UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 0-10621
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AMERICAN ECO CORPORATION
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(Exact name of Registrant as specified in its charter)
ONTARIO, CANADA 52-1742490
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
154 UNIVERSITY AVENUE, TORONTO, ONTARIO M5H 3Y9
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(Address of principal executive offices, including zip code)
(416) 340-2727
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act.
Name of each exchange on
Title of each class which registered
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None None
Securities registered pursuant to Section 12(g) of the Act.
COMMON SHARES, NO PAR VALUE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant was $193,255,668 at March 13, 1998.
At March 13, 1998, the number of Common Shares outstanding of the
Registrant was 20,613,938.
Documents Incorporated in Reference: None
FORM 10-K
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . 15
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . 16
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . 17
Item 6. Selected Financial Data . . . . . . . . . . . . . 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 19
Item 8. Financial Statements and Supplementary Data . . . 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . 47
PART III
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . 48
Item 11. Executive Compensation . . . . . . . . . . . . . 52
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . 55
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . 56
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . 57
PART I
Unless otherwise indicated all dollar amounts are in United
States dollars. For a statement regarding forward looking
statements contained herein, see "Item 7. Management's
Discussion and Analysis of Results of Operations and Financial
Condition - Information Regarding Forward Looking Statements."
ITEM 1. BUSINESS
GENERAL
American Eco Corporation (the "Company" or "American Eco")
through its subsidiaries is a leading single-source provider of
industrial support services and specialty fabrication
capabilities to a variety of industries including oil refining,
off-shore drilling, petrochemical processing, electric utilities
and pulp and paper manufacturing. The Company offers its clients
a wide array of services such as equipment and facility repair
and maintenance; overhauling, retrofitting or expanding
facilities; and fabricating custom steel and metal alloy
structures and devices. A substantial portion of the Company's
work is recurring in nature through either long-term contracts or
long-standing customer relationships.
American Eco's business has benefitted from several market
trends. First is the shift among industrial companies toward
outsourcing maintenance and other non-core services. Companies
have increased their use of outside contractors to control their
internal labor and insurance costs and to eliminate the need for
maintaining expensive, under-utilized equipment. Second, the
mounting costs of training skilled employees, maintaining a
satisfactory safety record and complying with rapidly changing
government regulations favors experienced outsourcing providers.
Third is a preference by customers to simplify vendor management
by working with larger, single-source providers who have broad
geographic coverage. These trends have driven American Eco's
acquisition strategy to consolidate regionally fragmented
industrial service providers in the United States and Canada.
American Eco has realized significant growth over the past five
years through acquiring companies which provide industrial
services to several industries in different geographical regions.
Between fiscal 1993 and fiscal 1997, the Company acquired nine
businesses in separate transactions, and its revenues and net
income grew from $7.6 million and $322,000 for the fiscal year
ended November 30, 1993 to $220.4 million and $17.4 million for
the fiscal year ended November 30, 1997. The Company's strategy
is to continue to pursue strategic acquisitions which broaden and
deepen its geographic presence, expand service offerings or
client base and contribute to earnings growth.
American Eco believes it has achieved a strong position in the
industrial service markets it serves by consistently providing
high-quality, cost-effective services to meet its customers' day-
to-day and project-by-project needs on a safe and timely basis.
The Company's key competitive strengths include: (i) long-
standing customer relationships, (ii) outstanding safety and
quality record, (iii) broad offering of value-added services and
capabilities, (iv) ability to provide its services on a
nationwide basis and (v) experienced management team in the field
and at the corporate level.
At March 13, 1998, the Company operated primarily through the
following first and second tier subsidiaries: C.A. Turner
Construction Company, a Delaware corporation ("C.A. Turner" and,
together with Action Contract Services Inc., a Delaware
corporation, the "Turner Group"); Cambridge Construction Service
Corp., a Nevada corporation ("Cambridge"); Lake Charles
Construction Company, a Louisiana corporation ("Lake Charles
Construction" and, together with its wholly-owned subsidiaries,
the "Lake Charles Group"); Industra Service Corporation, a
British Columbia, Canada corporation ("Industra Service"); MM
Industra, Limited, a Nova Scotia, Canada corporation ("MM
Industra"); United Eco Systems, Inc., a Delaware corporation
("United Eco"); Separation and Recovery Systems, Inc., a Nevada
corporation ("SRS"); Chempower, Inc., an Ohio corporation
("Chempower"); and Specialty Management Group, Inc., d.b.a/CCG, a
Texas corporation ("CCG").
