful history of
introducing new products and services that respond to our customers'
needs.
Technology
In anticipation of the fine particulate requirements issued in 1997,
EEC has changed the state of the art. Patented this year, the Fine
Particulate Agglomerator(TM) is a breakthrough technology for the
advanced control of fine, submicron-sized particles emitted from
utility and industrial boilers.
We received a second patent this year for our Modulok(R) II dust plate
for precipitators, which can be customized, easily adapted to existing
support systems and assembled at the site. An improvement to EEC's
already patented Modulok(R) I system, this new dust collecting plate
system is a more practical, efficient and lower cost alternative for
international projects. EEC's Modulok(R) II can be made anywhere in the
world and shipped to any global destination.
Another innovation introduced this past year, the ADP 3200 Automatic
Voltage Controller, continues our long history of applying
microprocessor-based technology to voltage control for electrostatic
precipitators. This advanced, software-based controller significantly
enhances precipitator performance by providing adaptive programming
capabilities.
In early 1998, EEC entered into a Cooperative Research and Development
Agreement with the U.S. Department
6 Environmental Elements Corporation
<PAGE>
of Energy to develop enhanced particulate removal capabilities for high
temperature, high pressure applications. EEC's history of success in
achieving high-efficiency particulate control will help in the
commercial development of pressurized fluid bed combustion technology
(PFBC). The future applications of PFBC technology will produce
significant economic and environmental benefits, including reduced fuel
consumption, reduced emissions of pollutants per unit of energy
generated and lower generating costs.
Still in the trial stage are two additional programs that will be ready
for our markets in the near term. One project is focused on the control
of volatile organic compounds by using high voltage to transform the
compounds into harmless water vapor and carbon dioxide--a preferable
alternative to the current control method of incineration. A second
program involves combining our agglomerator and scrubbing technologies
to address multi-pollutant removal of fine particles, mercury, sulfur
dioxide and other acid gases. Both of these programs are in the test
phase with very promising results received to date.
Diversifying Beyond
Air Pollution Control
EEC has built its development efforts upon both imagination and
world-class expertise. Our goal to continue to introduce change was
recently rewarded when the U.S. Department of Defense awarded the
Company a grant for the study of glow discharge plasma technology for
sterilizing microorganisms. This technology is being developed in
conjunction with the University of Tennessee as a non-chemical
alternative to decontaminate surfaces that have been exposed to
chemical or biological agents. The ability to sterilize contaminated
surfaces goes far beyond military applications. Indoor air quality is a
high potential market. EEC holds commercialization rights and is
particularly interested in the medical, indoor air quality and other
industrial applications of this technology.
Decontamination Using Glow Discharge Plasma Technology
Glow Discharge
Plasma Technology
exposes micro- [DRAWING APPEARS HERE]
organisms to high
energy particles Foods, Production of Indoor
in the Plasma. especially Imported Surgical Gowns, Environments
Sterilization is Foods Bandages and Microorganisms
accomplished Wraps in Filters and
through oxidation Ducts
of the micro-
organisms without
the use of chemical Medical Hospital Biological
agents. Instruments Surfaces Warfare Agents
GLOW DISCHARGE PLASMA
STERILIZED
SURFACES
Environmental Elements Corporation 7
<PAGE>
Operator making
precipitator collecting [PICTURE APPEARS HERE]
plates at EEC's joint
venture factory in
Bengbu, China. This
factory also manufac-
tures components for
export to the U.S. and
to other countries.
Going the distance...
Expansion into international
markets with our licensing
and joint venture strategies
presents great opportunities
for substantial growth.
Making Global Air Pollution
Problems Our Business
As the Pacific Rim, Eastern Europe, India and Latin America begin to
address serious air pollution problems, the demand for our technology
is accelerating. The need for power generation and other infrastructure
improvements in developing countries is driving the demand. Recent
statistics show that one-fourth of all premature deaths in China are
attributable to pulmonary disease resulting from air pollution. With a
population over one billion and an economy that is growing rapidly,
China is the largest and most dynamic new market in the world.
The recent commitments made at the global warming talks in Japan lead
us to believe that air pollution will remain a highly visible factor in
foreign policy for the foreseeable future. EEC has positioned itself to
seize this growing worldwide opportunity by marketing its
state-of-the-art technologies through an extensive network of joint
venture and licensing partners.
Four New Partners
In addition to previous licensing agreements in China and Brazil, EEC
established licensing agreements during the year with local partners in
India, Russia, South Korea and Finland. The agreements provide improved
development opportunities through local relationships and low cost
sources of supply.
India
After China, India represents the second largest power generation
market in the world. To export our technologies and thereby penetrate
this large market, EEC
8 Environmental Elements Corporation
<PAGE>
signed a licensing agreement with Thermax, Ltd. to market EEC-designed
electrostatic precipitators and fabric filters. Based in Pune, India,
Thermax is an international company that manufactures industrial coal
and biomass-fired boilers and associated equipment.
This agreement also includes a commitment to jointly develop software
for use in precipitator and fabric filter engineering and design. EEC
and Thermax will provide engineering and design services around the
clock to accelerate project schedules when required.
Russia
EEC's licensee, Fingo Limited of Semibratovo, Russia, owns a large
fabrication facility that has produced most of the air pollution
control equipment installed in the former Soviet Union. Our agreement
with Fingo Limited includes precipitator technology and a joint venture
to manufacture components at the Semibratovo factory. EEC's technology
will significantly reduce our licensee's manufacturing costs.
South Korea
Our Company signed a licensing agreement with ShinWon Industry Co. Ltd.
based in Seoul, South Korea, to market acid gas removal systems. The
technology transfer will help Korean municipal waste companies meet
governmental standards by eliminating pollutants produced during the
incineration process.
Finland
SF Cleanair of Mikkeli, Finland has been very active in the pulp and
paper industry in Scandinavia. EEC and SF Cleanair have signed a
licensing agreement for our precipitator technology that already has
resulted in the sale of a recovery boiler precipitator to be shipped to
Indonesia.
Other International Contracts
EEC's technology and product transfer agreement with Bengbu
Environmental Protection Equipment Factory in Bengbu, Anhui Province,
China has produced three contracts for precipitators to be installed in
Anhui Province. The equipment has been manufactured at our joint
venture factory in Bengbu, which became fully operational in 1997. The
factory also is manufacturing components for export to the U.S. and to
other countries.
In addition, EEC received contracts from Australian Kaolin for a
project in Marpoon, Australia and from Black & Veatch for a project in
Guatemala. In Australia, EEC will supply a new kaolin kiln
electrostatic precipitator. In Guatemala, Central America's first
modern coal-fired power plant will feature an EEC-designed pulse jet
fabric filter.
A Global Market of Opportunity
Pollution is a global problem that does not respect international
boundaries. North America and Western Europe have long realized that
air pollution poses significant threats to public health and the
environment. EEC believes that governments will continue to increase
their regulation of air pollution sources. Our goal is to expand the
market and technology dominance we've established in North America to
growing markets throughout the rest of the world.