DEVELOPMENT OF THE BUSINESS
The Company was organized under the laws of Ontario, Canada in
1969 and entered the environmental business in 1987 under the
name ECO Corp. Between 1987 and 1992, the Company developed and
marketed certain environmental technologies, including commercial
and residential food waste composting systems. The Company
discontinued its composter operations, which resulted in the
eventual write-down or sale of substantially all of the assets
associated with such operations by 1993. The Company continues
to license these environmental technologies to other companies,
but revenues derived from the licensing of such environmental
technologies accounted for less than 1.0% of the Company's total
revenues during fiscal 1997.
Since 1993, the Company has entered its current lines of
business and has grown substantially through acquisitions of
other companies.
ACQUISITIONS
In November 1993, the Company purchased the operating assets
and businesses of the Turner Group, which is located in Port
Arthur, Texas and provides construction, maintenance, demolition,
and industrial maintenance services to petroleum and
petrochemical refineries along the Gulf Coastal region of the
United States. Management believes that as a result of the
acquisition of the Turner Group, the Company is well positioned
to provide industrial maintenance services to the petroleum and
petrochemical refining industry. The Turner Group has a 50-year
operating history and is located in a region that has the largest
crude refinery capacities in the United States.
In June 1994, the Company acquired Cambridge, a construction
management company located in Dallas, Texas which provides
project management consulting services to small contractors.
In July 1995, the Company acquired the Lake Charles Group, a
construction company located in Lake Charles, Louisiana. The
Lake Charles Group commenced operations in 1986 and provides
general contracting, industrial maintenance, heating and air
conditioning and industrial sheet metal services to commercial
and light industrial clients.
Effective May 31, 1996, the Company acquired United Eco, a
construction company which is headquartered in High Point, North
Carolina and provides environmental contracting, remediation,
waste water, ground contamination treatment and recycling
services to clients in the eastern and southeastern regions of
the United States. United Eco operates two thermal desorption
treatment facilities.
Effective July 1, 1996, the Company acquired all of the issued
and outstanding shares of capital stock of SRS, which is based in
Irvine, California. SRS manufactures and distributes a
proprietary line of SAREX oil filtration and separation systems.
There are approximately 30,000 such systems currently installed
in one-half of the world's oil and petrochemical tankers as well
as in major oil refineries.
Effective July 22, 1996, the Company acquired Industra
Service, which is based in Vancouver, British Columbia, Canada.
Industra Service is an industrial engineering and environmental
services company which provides industrial support services to
the power generation, petroleum and petrochemical refining and
forest products industries principally in western Canada and the
northwestern United States. The Company effected a take-over bid
for Industra Service by exchanging 1,486,997 shares of the
Company's Common Shares, which had a fair market value of $10.7
million, for 94.0% of the outstanding shares of Industra common
stock. In December 1996, the Company received authorization to
acquire the remaining 6.0% shares of Industra Service capital
stock. The Company currently owns 99.7% of the common stock of
Industra Service.
On September 3, 1996, the Company acquired certain assets of M
& M Manufacturing Limited Partnership of Dartmouth, Nova Scotia,
which provided pipefitting, assembling, machining and fabrication
services to the petroleum and petrochemical refining, power
generation, forest products and offshore oil exploration
industries. The Company conducts the operations of M & M
Manufacturing Limited Partnership through MM Industra, a newly
formed subsidiary of the Company. Prior to their acquisition by
the Company, the operations of M & M Manufacturing Limited
Partnership had been idle and in receivership. The Province of
Nova Scotia awarded the Company its bid to purchase and operate
the assets of the bankrupt company, and MM Industra commenced
operations in October 1996.
On March 4, 1997, the Company completed its acquisition of
Chempower, a manufacturing, construction and environmental
services company for the power generation and chemical processing
industries, headquartered in Akron, Ohio. A newly formed,
wholly-owned subsidiary of the Company merged with and into
Chempower, and Chempower became a wholly-owned subsidiary of the
Company. As a result of the merger, all of the shareholders of
Chempower, other than two principal shareholders (the "Principal
Shareholders"), received $6.20 in cash for each of their
Chempower shares, and all Chempower optionholders received, in
cash, the difference between $6.20 and the exercise price per
share for their outstanding options. The Principal Shareholders
received a portion of the merger consideration in cash and the
balance in the form of a $15.9 million promissory note of
Chempower (the "Shareholder Note"), payable on February 28, 1998.
In addition, the Company acquired property from the shareholders
of Chempower in the amount of $4.0 million, which was being
leased by Chempower. The Shareholder Note was collateralized by
all of Chempower's assets, subject to the prior security interest
of Chempower's bank, and guaranteed by the Company, which
guaranty was collateralized by a pledge of its Chempower shares.
The acquisition was financed through an increase in the
$15.0 million Chempower bank line of credit and borrowings of
approximately $6.0 million plus the sale by the Company of $15.0
million in 9.5% convertible debentures due 2007. The Shareholder
Note was repaid in August 1997 upon the Company entering into a
$52.5 million term loan. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources." Based on the total 7,565,113
Chempower shares outstanding on the effective date of the merger
and the amounts due to Chempower optionholders, the total
acquisition cost was approximately $50.0 million.
On September 1, 1997, the Company acquired CCG, a provider of
maintenance and specialty construction services to commercial and
retail clients throughout Canada and the United States. Major
clients include Southland Corporation, Pier 1, Computer City,
Office Depot, Toys 'R' Us and PetCo Stores. CCG has developed a
proprietary management information software system which is
planned to expand the Company's energy management services for
industrial clients. The consideration for CCG consisted of
265,000 shares of the Company's Common Shares, which had a fair
market value of approximately $2.6 million.
OTHER BUSINESS VENTURES
The Company entered the environmental remediation business in
fiscal 1993, with the acquisition of Eco Environmental, Inc.
("Eco Environmental"), a provider of such services based in
Houston, Texas. On January 1, 1996, the Company acquired all of
the outstanding capital stock of Environmental Evolutions, Inc.
("Environmental Evolutions"), in exchange for 400,000 shares of
the Company's Common Shares, which had a fair market value of
approximately $2.4 million. Environmental Evolutions, based in
Corpus Christi, Texas, provided hazardous spill response services
to the pipeline and power generation industries located primarily
along the Gulf Coast of Texas.
As of August 31, 1997, the Company sold Eco Environmental and
Environmental Evolutions, for an aggregate of $11.0 million
payable in a one-year promissory note. The net gain to the
Company was $2.4 million. See "Item 13. Certain Relationships and
Related Transactions." The sale was part of the Company's
strategic plan to focus on industrial support services and
specialty fabrication services, while limiting its environmental
services to waste water processing, ground water contamination
treatment and recycling.
The Company owns approximately 35.7% of the outstanding common
stock of EIF Holdings, Inc., a Hawaii corporation ("EIF"),
subject to a purchase option it granted to the principal
executive officer of EIF (who was a former executive officer of the
Company) to purchase such shares through December
1998. The Company has the right to acquire additional EIF common
stock if EIF stockholders approve a recapitalization plan. EIF
is engaged in environmental construction related activities and
its common stock is traded on the OTC Bulletin Board under the
symbol EIFH. In 1996, American Eco had provided EIF a $5.25
million line of credit. In July 1997, the line of credit was
increased to $15.0 million, and in September 1997, the line of
credit was further increased to $20.0 million, with a maturity
date of August 18, 1998. The outstanding amount was $17,873,000
at November 30, 1997. American Eco has the right to convert the
entire indebtedness (less $1.0 million for the above-mentioned
purchase of 10,000,000 additional EIF shares) into EIF common
stock at a price equal to 85.0% of the five day weighted average
price of the EIF common stock prior to conversion, all of which
is subject to shareholder approval. EIF plans to hold its shareholder
meeting during the second quarter of 1998 to seek shareholder
approval of the above transactions and other transactions.
PROPOSED ACQUISITION OF DOMINION BRIDGE CORPORATION
On February 20, 1998, the Company and Dominion Bridge
Corporation, a Delaware corporation ("Dominion Bridge"), entered
into a non-binding letter of intent (the "Letter of Intent")
which provided for (a) the purchase of $5.0 million of Dominion
Bridge common stock and warrants by the Company (the "Dominion
Bridge Stock
Purchase"), (b) a working capital loan facility (the "Dominion
Bridge Loan Facility") of up to $25.0 million to be provided by
the Company to Dominion Bridge, (c) the engagement of the Company
to provide certain management services to Dominion Bridge,
and (d) the acquisition by the Company of the business and assets
of Dominion Bridge. The
Dominion Bridge Stock Purchase was completed on February 20,
1998, whereby the Company acquired 1,924,077 shares of common stock
and warrants for 192,308 shares, or 6.7% of the outstanding shares
of Dominion Bridge.
The date for completion of the next two steps has been extended to
March 19, 1998. The consummation of the other transactions is
subject,
among other things, to the approval of the acquisition by the
shareholders of Dominion Bridge and the Company, and the receipt
of all consents, regulatory and other approvals, clearances
and other authorizations necessary to consummate the other
transactions, including the consent of the respective lenders
of the Company and Dominion Bridge.