[PICTURE APPEARS HERE]
What's Ahead
EEC will continue to build upon the
successes achieved this year by
expanding our markets and broadening
our technologies.
We expect to
o maintain our market dominance in the
power, pulp and paper industries
o strengthen and expand our services,
spare parts and aftermarket
operations to best maintain the
equipment installed by EEC and others
o commercialize our technology
innovations
o continue our substantial investment
in value-added research that benefits
our customers
o develop additional licensing agree-
ments, joint ventures, alliances and
strategic partnerships to achieve
market efficiencies
o further expand our technological
development capabilities beyond
air pollution control applications
o continue to adapt to changing
market realities
Environmental Elements Corporation 9
<PAGE>
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
General
The Company designs and supplies systems and equipment and provides
aftermarket products and services that enable its customers to comply
with regulations limiting particulate and gaseous emissions. The
Company generally is contractually responsible for all phases of
design, fabrication and, if included in the scope of the Company's
contract, field construction of its equipment and systems. The Company
faces substantial competition in each of its principal markets.
Substantially all contracts for the Company's systems are awarded
through competitive bidding and are undertaken on a fixed-price basis.
Like others in its industry, the Company relies on outside suppliers,
manufacturers and fabricators to supply parts and components in
accordance with the Company's designs and specifications. When the
Company's scope of work includes installation of equipment, the Company
selects and supervises subcontractors for this work. The Company's
successful completion of its contractual obligations is usually
determined by performance testing of its systems.
Information pertaining to continuing operations in the Company's
consolidated financial statements reflects the activities of its air
pollution control business. Information relating to discontinued
operations is discussed in Note 9 of "Notes to Consolidated Financial
Statements."
Bookings and Backlog
Bookings represent work for which the Company has entered into a signed
agreement or has received a notice to proceed. Bookings during fiscal
1998 were $88.6 million, a 101% increase from fiscal 1997 bookings. The
increase in bookings during fiscal 1998 was due primarily to
significant increases in orders from the Company's customers in the
power generation and municipal solid waste industries and to continued
progress with international licensees.
The Company expects that about 70% of the March 31, 1998 backlog will
be executed during its next fiscal year. Due to timing effects of
bookings, differences in project gross margins and varying lengths of
time required to perform contracts (typically 12-36 months), annual
bookings activity and backlog levels at period end are not necessarily
predictive of future operating results.
Sales and Income
Table 1 sets forth the amounts and percentage relationships to sales of
selected items in the Company's consolidated statements of operations
for the periods indicated. Table 1 excludes restructuring charges of
$2.2 million and $1.0 million for fiscal years 1997 and 1996,
respectively.
Fiscal 1998 Compared to Fiscal 1997
Fiscal 1998 sales increased 10% or $4.9 million to $52.6 million from
$47.7 million the year before. This change reflects increases in sales
to the Company's power, international, field service and spare parts
customers, which is offset in part by decreases in sales to its
industrial and repair/rebuild customers.
Cost of sales increased 11% or $4.5 million to $45.5 million from $41.0
million. Cost of sales increased slightly as a percentage of sales to
86.5% from 86.1%, reflecting essentially level project execution
performance.
Selling, general and administrative expenses decreased 18% or $1.4
million to $6.4 million from $7.8 million. Cost reductions from
restructuring actions taken during prior fiscal years and the resultant
increased efficiencies during the current year period, were the primary
factors in this decrease. Because of the increased sales volumes and
the decreased expenses in dollar terms, the Company's selling, general
and administrative expenses, as a percentage of sales, decreased to
12.2% from 16.4%.
For the reasons set forth above, operating income was $711,000, or 1.3%
of sales, for fiscal 1998 compared to an operating loss of $1.2 million
in the prior year, which excludes a restructuring charge of $2.2
million discussed in Note 7 of the "Notes to Consolidated Financial
Statements."
Interest and other expense, net, increased 5.9%, or $37,000, to
$661,000. The increase is primarily a result of an increase in interest
expense due to increased borrowings on the Company's line of credit.
Because of the above mentioned sales volume increases and decreased
expenses, pre-tax income from continuing operations was $50,000, or
0.1% of sales, for fiscal 1998 compared to a loss from continuing
operations of $1.8 million in fiscal 1997, which excludes a
restructuring charge of $2.2 million discussed in Note 7 of the "Notes
to Consolidated Financial Statements."
<TABLE>
<CAPTION>
-------------------------------------------------------------
TABLE 1 For the years ended March 31, 1998 1997 1996 1998 1997 1996
-------------------------------------------------------------
(in millions) (percentage of net sales)
-------------------------------------------------------------
<S><C>
Sales $52.6 $47.7 $61.2 100.0 100.0 100.0
-------------------------------------------------------------
Cost of sales 45.5 41.0 54.06 86.5 86.1 89.2
-------------------------------------------------------------
Gross profit 7.1 6.6 6.6 13.5 13.9 10.8
-------------------------------------------------------------
Selling, general and administrative expenses 6.4 7.8 9.0 12.2 16.4 14.7
-------------------------------------------------------------
Operating income (loss) 0.7 (1.2) (2.4) 1.3 (2.5) (3.9)
-------------------------------------------------------------
Interest and other expense, net (0.6) (0.6) (0.5) (1.1) (1.3) (0.8)
-------------------------------------------------------------
Income (loss) from continuing operations $ 0.1 $(1.8) $(2.9) 0.1 (3.8) (4.7)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
10 Environmental Elements Corporation
<PAGE>
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
Fiscal 1997 Compared to Fiscal 1996
Fiscal 1997 sales decreased 22% or $13.5 million to $47.7 million from
$61.2 million the year before. The decrease in sales reflected contract
booking activity, mix and job progress. Lower available orders in the
air pollution control marketplace resulted in reduced bookings and a
resultant decrease in sales. Despite the 22% drop in sales, fiscal year
1997 results reflected significant improvement in contract gross margin
levels producing virtually identical gross profit dollars, $6.6
million, in fiscal years 1997 and 1996.
Cost of sales decreased 25% or $13.6 million to $41.0 million from
$54.6 million. Cost of sales decreased as a percentage of sales to
86.1% from 89.2%. This reflected the favorable results of a formal
productivity improvement program, an increased contribution of higher
margin aftermarket business and the completion, early in the year, of
two low margin projects that the Company strategically accepted in
prior years in order to successfully introduce a new technology into
the marketplace.
Selling, general and administrative expenses decreased 13% or $1.2
million to $7.8 million from $9.0 million. Cost reductions from
restructuring actions taken during fiscal 1996, together with further
restructuring and other cost reductions during fiscal 1997, were the
primary factors in the decrease. Selling, general and administrative
expenses, as a percentage of sales, increased to 16.4% from 14.7%
because selling, general and administrative expenses were not reduced
at the same rate as sales.
Excluding restructuring charges of $2.2 million and $951,000 recorded
in fiscal 1997 and 1996, respectively, (see Note 7 of the "Notes to
Consolidated Financial Statements") operating loss was $1.2 million for
fiscal 1997 compared to an operating loss of $2.4 million in the prior
year.
Interest and other expense, net, increased $123,000. The increase was
primarily a result of an increase in interest expense due to increased
borrowings on the Company's line of credit.
Liquidity and Capital Resources
During fiscal 1998, cash and cash equivalents declined by $0.7 million
and borrowings under the Company's line of credit increased by $2.6
million. This was caused principally by a $4.5 million increase in the
Company's net working capital investment in contracts in process,
offset by proceeds of $0.9 million from disposal of assets held for
sale. Historically, the Company has required minimal investment in net
working capital in contracts, but it does experience fluctuations in
these amounts depending upon the stage of completion of its various
contracts and upon the payment terms negotiated as a part of the
overall original contract terms and conditions. ("Net working capital
invested in contracts" consists of accounts and retainages receivable
plus unbilled contract costs and fees, minus accounts payable and minus
billings in excess of contract costs and fees. These net amounts were
$5.7 million and $1.2 million at March 31, 1998 and 1997,
respectively.) The Company seeks to manage project cash flows through
its payment terms with customers and suppliers and in adherence to
project budgets and schedules.
The Company and its bank agreed during the fiscal year to increase the
Company's secured open line of credit to $10 million. Subsequent to the
end of the fiscal year, the Company and its bank agreed to expand the
line of credit to $12 million for a two-year term.
New orders received during the fiscal year increased 101% versus last
year to $88.6 million. The Company believes that these events are
evidence of improvement in the markets for its products, technologies
and services, but also believes that, over time, the market can be
difficult to predict accurately due to regulatory and other factors,
both domestic and international in nature. During prior years, the
Company adjusted its organization so that it can operate and be
profitable on highly variable business levels at or above those
experienced in recent fiscal years. However, there can be no assurance
that such business levels will occur, that the Company's actions will
be successful, or that future losses would not adversely affect the
Company's liquidity and capital resource position. The Company believes
it has liquidity and capital resources sufficient to maintain its
business at its current level of activity due to the following: no
significant capital expenditures are expected; historically, the
Company has required little investment in operating working capital;
and its banking arrangements, i.e., those currently available and those
which could be obtained, would be adequate to maintain its ongoing
business at its current level of activity during the next year.
Dividends
The Board of Directors did not declare a dividend during fiscal 1998.
Any future determination as to the payment of dividends on common stock
will depend on future profitability and capital requirements of the
Company and/or on such other factors as the Board of Directors may
consider. The Company intends to retain most of its future earnings to
finance growth and development of its business.
Environmental Elements Corporation 11
<PAGE>
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------
For the years ended March 31, 1998 1997 1996
--------------------------------------------------------------
<S><C>
Sales $52,612,000 $47,654,000 $61,214,000
---------------------------------------------------------------
Cost of sales 45,528,000 41,023,000 54,593,000
---------------------------------------------------------------
Gross profit 7,084,000 6,631,000 6,621,000
------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 6,373,000 7,807,000 9,024,000
---------------------------------------------------------------
Restructuring charge -- 2,215,000 951,000
---------------------------------------------------------------
6,373,000 10,022,000 9,975,000
---------------------------------------------------------------
Operating income (loss) 711,000 (3,391,000) (3,354,000)
------------------------------------------------------------------------------------------------------------------
Interest and other expense, net (661,000) (624,000) (501,000)
---------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 50,000 (4,015,000) (3,855,000)
------------------------------------------------------------------------------------------------------------------
Provision for income taxes -- -- --
---------------------------------------------------------------
Income (loss) from continuing operations 50,000 (4,015,000) (3,855,000)
------------------------------------------------------------------------------------------------------------------
Gain on disposal of discontinued operations, net -- -- 351,000
---------------------------------------------------------------
Net income (loss) $ 50,000 $(4,015,000) $(3,504,000)
------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Income (loss) per share from continuing operations $ 0.01 $ (0.58) $ (0.56)
---------------------------------------------------------------
Income per share from discontinued operations -- -- 0.05
---------------------------------------------------------------
Net income (loss) $ 0.01 $ (0.58) $ (0.51)
------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Income (loss) per share from continuing operations $ 0.01 $ (0.58) $ (0.56)
---------------------------------------------------------------
Income per share from discontinued operations -- -- 0.05
---------------------------------------------------------------
Net income (loss) $ 0.01 $ (0.58) $ (0.51)
------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding:
Basic 6,990,000 6,924,000 6,880,000
---------------------------------------------------------------
Diluted 7,098,000 6,924,000 6,880,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
12 Environmental Elements Corporation
<PAGE>
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------
As of March 31, 1998 1997
----------------------------------------
<S><C>
Assets
Current assets:
Cash and cash equivalents $ 958,000 $ 1,684,000
----------------------------------------
Accounts and retainage receivable, net of allowance for doubtful
accounts of $218,000 and $113,000 in 1998 and 1997, respectively 9,709,000 6,317,000
----------------------------------------
Unbilled contract costs and fees 13,877,000 6,248,000
----------------------------------------
Inventories 760,000 967,000
----------------------------------------
Prepaid expenses and other current assets 1,970,000 1,990,000
----------------------------------------
Assets held for sale -- 864,000
----------------------------------------
Total current assets 27,274,000 18,070,000
------------------------------------------------------------------------------------------------------------------
Property and equipment:
Capital lease, building and improvements 7,200,000 6,960,000
----------------------------------------
Machinery, equipment, furniture and fixtures 3,032,000 2,809,000
----------------------------------------
Total property and equipment at cost 10,232,000 9,769,000
------------------------------------------------------------------------------------------------------------------
Less - Accumulated depreciation and amortization 4,084,000 3,326,000
----------------------------------------
Property and equipment, net 6,148,000 6,443,000
------------------------------------------------------------------------------------------------------------------
Other assets, net 940,000 894,000
----------------------------------------
Total assets $34,362,000 $25,407,000
------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' investment
Current liabilities:
Line of credit $ -- $ 2,585,000
----------------------------------------
Accounts payable 16,378,000 9,724,000
----------------------------------------
Billings in excess of contract costs and fees 1,462,000 1,660,000
----------------------------------------
Accrued payroll and related expenses 509,000 618,000
----------------------------------------
Accrued and other current liabilities 1,875,000 1,924,000
----------------------------------------
Total current liabilities 20,224,000 16,511,000
------------------------------------------------------------------------------------------------------------------
Long-term liabilities:
Long-term capital lease obligation 2,217,000 2,449,000
----------------------------------------
Long-term line of credit 5,200,000 --
----------------------------------------
Other non-current liabilities 456,000 409,000