There can be no assurance that the
Company and Dominion Bridge will implement the other transactions
proposed in the Letter of Intent or that the other transactions,
if completed, will be on the terms set forth in the Letter of Intent.
Dominion Bridge primarily operates as a diversified
international engineering and construction company in North
America, Australia and Southeast Asia, and has additional
operations in shipbuilding and repair and industrial specialty
fasteners. The Dominion Bridge Common Stock is traded on the Nasdaq
National Market.
Immediately following the consummation of the Dominion Bridge
Stock Purchase, Michael E. McGinnis, the Chairman of the Board,
President and Chief Executive Officer of the Company, was elected
to serve on Dominion Bridge's Board of Directors for a term
expiring in 1999 and on the Executive Committee thereof.
OVERVIEW OF BUSINESS AND GEOGRAPHICAL SEGMENTS
The Company is pursuing a strategy of becoming a single-
source, industrial support services provider for the petroleum
and petrochemical refining, power generation and forest products
industries in the United States and Canada. Within this general
line of business, the Company provides industrial support and
specialty fabrication services.
The following table provides information with respect to the
Company's three principal business segments.
ENVIRONMENTAL INDUSTRIAL SPECIALTY
REMEDIATION SUPPORT FABRICATION
SERVICES SERVICES SERVICES
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(In thousands)
FISCAL 1997
Contract income from
customers . . . . . . $12,125(1) $147,424 $60,929
Operating income (loss) (514) 15,135 11,763
Depreciation and
amortization . . . . 923 3,336 1,123
Capital Expenditures 312 1,871 1,536
FISCAL 1996
Contract income from
customers . . . . . . $ 18,489 $ 94,584 $ 6,456
Operating income . . 2,539 2,812 2,603
Depreciation and
amortization . . . . 699 1,063 470
Capital expenditures
during the year . . . 516 1,336 6,155
FISCAL 1995
Contract income from
customers . . . . . . . $ 5,362 $ 41,322 --
Operating income . . . . 505 2,555 --
Depreciation and
amortization . . . . . . 214 893 --
Capital expenditures
during the year . . . . . 54 1,675 --
(1) The sale of Eco Environmental and Environmental Evolutions
on August 31, 1997 will significantly reduce the
operations and results of the environmental remediation
services segment in future years.
The following table provides information with respect to the
geographic segmentation of the Company's business.
UNITED
CANADA STATES
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(IN THOUSANDS)
FISCAL 1997
Contract income . . . . . . . $50,835 $169,643
Operating income . . . . . . 7,728 18,656
Depreciation and amortization 1,223 4,190
Capital expenditures during
the year . . . . . . . . . . 124 3,595
FISCAL 1996
Contract income . . . . . . . $ 6,509 $113,020
Operating income . . . . . . 90 7,864
Depreciation and amortization 166 2,066
Capital expenditures during
the year . . . . . . . . . . 6,151 1,856
FISCAL 1995
Contract income . . . . . . . -- $ 46,684
Operating income . . . . . . -- 3,060
Depreciation and amortization -- 1,107
Capital expenditures during
the year . . . . . . . . . . -- 1,729
The Company is attempting to cross market its services so that
it may win single-source, turnkey projects to repair, clean and
refurbish clients' facilities in the petroleum and petrochemical
refining, power generation and forest products industries. Such
cross-selling efforts have included training the staff and, in
particular, the business development personnel from each of the
Company's acquired subsidiaries so that they understand the
capabilities of all of the Company's other subsidiaries. During
fiscal 1996, SRS, Industra Service and United Eco were awarded a
contract to construct a facility, Mid-Atlantic Recycling
Technologies ("MART"), in New Jersey that treats soils
contaminated by hydrocarbons, heavy coal tars and polychlorinated
biphenyls. The facility, 50.0% of which was owned by the
Company, services utilities, environmental contractors and heavy
manufacturing industries throughout the northeastern region of
the United States, and incorporates remediation technologies
provided by United Eco and SRS to treat contaminated soil. The
facility commenced operations in July 1997. In November 1997,
the Company sold its 50.0% interest in MART for $14.0 million and
recorded a gain of $6.4 million. During fiscal 1997, the Company
obtained a contract to fabricate and erect a 850-ton bulk
material shiploader in Port Moody, British Columbia. MM Industra
fabricated the "bridge" and other components of the shiploader,
while Industra Service completed the final assembly, erection,
testing and commissioning of the shiploader.