----------------------------------------
Total liabilities $28,097,000 $19,369,000
------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' investment:
Common stock, par value $.01 per share; 20,000,000 shares authorized; 7,034,759
and 6,963,346 shares issued and outstanding at March 31,
1998 and 1997, respectively 71,000 70,000
----------------------------------------
Paid-in capital 28,047,000 27,864,000
----------------------------------------
Cumulative translation adjustment (89,000) (82,000)
-----------------------------------------
Retained deficit (21,764,000) (21,814,000)
-----------------------------------------
Total stockholders' investment 6,265,000 6,038,000
------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' investment $34,362,000 $25,407,000
------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
Environmental Elements Corporation 13
<PAGE>
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------
For the years ended March 31, 1998 1997 1996
--------------------------------------------------------
<S><C>
Cash flows from operating activities:
Net income (loss) $ 50,000 $(4,015,000) $(3,504,000)
--------------------------------------------------------
Non-cash items:
Depreciation and amortization 848,000 786,000 1,242,000
--------------------------------------------------------
Gain on disposal of discontinued operations,
net of provision for income taxes -- -- (351,000)
--------------------------------------------------------
Stock contributions to savings plan 88,000 46,000 87,000
--------------------------------------------------------
Stock-based compensation 96,000 102,000 --
--------------------------------------------------------
Changes in operating assets and liabilities:
(Increase) decrease in accounts and retainages receivable, net (3,392,000) 3,710,000 8,428,000
--------------------------------------------------------
(Increase) decrease in unbilled contract costs and fees (7,629,000) (1,423,000) 1,944,000
--------------------------------------------------------
Decrease in inventories 207,000 484,000 783,000
--------------------------------------------------------
Decrease (increase) in prepaid expenses and other current assets 20,000 (843,000) (755,000)
--------------------------------------------------------
Increase (decrease) in accounts payable 6,654,000 (2,462,000) (7,032,000)
--------------------------------------------------------
(Decrease) increase in billings in excess of contract costs and fees (198,000) (731,000) 678,000
--------------------------------------------------------
(Decrease) in accrued payroll and related expenses (109,000) (57,000) (461,000)
--------------------------------------------------------
(Decrease) in accrued and other current liabilities (49,000) (81,000) (2,784,000)
--------------------------------------------------------
Increase (decrease) in other non-current liabilities 47,000 64,000 (425,000)
--------------------------------------------------------
Net cash flows used in operating activities (3,367,000) (4,420,000) (2,150,000)
------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from short-term investments -- -- 2,815,000
--------------------------------------------------------
Purchases of property and equipment (463,000) (99,000) (901,000)
--------------------------------------------------------
Disposals of property and equipment, net -- 1,596,000 --
--------------------------------------------------------
Proceeds from disposal of assets held for sale 864,000 -- --
--------------------------------------------------------
Proceeds from disposal of discontinued operations -- -- 351,000
--------------------------------------------------------
(Increase) decrease in other assets (136,000) 57,000 (613,000)
--------------------------------------------------------
Net cash flows provided by investing activities 265,000 1,554,000 1,652,000
------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in borrowings under line of credit 2,615,000 2,585,000 (865,000)
--------------------------------------------------------
Payments under capital lease obligation (232,000) (213,000) (196,000)
--------------------------------------------------------
Change in cumulative translation adjustment (7,000) 54,000 (65,000)
--------------------------------------------------------
Net cash flows provided by (used in) financing activities 2,376,000 2,426,000 (1,126,000)
------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (726,000) (440,000) (1,624,000)
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of year 1,684,000 2,124,000 3,748,000
--------------------------------------------------------
Cash and cash equivalents, end of year $ 958,000 $ 1,684,000 $ 2,124,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
14 Environmental Elements Corporation
<PAGE>
Consolidated Statements of Stockholders' Investment
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Cumulative Retained
Common Treasury Paid-in Translation Earnings
Stock Stock Capital Adjustment (Deficit) Total
--------------------------------------------------------------------------------
<S><C>
Changes in Amounts
Balance, March 31, 1995 $69,000 $(294,000) $27,763,000 $ (71,000) $(14,134,000) $13,333,000
--------------------------------------------------------------------------------
Net loss -- -- -- -- (3,504,000) (3,504,000)
--------------------------------------------------------------------------------
Issuance of common stock from treasury
under employee savings plan -- 187,000 -- -- (100,000) 87,000
--------------------------------------------------------------------------------
Translation adjustment -- -- -- (65,000) -- (65,000)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 69,000 (107,000) 27,763,000 (136,000) (17,738,000) 9,851,000
--------------------------------------------------------------------------------
Net loss -- -- -- -- (4,015,000) (4,015,000)
--------------------------------------------------------------------------------
Issuance of common stock from treasury
under employee savings plan -- 107,000 -- -- (61,000) 46,000
--------------------------------------------------------------------------------
Issuance of common stock 1,000 -- 101,000 -- -- 102,000
--------------------------------------------------------------------------------
Translation adjustment -- -- -- 54,000 -- 54,000
- ---------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 70,000 -- 27,864,000 (82,000) (21,814,000) 6,038,000
--------------------------------------------------------------------------------
Net income -- -- -- -- 50,000 50,000
--------------------------------------------------------------------------------
Issuance of common stock 1,000 -- 183,000 -- -- 184,000
--------------------------------------------------------------------------------
Translation adjustment -- -- -- (7,000) -- (7,000)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 $71,000 $ -- $28,047,000 $ (89,000) $(21,764,000) $ 6,265,000
- ---------------------------------------------------------------------------------------------------------------------------
Changes in Common Shares
Balance, March 31, 1995 6,862,206
- ----------------------------------------------------------------------------
Issuance of common stock from treasury under employee savings plan 40,116
- ----------------------------------------------------------------------------
Balance, March 31, 1996 6,902,322
- ----------------------------------------------------------------------------
Issuance of common stock from treasury under employee savings plan 17,902
- ----------------------------------------------------------------------------
Issuance of common stock 43,122
- ----------------------------------------------------------------------------
Balance, March 31, 1997 6,963,346
- ----------------------------------------------------------------------------
Issuance of common stock under employee savings plan 34,082
- ----------------------------------------------------------------------------
Issuance of common stock 37,331
- ----------------------------------------------------------------------------
Balance, March 31, 1998 7,034,759
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
Environmental Elements Corporation 15
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Note 1 Summary of Significant
Accounting Policies
Organization and Business
The Company (incorporated in Delaware on March 15, 1983) designs and
supplies proprietary, large-scale, custom-engineered air pollution
control systems which enable customers to operate their facilities in
compliance with regulatory standards limiting particulate and gaseous
emissions.
The Company's operations depend, among other things, upon the Company's
ability to generate sufficient revenues and gross margins in a
competitive market from a limited number of clients in specific
industries. Future operations may be affected by the level of orders
available in the market and obtained by the Company and its ability to
generate sufficient gross margins.
Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
Cash equivalents consist primarily of investments in short-term, highly
liquid securities having an original maturity of three months or less
at the time of acquisition. Cash and cash equivalents are stated at
cost plus accrued interest, which approximates market value. As of
March 31, 1998 and 1997, $958,000 and $963,000, respectively, of
repurchase agreements were included in this caption.
Accounts and Retainages Receivable
As of March 31, 1998 and 1997, accounts and retainages receivable, net
of allowance for doubtful accounts, include current accounts receivable
of $8,664,000 and $5,817,000, respectively, and retainages of
$1,045,000 and $500,000, respectively. All retainages as of March 31,
1998 become due in fiscal 1999, based on applicable contract terms.
Long-Term Contracts
The Company records sales from long-term contracts using the
percentage-of-completion method. Under this method, the Company
recognizes as sales that portion of the total contract price which the
cost of work completed bears to the estimated total cost of the work
covered by the contract. Because contracts may extend over more than
one fiscal period, revisions of cost and profit estimates are made
periodically and are reflected in the accounting period in which they
are determined. If the estimate of total costs on a contract indicates
a loss, the total anticipated loss is recognized immediately.
Unbilled contract costs and fees represent sales recognized in excess
of amounts billed. All unbilled contract costs and fees are expected to
be collected in the next fiscal year. Billings in excess of contract
costs and fees represent billings in excess of sales recognized.
The Company provides for warranty expenses on contracts based on
estimates which take into account historical experience. Warranty
expenses are included in cost of sales and in accrued and other current
liabilities, respectively, in the accompanying consolidated financial
statements.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories consist principally of purchased parts held for use
in contracts and as spare parts.
Other Assets
In December 1995, the Company made a strategic investment in an
international joint venture. Certain costs incurred to establish
licenses and acquire plant designs, equipment and other assets have
been recorded as other assets and are being amortized over the life of
the related equipment and agreements of 5 to 12 years. As of March 31,
1998 and 1997, the unamoritized costs related to the joint venture
included in other assets totaled approximately $767,000 and $796,000,
respectively.
Property and Equipment
Major improvements are capitalized at cost, while replacements and
maintenance and repairs which do not improve or extend the life of the
affected assets are charged to expense as incurred. Depreciation and
amortization of property and equipment is computed on the straight-line
method over estimated useful lives, or with respect to leasehold
improvements, over the term of the lease if shorter. Useful lives range
from 3 to 40 years by major asset class.
16 Environmental Elements Corporation
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Income Taxes
The Company provides for income taxes using the liability method
pursuant to Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes." Deferred income taxes are provided for
temporary differences arising between the tax basis of assets and
liabilities and their respective book basis as reported in the
financial statements. Because the Company operated at a loss in prior
years, and has significant net operating loss carryforwards, current
year income taxes are not material.
Fair Value of Financial Instruments
The Company determines fair value of their financial instruments held
based on quoted market values, where applicable, or discounted cash
flow analysis. As of March 31, 1998 and 1997, the carrying value of its
financial instruments approximates fair value.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of
general-purpose financial statements. The Statement requires that all
items that are to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial
statements.
The statement is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments
of an Enterprise and Related Information." The Statement establishes
standards for the way that public companies report information about
operating segments in their financial statements. It also establishes
standards for related disclosures about products and services,
geographic area and major customers. Operating segments are components
of the business about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. SFAS
No. 131 is effective for financial statements for periods beginning
after December 15, 1997. Management is assessing the impact SFAS No.
131 may have on the financial reporting of the Company.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform with the current year presentation.
- --------------------------------------------------------------------------------
Note 2 Earnings Per Share
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," effective December 15, 1997. As a result,
the Company is required to provide additional disclosure of basic
earnings per share. Despite certain new calculation criteria, diluted
earnings per share, as defined and reported under the new SFAS, was
equivalent to the historically reported fully-diluted earnings per
share.
The following illustrates the calculation of basic and diluted (loss)
earnings per share for the years ended March 31, 1998, 1997 and 1996:
-------------------------------------------------
1998 1997 1996
-------------------------------------------------
Weighted-average
number of
common shares 6,990,000 6,924,000 6,880,000
-------------------------------------------------
Dilutive effect
of outstanding
stock options 108,000 -- --
-------------------------------------------------
Weighted-average
number of common
equivalent shares
outstanding 7,098,000 6,924,000 6,880,000
-------------------------------------------------
The dilutive effects of stock options were not provided for 1997 and
1996, as these options would have an anti-dilutive effect due to the
losses of the Company.
Note 3 Credit Facility
The Company has a bank credit facility providing for a revolving line
of credit borrowings and letters of credit issuances of up to
$12,000,000. Under the credit facility, interest accrues at the bank's
prime rate plus 1/2%. As of March 31, 1998 and 1997, the rate in effect
was 9.0%. At March 31, 1998 and 1997, borrowings of $5,200,000 and
$2,585,000, respectively, were outstanding. Additionally, $2,464,000
and $1,866,000 of letters of credit were also outstanding at March 31,
1998 and 1997, respectively. The credit facility expires on April 1,
1999, and is secured by certain assets of the Company.
During fiscal years 1998, 1997 and 1996, the maximum borrowings under
lines of credit totaled $5,200,000, $5,500,000 and $4,365,000,
respectively. Average borrowings during such years were $3,808,000,
$3,615,000 and $1,363,000, and the weighted average interest rates on
such
Environmental Elements Corporation 17
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
borrowings were 9.0%, 8.75% and 9.0% in fiscal years 1998, 1997 and
1996, respectively. Interest expense for the fiscal years 1998, 1997
and 1996 was $339,000, $315,000 AND $123,000, respectively. Under the
provisions of the credit facility, the Company must comply with certain
financial and other covenants including tangible net worth and current
ratio calculations among other restrictions. At March 31, 1998, the
Company was in compliance with these covenants. Subsequent to year end,
the Company's credit facility was amended to extend its term to July
2000; therefore, the line of credit obligation has been classified as
long term on the accompanying balance sheet.
Note 4 Income Taxes
As of March 31, 1998, the Company had available, for federal tax
purposes, estimated federal income tax net operating loss carryforwards
of approximately $22,046,000 to offset future taxable income. The
carryforwards will expire between 2008 and 2012. As of March 31, 1998,
the Company also had an alternative minimum tax credit carryforward of
approximately $498,000 which has no expiration date. As of March
31,1998 and 1997, the Company had alternative minimum tax net operating
loss carryforwards of approximately $21,674,000 and $21,829,000,
respectively.
The reconciliation of the provision for income taxes computed at
statutory rates to the provision for income taxes provided on income
(loss) from continuing operations is not material for 1998. The
reconciliation for 1997 and 1996, consists primarily of a valuation
reserve equal to federal taxes at the statutory rate, since the
recovery of tax loss carryforwards is dependent on profitable future
operations.
The significant components of the deferred tax asset
(liability), stated by source of the difference between financial
accounting and tax basis as of March 31, 1998 and 1997, are as follows:
Deferred tax assets (liabilities):
-------------------------
1998 1997
-------------------------
Operating loss
carryforward
and tax credits $ 9,009,000 $ 9,096,000
--------------------------------------------------
Reserves, accrued
liabilities and other 487,000 513,000
--------------------------------------------------
Valuation allowance (9,450,000) (9,525,000)
--------------------------------------------------
Property, plant,
equipment and other (246,000) (284,000)
--------------------------------------------------
Net deferred income
tax liability $ (200,000) $ (200,000)
--------------------------------------------------
Note 5 Employee Benefit Plans
Pension Plan
The Company maintains a defined benefit pension plan covering the
majority of employees. Contributions to the plan are based on the
actuarially determined costs thereof, and the Company's funding policy
has been to contribute an amount at least sufficient to meet the
funding standards under the Employee Retirement Income Security Act of
1974. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be earned
in the future.
Pension expense for the years ended March 31, 1998, 1997 and 1996
consisted of:
-------------------------------
1998 1997 1996
-------------------------------
Service $ 330,000 $ 360,000 $ 322,000
--------------------------------------------------
Net amortization
and deferral 490,000 122,000 120,000
--------------------------------------------------
Interest cost 688,000 644,000 620,000
--------------------------------------------------
Actual return
on assets (1,119,000) (733,000) (722,000)
--------------------------------------------------
Net pension
expense $ 389,000 $ 393,000 $ 340,000
--------------------------------------------------
18 Environmental Elements Corporation
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The funded status of the Plan as of the most recent actuarial
valuations was:
----------------------------
12/31/97 12/31/96
----------------------------
Actuarial present value
of benefit obligations:
Accumulated benefit
obligation, including
vested benefits of
$9,025,000 and $8,221,000
in 1998 and 1997,
respectively $9,254,000 $8,428,000
------------------------------------------------------------
Projected benefit
obligation for services
rendered to date $9,558,000 $8,777,000
------------------------------------------------------------
Plan assets, consisting
primarily of fixed income
investments, at fair value 9,714,000 8,999,000
------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 156,000 222,000
------------------------------------------------------------
Unrecognized net loss
from past experience
different from that
assumed and changes
in assumptions 695,000 567,000
------------------------------------------------------------
Prior service cost
not yet recognized in
net periodic cost 262,000 310,000
------------------------------------------------------------
Prepaid pension cost $1,113,000 $1,099,000
------------------------------------------------------------
For purposes of determining the actuarial present value of the
projected benefit obligation, weighted average discount rates of 7.75%
and 8.1% were used in 1998 and 1997, respectively. Rates of increase in
future compensation levels between 3.5% and 5.5%, and an 8% expected
long-term rate of return on plan assets were assumed.
Savings Plan
The Company's Retirement Savings Plan (the "Savings Plan") is qualified
under sections 401(a) and 401(k) of the Internal Revenue Code. All
employees of the Company are eligible to participate in the Savings
Plan upon completion of six months of employment. Under the Savings
Plan's salary deferral provisions, participating employees may elect to
defer specified portions of their compensation. Elective contributions
made by employees are fully vested at all times. The Company makes
matching contributions in the form of shares of common stock at the
rate of 50% of the first 3% of each participant's compensation, which
is deferred under the Savings Plan for each calendar year. Employees
fully vest in Company contributions after the completion of five years
of service. Contributions by the Company were $90,000, $83,000 and
$87,000 in 1998, 1997 and 1996, respectively.
Stock Option Plan
The Company's stock option plan authorizes the granting of options to
purchase up to an aggregate of 650,000 shares of common stock at prices
not less than fair market value at the date of grant. Options prior to
1995 may not be exercised during the first year after grant, and
generally thereafter 20% of the options granted become exercisable on
each of the first through fifth anniversaries of grant. For options
granted after 1995, 20% are exercisable immediately along with 20% on
each of the four anniversaries. Options granted expire between five and
ten years from the date of grant. As of March 31, 1998, the weighted
average exercise price for outstanding options was $4.06 per share and
expiration dates ranged from December 21, 1999, to July 31, 2005. The
options price range per share is $2.13 to $17.00.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plan. Accordingly, no compensation expense has been
recognized for its stock option plan. Had compensation cost for the
Company's stock-based compensation plans been determined based on the
fair value at the grant dates for awards under that plan consistent
with the method of FASB Statement 123, the Company's net income (loss)
and earnings per share would have been reduced to the pro forma amounts
indicated below:
-----------------------------------
Years ended March 31, 1998 1997 1996
-----------------------------------
Net income
(loss):
-----------------------------------------------------------------
As reported $ 50,000 $(4,015,000) $(3,504,000)
-----------------------------------------------------------------
Pro forma $(41,000) $(4,106,000) $(3,532,000)
-----------------------------------------------------------------
Basic earnings
per share:
As reported $ 0.01 $ (0.58) $ (0.51)
-----------------------------------------------------------------
Pro forma $ (0.01) $ (0.59) $ (0.51)
-----------------------------------------------------------------
Diluted earnings
per share:
As reported $ 0.01 $ (0.58) $ (0.51)
-----------------------------------------------------------------
Pro forma $ (0.01) $ (0.59) $ (0.51)
-----------------------------------------------------------------
Options were assumed to be exercised upon vesting for the purposes of
this valuation. Adjustments are made for options forfeited prior to
vesting.
Environmental Elements Corporation 19
<PAGE>
Notes to Consolidated Financial Statements
- ----------------------------------------------------------------------------
Changes in outstanding stock options during the year
were as follows:
--------------------------------
Years ended March 31, 1998 1997 1996
--------------------------------
Outstanding,
beginning of year 431,000 515,000 465,000
-------------------------------------------------------------------
Granted 140,000 181,000 83,000
-------------------------------------------------------------------
Exercised -- (11,000) --
-------------------------------------------------------------------
Canceled -- (254,000) (33,000)
-------------------------------------------------------------------
Outstanding,
end of year 571,000 431,000 515,000
-------------------------------------------------------------------
There were options for a total of 287,000 shares exercisable as of
March 31, 1998 at a weighted average price of $4.06 per share.
The weighted average fair value of each stock option is estimated on
the date of grant using the Black-Scholes option-pricing model. The
following key assumptions were used in the Black-Scholes option pricing
model:
--------------------------------
Years ended March 31, 1998 1997 1996
--------------------------------
Risk-free
interest rate 6.5% 6.0% 6.0%
------------------------------------------------------------------
Expected life 5 years 5 years 5 years
------------------------------------------------------------------
Volatility 58% 61% 61%
------------------------------------------------------------------
Note 6 Commitments and Contingencies
Commitments
The principal office facilities of the Company and its subsidiaries are
occupied under a lease expiring in January 2002, with bargain renewal
periods extending to January 2037. The lease has been capitalized using
an 8.9% interest rate. Principal and interest on this lease commitment
are being amortized using the effective-interest method.