INDUSTRIAL SUPPORT SERVICES
The Company provides industrial support services to clients in
the petroleum and petrochemical refining, power generation and
forest products industries through the Turner Group, the Lake
Charles Group, Industra Service, Chempower, SRS and CCG. The
industrial support service business segment generated
approximately 66.9% of the Company's revenues during fiscal 1997.
INDUSTRIAL SUPPORT SERVICES MARKET
Petroleum refiners must replace and repair process equipment
and piping systems on an on-going basis in order to maintain the
operability and efficiency of their facilities and to ensure that
such facilities comply with safety and environmental regulations.
Refinery maintenance projects vary in scope from routine repairs
to major capital improvements. Petroleum refiners must
continually make routine repairs to equipment and piping systems.
Other repair and maintenance projects require the shutdown of
operating units or the entire refinery. In addition to routine
maintenance, refiners undertake capital improvement projects to
refurbish their facilities. Such projects take from between six
months to three years to complete depending upon the type,
utilization rate and operating efficiency of the particular
refinery.
There are approximately 175 operating refineries in the United
States. Texas and Louisiana have an aggregate of 50 operating
refineries and management believes that the Gulf Coastal region
of the United States accounts for approximately 43.0% of the
United States' petrochemical and petroleum refining capacity.
The Company believes that the typical refinery in the United
States is an aging facility that must process petroleum at high
utilization rates while complying with stringent environmental
regulations. High utilization rates accelerate a facility's rate
of deterioration and increase the need for repair and maintenance
work. The Company also believes that any increase in utilization
capacity is likely to require the refurbishing and expansion of
existing facilities due to the high cost and environmental
opposition associated with the construction of new facilities.
In addition, refiners have reduced internal maintenance
personnel.
The power generation industry in the United States has become
more competitive as the Federal Energy Regulatory Commission
begins to implement the provisions of the Energy Policy Act of
1992, which deregulates the electric power generation industry by
allowing independent power producers and other companies access
to its transmission and distribution systems. The anticipation
of such deregulation has forced utilities to reduce their
operating costs in order to produce power at more competitive
rates. Utilities have attempted to accomplish this in part by
deferring repairs and refurbishing existing power plants. In the
near term, such deferred maintenance could reduce the amount of
contract business available. However, management believes that
in the longer term power generation companies will be forced to
make needed repairs, and they may increasingly outsource such
services.
MARKETING
The Company provides industrial support services to clients in
the petrochemical and petroleum refining industries located in
the Gulf Coastal and midwestern regions of the United States and
in Nova Scotia, British Columbia and Alberta, Canada. Many of
the Company's customers operate multiple refineries, and, in
general, decisions to award work are made at each operating
facility. In most cases, bids are prepared by the Company on a
job-by-job basis. Fee arrangements for their services are bid
either fixed-price or based on detailed time and material billing
schedules. Bids generally are awarded based on price
considerations, although scheduling, efficiency, quality and
safety are also factors in the customer's determination.
Although the Company performed a significant amount of work for
certain refining facilities, performance on any given project
does not ensure subsequent work at that facility or other
facilities of that customer. Conversely, the loss of a bid for
any one project does not affect the Company's ability to obtain
additional work from that customer.
Historically, the Turner Group has derived much of its
revenues from long-term contracts with major petroleum and
petrochemical refining facilities in and around the Beaumont/Port
Arthur, Texas area. The Turner Group has also provided services
to companies in the chemical, gas processing pipeline and liquid
terminal industries. Since its acquisition by the Company in
1993, the Turner Group's marketing efforts have been expanded
geographically to include the entire Gulf Coastal region from
Pascagoula, Mississippi to Corpus Christi, Texas.
The Lake Charles Group typically bids for its construction and
industrial support projects on a project-by-project basis and, in
the past, it has not won long-term industrial support contracts.
Management is attempting to win long-term industrial support
contracts from petrochemical and petroleum refineries located in
the Baton Rouge and Lake Charles, Louisiana areas. Because the
management of each refinery typically selects its own maintenance
contractors, management believes that it is important to be
perceived as a local contractor. Based upon the Company's
existing contacts, it is hoped that the Lake Charles Group
gives the Company a local presence in the Baton Rouge and Lake
Charles areas, which have a high concentration of petrochemical
and petroleum refining facilities.
Industra Service markets to the pulp and paper industry in
western Canada and the northwestern United States. It offers
turnkey services for projects from the engineering through the
construction and manufacturing phases. These services include
insulation, asbestos removal and fireproofing, and normally are
obtained through competitive bidding. Industra Service also
offers these services, as well as oil sands extraction services
to the oil/gas and petrochemical industry, in Alberta, Canada.