Future payments under the office building lease are $445,000 per year
through 2001, and total, with bargain renewal options, $6,769,000. Of
this amount, $4,320,000 represents imputed interest and the balance of
$2,449,000 as of March 31, 1998 is included in the consolidated
financial statements as a current liability ($232,000) and a long-term
capital lease obligation ($2,217,000).
The Company and certain subsidiaries use office facilities and
equipment under operating leases. Rent expense for the years ended
March 31,1998, 1997 and 1996 totaled $187,000, $191,000 and $155,000,
respectively.
Litigation
The Company is, from time to time, a party to various legal actions
arising in the ordinary course of its business, some of which may
involve claims for substantial sums. In management's opinion, the
resolution of these matters will not have a material adverse effect on
the Company's financial position.
Post-Employment Benefits
The Company provides limited health care and life insurance benefits
for certain employees upon retirement. In addition, employees
terminated in connection with the elimination of manufacturing
operations in prior years were eligible to receive certain health care
and life insurance benefits upon termination. These benefit plans are
not funded.
The Company's recorded liability for post-retirement and
post-termination health care and life insurance benefits at March 31,
1998, 1997 and 1996 was $328,000, $301,000 and $211,000, respectively.
The accrual is determined by application of the terms of the current
benefit plans, effects of Medicare for eligible employees, relevant
actuarial assumptions and health-care cost trend rates projected at an
annual rate of 5%. A 1% increase in the annual trend rate would
increase the accumulated post-retirement benefit obligation by
approximately $6,000; the annual costs would not be materially
affected. There is no effect on cash flow as a result of current
recognition of future post-retirement benefits.
Concentration of Credit Risk and
Major Customers
As of March 31, 1998, approximately 43% of the Company's accounts and
retainages receivable were due from companies in the pulp and paper
industry and 33% were due from companies in the power industry. No
customer accounted for more than 10% of the Company's sales in fiscal
1998; three customers accounted for 33% of the Company's sales in
fiscal 1997; another customer accounted for 21% of the Company's sales
in fiscal year 1996.
Note 7 Restructuring Charges
During fiscal year 1996, the Company recorded a restructuring charge of
$951,000 reflecting a series of actions the Company took which included
the relocation of its aftermarket operations from Jeffersonville,
Indiana, to its office in Baltimore, the de-emphasis of direct hire
fabrication and construction activities and a corresponding emphasis on
its aftermarket parts, services and materials businesses and the
closing of its office in the United Kingdom. During fiscal year 1997,
the Company identified costs associated with those matters of $2.2
million in excess of the amount recorded as a restructuring charge in
fiscal year 1996. Accordingly, the Company recorded an additional
charge of $2.2 million
20 Environmental Elements Corporation
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
during fiscal year 1997 which represents the excess of expected final
costs (related primarily to loss on disposition of property and
cessation of operations) over costs estimated in fiscal year 1996. The
sale and final disposition of facilities and equipment was completed
during fiscal year 1998. As of March 31, 1998, a restructuring reserve
of approximately $35,000 is included in accrued and other current
liabilities.
Note 8 Supplemental Cash Flow Information
In non-cash financing transactions, the Company issued 17,902 and
40,116 treasury shares in fiscal 1997 and 1996, respectively, as
matching contributions under its Savings Plan. As a result, retained
earnings decreased $61,000 and $100,000 in fiscal 1997 and 1996,
respectively.
Amounts paid for interest during the years ended March 31, 1998, 1997
and 1996 were $460,000, $615,000 and $360,000, respectively. Amounts
paid for income taxes in fiscal years 1998, 1997 and 1996 were $10,000,
$14,000 and $133,000, respectively.
- --------------------------------------------------------------------------------
Note 9 Discontinued Operations
During fiscal year 1995, the Company sold its Water Treatment
Privatization Project, and in fiscal 1996, the Company received an
additional payment of $351,000 in connection with this sale. The 1996
additional payment has been recorded in the "Gain on disposal of
discontinued operations, net" caption in the Consolidated Statements of
Operations. No further material payments are expected in connection
with this transaction.
Note 10 Quarterly and Selected Financial
Data [Unaudited]
See table below.
Quarterly and Selected Financial Data [Unaudited]
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Fiscal year 1998 quarters ended 3/31/98 12/31/97 9/30/97 6/30/97
---------------------------------------------------------------------
<S><C>
Sales $14,846,000 $12,386,000 $11,456,000 $13,924,000
---------------------------------------------------------------------------------------------------------------------
Gross profit 1,788,000 1,806,000 1,733,000 1,757,000
---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 153,000 $ (145,000) $ 28,000 $ 14,000
---------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share1 $ 0.02 $ (0.02) $ -- $ --
---------------------------------------------------------------------------------------------------------------------
Stock price
High $ 6.688 $ 3.938 $ 2.750 $ 2.938
---------------------------------------------------------------------------------------------------------------------
Low $ 3.438 $ 2.188 $ 2.125 $ 2.000
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------
Fiscal year 1997 quarters ended 3/31/97 12/31/96 9/30/96 6/30/96
---------------------------------------------------------------------
Sales $11,835,000 $10,062,000 $11,784,000 $13,973,000
---------------------------------------------------------------------------------------------------------------------
Gross profit 2,097,000 856,000 1,440,000 2,238,000
---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 51,000 $(3,469,000) $ (642,000) $ 45,000
---------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share(1) $ 0.01 $ (0.50) $ (0.09) $ 0.01
---------------------------------------------------------------------------------------------------------------------
Stock price
High $ 3.75 $ 2.625 $ 2.625 $ 2.50
--------------------------------------------------------------------------------------------------------------------
Low $ 2.125 $ 2.25 $ 2.25 $ 1.625
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Due to rounding, the accumulation of the quarterly results may not
equal year-end totals.
Environmental Elements Corporation 21
<PAGE>
Management's Responsibility for Financial Statements
- --------------------------------------------------------------------------------
The consolidated financial statements of Environmental Elements
Corporation and subsidiaries have been prepared by the Company in
accordance with generally accepted accounting principles. The financial
information presented is the responsibility of management and
accordingly includes amounts upon which judgment has been applied, or
estimates made, based on the best information available.
The financial statements have been audited by Arthur Andersen LLP,
independent public accountants, for each of the three years in the
period ended March 31, 1998.
The consolidated financial statements, in the opinion of management,
present fairly the financial position, results of operations and cash
flows of the Company as of the stated dates and for the stated periods
in conformity with generally accepted accounting principles. The
Company believes that its accounting systems and related internal
controls used to record and report financial information provide
reasonable assurance that financial records are reliable and that
transactions are recorded in accordance with established policies and
procedures.