The major customers of Chempower are in the electric power
generation and chemical industries located in Ohio and other
midwestern states. To service its customers, Chempower has
established a network of facilities in Ohio, Pennsylvania,
Tennessee and West Virginia. In anticipation of the deregulation
in the electric power generation industry, some utilities are
outsourcing some of the repairs and refurbishments of their power
plants. Chempower is seeking these outsourced projects.
SERVICES
Total Unit Turnarounds. The Company performs turnaround
------------------------
services involving maintenance of crude distillation units,
catalytic reformer units, delayed coker units, alkylation units,
platformers, fluid catalytic cracking units and butamer units as
part of one project. These services also involve the maintenance
and modification of heat exchangers, heaters, vessels, and
piping.
Planning and Management Services. The Company has developed
---------------------------------
the planning capabilities, operation skills and field supervision
techniques necessary to manage all aspects of turnaround projects
and other maintenance services. When managing a turnaround
project, the Company is responsible for cost control procedures,
resource planning and scheduling, safety control, hazardous
material handling, hiring and training of personnel, procuring
equipment and tools, performing field inspections and
coordinating the entire project. Certain aspects of the
turnaround project and certain specialized types of welding often
are provided directly by the Company. Other aspects of a
turnaround project are performed by subcontractors under the
supervision of the Turner Group. In addition, the Company
develops suggested maintenance programs that incorporate its
experience from prior projects.
Process Heater Maintenance. The Company repairs process
----------------------------
heaters. The installation and maintenance of process heaters requires
skilled craftsmen and supervisors and specialized construction
techniques.
Fluid Catalytic Cracking Unit Turnarounds. Fluid Catalytic
-----------------------------------------
Cracking Units ("FCCU") require a high level of maintenance
because of extremely high temperatures inside the unit -- in
excess of 1000 degrees F -- and due to their many internal parts, which
consist generally of stainless steel components and refractory
lining systems. Refractory is a heat resistant lining that
insulates the inner shell of the cracking unit vessels. The main
pieces of equipment in a FCCU are the reactor, the regenerator
and the flue gas exhaust system. Most of the repair and revamp
work required during a turnaround project is performed on this
equipment. Major revamp work is required to increase
efficiencies of the FCCU and to reduce air pollution from the
unit. In most cases, the mechanical work -- involving the
disassembly and repair of the unit components -- and the
refractory work -- involving the "spraying" of the refractory
material onto the inside of the units' vessels -- is performed by
different contractors. The Company provides all of these
services.
Emergency Response Services. The Company provides temporary
---------------------------
workers for fast response situations such as repair and revamp
services in connection with refinery fires, explosions and other
accidents. Management believes that the Turner Group has
enhanced its relationships with customers by responding quickly
to these types of emergencies and by providing timely repair
services.
Dismantling and Demolition Services. The Company provides
-----------------------------------
dismantling and demolition services when a client has
decommissioned an entire facility or unit within its plant. A
typical dismantling project begins by identifying potential
safety hazards and preparing a work plan, including an estimate
of the number and type of personnel and equipment necessary to
complete the project. Personnel then examine and, if necessary,
drain refinery pipelines or remove asbestos or other hazardous
materials. Dismantling services are often performed using cranes
which are equipped with torches or hydraulic guillotine shears.
In addition, the Company may use explosives in performing
demolition work. Dismantled equipment is cut into scrap pieces
and sold in the scrap market. Sometimes dismantled equipment can
be salvaged and sold.
Aboveground Storage Tank Services. The Company provides its
---------------------------------
customers with maintenance and modification services for
aboveground storage tanks ("AST"). Maintenance and modification
services involve the design, construction, and installation of
pollution control devices such as floating roof and seal
assemblies, secondary containment systems (double bottoms), and a
variety of underground and aboveground piping systems in existing
AST's. The Company also installs, maintains and modifies tank
appurtenances, including spiral stairways, platforms, gauging
systems, fire protection systems, rolling ladders, and structural
supports.
ASME Code Stamp Services. The Turner Group is qualified to
------------------------
perform services on equipment that contain American Society of
Mechanical Engineer Code Stamps ("ASME Codes"). Many state
agencies and insurance companies require that qualified ASME code
installers perform services on ASME coded equipment. Many of the
Turner Group's competitors are not ASME code qualified, which
requires them to subcontract portions of a project involving work
with coded equipment.
Instrumentation and Electrical. The Company provides lighting,
------------------------------
power and instrumentation wiring for electrical systems of up to
5,000 volts. It also installs, terminates, troubleshoots and
commissions switches, transformers and associated control and
monitoring equipment and is qualified to calibrate and commission
both electrical and pneumatic instrument systems. The Turner
Group has had extensive experience with the conversion and
physical design of distribution control systems.
Oil Separation and Removal Systems. The Company installs
SRS's
----------------------------------
proprietary SAREX oil separation and removal systems which
extract reusable oils from sludges and oily water. Approximately
30,000 of SRS's SAREX oil separation and removal systems have
been installed in oil tankers and petroleum refineries around the
world.
COMPETITION
The market for industrial support services is highly
competitive. Many competitors have greater financial and other
resources than the Company. Additionally, the Company competes
with numerous small, independent contractors which, collectively,
have a significant share of the market for these services.
Competitive factors for these services include price
considerations, performance record, quality, and safety.
Construction orders are customarily awarded after competitive
bids have been submitted as proposals based on the estimated cost
of each job.
ENVIRONMENTAL SERVICES
The Company provides environmental remediation and waste
services through United Eco, Industra Service, Chempower,
Cambridge and SRS. Remediation includes the on-site clean-up and
treatment of hazardous and non-hazardous organic and inorganic
contaminants utilizing a number of technologies. Waste services
include removal, encapsulation, stabilization, treatment and
disposal services. The environmental remediation services
business segment generated approximately 5.5% of the Company's
revenues during fiscal 1997, but should be a lesser contributor
of revenues in fiscal 1998 as a result of the sale of Eco
Environmental and Environmental Evolutions effective as of August
31, 1997. The sale was part of the Company's strategic plan to
focus on industrial support services and specialty fabrication
services.
THE ENVIRONMENTAL REMEDIATION MARKET
Growth in the environmental remediation industry has been
influenced by the following legislation:
CERCLA--The Comprehensive Environmental Response, Compensation
and Liability Act of 1990 ("CERCLA" or the "Superfund Act").
The Superfund Act authorizes the Environmental Protection
Agency (the "EPA") to coordinate responses to environmental
emergencies and establishes liability for cleanup costs and
environmental damages on present and/or previous owners and
operators of treatment facilities and disposal sites, and
persons who generated, transported or arranged for the
disposal or transportation of wastes to such facilities.
These provisions are enforceable by lawsuits initiated by
either the EPA or private citizens.
FFCA--The Federal Facilities Compliance Act of 1992 allows
states and the EPA to enforce solid and hazardous waste
violations against federal facilities, including those
operated by the Department of Defense ("DOD") and the
Department of Energy ("DOE"), the primary federal hazardous
waste generators
Management recognizes that the environmental remediation
industry, which is largely the creation of federal legislation,
is sensitive to shifts in public opinion and legislation. While
there is growing anti-regulatory sentiment in the United States,
management does not believe that this political trend will have a
substantial impact on the Company's environmental services
business. The Company has targeted projects involving soil, coal
and tar remediation and ground water cleanup. The cleanup
projects on which the Company typically works have already been
designed and planned and, management believes, are unlikely to be
delayed or canceled in the near term as a result of deregulation,
if any.
MARKETING
The sale of Eco Environmental and Environmental Evolutions was
part of the Company's strategic plan to focus on industrial
support services and specialty fabrication services, while
limiting its environmental services to waste water processing,
ground water contamination treatment and recycling.
The Company derives revenues in its environmental remediation
segment from a variety of customers, including owners and tenants
of commercial and industrial property, insurance companies, real
estate development companies, and state and municipal entities.
The Company typically contracts directly with owners, operators,
or tenants of properties and works closely with the client's
environmental consultants in performing its services. Fee
arrangements for its services are bid either fixed-price or based
on detailed time and material billing schedules. Bids are
typically awarded based on price, scheduling, experience,
efficiency, quality, and safety considerations. The Company
markets its services directly to companies that are in need of
remediation, abatement, or renovation services as well as
consulting firms. During the year ended November 30, 1997, the
Company provided environmental remediation services to clients in
Texas, Louisiana, Wyoming, North Carolina, South Carolina,
Virginia, Georgia and Tennessee. The Company provides emergency
spill response services to utility, petrochemical and petroleum
refining clients located in Texas. Environmental Evolutions
serviced this market through business development personnel and
by field representatives at project sites located throughout the
Gulf Coastal region. The SRS SAREX System is offered worldwide
for on-site treatment of refinery, petrochemical, marine and
other industrial waste materials.