/s/ E. H. Verdery
________________________
E. H. Verdery
Chairman of the Board and
Chief Executive Officer
22 Environmental Elements Corporation
<PAGE>
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of Environmental Elements
Corporation:
We have audited the accompanying consolidated balance sheets of
Environmental Elements Corporation (a Delaware corporation) and
subsidiaries as of March 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' investment and
cash flows for the years ended March 31, 1998, 1997 and 1996. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Environmental Elements Corporation and subsidiaries as of March 31,
1998 and 1997, and the results of their operations and their cash flows
for the years ended March 31, 1998, 1997 and 1996 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
_______________________
Arthur Andersen LLP
Baltimore, Maryland
May 15, 1998
Environmental Elements Corporation 23
<PAGE>
Selected Consolidated Financial Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
For the years ended March 31, 1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S><C>
Consolidated statements of operations data
Sales $52,612,000 $47,654,000 $61,214,000 $77,923,000 $72,567,000
-------------------------------------------------------------------------
Cost of sales 45,528,000 41,023,000 54,593,000 69,100,000 65,946,000
-------------------------------------------------------------------------
Gross profit 7,084,000 6,631,000 6,621,000 8,823,000 6,621,000
-----------------------------------------------------------------------------------------------------------------------------
Selling, general and administration expenses 6,373,000 7,807,000 9,024,000 10,679,000 11,698,000
-------------------------------------------------------------------------
Restructuring charge -- 2,215,000 951,000 -- 1,815,000
-------------------------------------------------------------------------
6,373,000 10,022,000 9,975,000 10,679,000 13,513,000
-----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 711,000 (3,391,000) (3,354,000) (1,856,000) (6,892,000)
-----------------------------------------------------------------------------------------------------------------------------
Interest and other expense, net (661,000) (624,000) (501,000) (179,000) 104,000
-------------------------------------------------------------------------
Income (loss) from continuing
operations before income taxes 50,000 (4,015,000) (3,855,000) (2,035,000) (6,788,000)
-----------------------------------------------------------------------------------------------------------------------------
Provision for income taxes -- -- -- 33,000 57,000
-------------------------------------------------------------------------
Income (loss) from continuing operations 50,000 (4,015,000) (3,855,000) (2,068,000) (6,845,000)
-----------------------------------------------------------------------------------------------------------------------------
Net effect of discontinued operations -- -- 351,000 2,105,000 41,000
-------------------------------------------------------------------------
Net income (loss) $ 50,000 $(4,015,000) $(3,504,000) $ 37,000 $(6,804,000)
-----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Income (loss) per share from continuing operations $ 0.01 $ (0.58) $ (0.56) $ (0.30) $ (0.99)
-------------------------------------------------------------------------
Net income (loss) $ 0.01 $ (0.58) $ (0.51) $ 0.01 $ (0.98)
-------------------------------------------------------------------------
Weighted average common shares outstanding 6,990,000 6,924,000 6,880,000 6,869,000 6,912,000
- --------------------------------------------------------------------------------------------------------------------------------
Balance sheet data
Working capital $ 7,050,000 $ 1,559,000 $ 3,267,000 $ 7,670,000 $ 8,864,000
-------------------------------------------------------------------------
Total assets $34,362,000 $25,407,000 30,179,000 45,234,000 39,173,000
-------------------------------------------------------------------------
Short-term debt -- 2,798,000 195,000 1,044,000 164,000
-------------------------------------------------------------------------
Long-term debt 7,417,000 2,449,000 2,662,000 2,858,000 3,037,000
-------------------------------------------------------------------------
Stockholders' investment $ 6,265,000 $ 6,038,000 $ 9,851,000 $13,333,000 $13,139,000
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24 Environmental Elements Corporation
<PAGE>
Board of Directors
- --------------------------------------------------------------------------------
Edward H. Verdery Russell R. Jones
Chairman and Former General Manager
Chief Executive Officer Bethlehem Steel Company
Environmental Elements Sparrows Point Plant
Richard E. Hug Barry Koh
Chairman Emeritus President
Environmental Elements B. Koh & Associates, Inc.
F. Bradford Smith James S. Potts
Former Chairman and Vice President
Chief Executive Officer Potomac Electric Power Company
Environmental Elements
John C. Nichols Samuel T. Woodside
Corporate Secretary President and
Environmental Elements Chief Executive Officer
Energy Controls International
General Information
- --------------------------------------------------------------------------------
Information and Customer Service
Power, Industrial, Repair and Rebuild Projects
Environmental Elements Corporation
3700 Koppers Street
Baltimore, Maryland 21227
Phone 410-368-7000
800-333-4331
Spare and Replacement Parts (all OEMs)
Phone 800-PART-EEC
Technical Field Services and Telephone Help Line
Phone 800-928-HELP
Investor Information
- --------------------------------------------------------------------------------
Corporate Address Secretary
3700 Koppers Street John C. Nichols
Baltimore, Maryland 21227 3700 Koppers Street
410-368-7000 Baltimore, Maryland 21227
410-368-7000
Transfer Agent and Registrar
- --------------------------------------------------------------------------------
CHASE MELLON SHAREHOLDER SERVICES, L.L.C.
Securityholder Relations Department
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
800-526-0801
For inquiries concerning shareholders' records or certificates, please contact
the transfer agent. Shareholders whose certificates are missing or destroyed
should immediately notify the transfer agent. In the event of any change in
address, please notify the transfer agent in writing. If possible, please
enclose a recent mailing label and indicate you are a shareholder of
Environmental Elements Corporation.
Senior Management
- --------------------------------------------------------------------------------
Edward H. Verdery
Chairman and
Chief Executive Officer
S. Michael Dunseith
Senior Vice President of Operations
James B. Sinclair
Vice President and
Chief Financial Officer
Common Stock
- --------------------------------------------------------------------------------
The Common Stock of the Company trades on the New York Stock Exchange under the
symbol "EEC." A substantial number of the Company's shares are held in nominee
accounts at banks and brokerage firms. These accounts, which include most mutual
funds and other institutional investments, are cumulatively represented by one
"of record" depository account. There were 234 shareholders of record as of
March 31, 1998.
Investor Relations
- --------------------------------------------------------------------------------
To obtain, without cost, a copy of the annual report filed with the Securities &
Exchange Commission on Form 10-K or other information on the Company, copies of
earnings press releases and 10-Q filings, or for investment analyst inquiries,
please contact Lisa A. Morris, Investor Relations Administrator, at
410-368-7092.
Certain of the statements included in this annual report are forward-looking
statements. These statements involve risks and uncertainties that could cause
the actual results to differ from those expressed in or implied by such
statements. These factors include the loss of bookings, increased competition,
changes in environmental regulations and other factors. Information on factors
that could affect the Company's financial results is set forth in the Company's
filings with the Securities and Exchange Commission including the recently filed
report on Form 10-K for the Company's fiscal year ended March 31, 1998.
Environmental Elements Corporation 25
<PAGE>
[LOGO APPEARS HERE]
3700 Koppers Street o Baltimore, Maryland 21227
410-368-7000 o www.eec1.com
PRINTED ON RECYCLED PAPER
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