SERVICES
The environmental services segment provides the following
specialized environmental remediation services:
Soil Remediation. The Company employs bioremediation, vapor
----------------
extraction, thermal desorption and other techniques to degrade
hazardous and non-hazardous contaminates in soil. Areas of
application include soils, sludges, slurries, and liquids
contaminated with hydrocarbons, creosote, pentachlorophenol,
pentachloroethylene, PCB's, digester sulfides, phenols, benzene,
toluene, chlorinated aliphatic solvents and raw sewage.
Equipment Rental. The Company rents to third parties certain
----------------
equipment used in the environmental and remediation industry,
including air filtration devices, vacuums and sprayers.
PROPRIETARY TECHNOLOGIES
The Company has developed and licenses certain proprietary
technologies that it uses in its environmental remediation
business. United Eco has entered into an agreement to deploy a
technology for the chemical stabilization of materials
contaminated with heavy metals. The Molecular Bonding System
("MBS") is a patented technology of Solucorp Industries Ltd. The
MBS technology uses a mobile facility to process large quantities
of soils, ash, sediments and sludges. The agreement permits
United Eco to use this technology throughout North America.
COMPETITION
The environmental services industry is highly competitive with
numerous companies of various sizes, geographic presence and
capabilities participating. The principal competitive factors
for these services are operational experience, technical
proficiency, scope of services offered, local presence and price.
Certain competitors have greater financial resources or offer
specialized techniques or services not provided by the Company.
Additionally, the relatively recent entry of aerospace and
defense contractors, as well as large construction and
engineering firms into the environmental services industry has
increased competition. Management believes that the demand for
environmental services is still developing and expanding and, as
a result, many small and large firms will continue to be
attracted to the industry.
SPECIALTY FABRICATION SERVICES
The Company provides specialty fabrication services to clients
in the petroleum and petrochemical refining, forest products and
offshore oil exploration industries through the Turner Group, the
Lake Charles Group, Industra Service, Chempower, SRS and MM
Industra. The Company's specialty fabrication service business
segment generated approximately $60.9 million during fiscal 1997,
or 27.6% of the Company's total revenues for that period.
SPECIALTY FABRICATION SERVICES MARKET
The specialty fabrication services market includes general
industrial and offshore construction projects, ranging greatly in
size and complexity of the project. The market in which the
Company participates is affected by the state of the economy in
general as well as the levels of capital expenditures in the
chemical, petrochemical and refining industries.
MARKETING
The Company typically obtains specialty fabrication business
by submitting proposals to local plant managers on a project-by-
project basis. If the Company is engaged by a customer for a
specialty fabrication project, the services usually are provided
pursuant to a fixed-price contract. The Company also will
negotiate fee arrangements and cost reimbursements, although such
arrangements are less frequently obtained than fixed-price
contracts. The Company has found that plant managers award
contracts based primarily upon price, but scheduling, product and
service quality and safety also contribute to a customer's
determination. Each of the Company's subsidiaries prepares and
submits its own contract proposals. The Company directs broader
marketing efforts such as placing advertisements in trade
publications. In addition to these efforts, the Company
encourages each subsidiary to generate cross-selling
opportunities for the Company's other subsidiaries.
SERVICES
The Company owns and operates approximately 687,000 square
feet of specialty fabrication facilities in the United States and
Canada where it constructs piping, power boiler assemblies,
pressure vessels, reactors, drums, towers, precipitators, tanks,
exchanger retubing, heater coils, and components, and various
equipment used in connection with process industries. The
Company also performs emergency fabrication at facilities when
necessary to assist their customers. In many instances, the
facilities are operated 24 hours per day to assist a turnaround
project. The Company also provides machining services used to
rework pumps, turbines, compressors, tail shafts, rudder shafts,
couplings, hydraulic cylinders and other refinery components.
The Company erects structural steel support systems such as pipe
racks and scaffolding, components which the Company sometimes
fabricates according to customized specifications. The Chempower
manufacturing services include design and fabrication of pre-
insulated panels for industrial equipment applications, of metal
casings for machines used in the gaming industry and of
electrical switch gear, power distribution systems and bus duct
systems for mass transit authorities, utilities, chemical and
other industrial facilities.
SRS manufactures and sells its SAREX process, an integrated,
three phase, oily water processing treatment system that combines
centrifugal technology for sludge dewatering and oil recovery.
This process is currently utilized by hydrocarbon processing
clients in the United States, France, South Africa, Venezuela,
Saudi Arabia and Singapore.
COMPETITION
The companies competing in the specialty fabrication services
market are widely segmented, with few large participants. Many
of the competitors are local entities. The Company seeks to
offer a full range of services to potential customers, and, where
necessary, to enter into strategic alliances and joint ventures
with competitors that provide complementary services in bidding
on projects. Competitive factors include price, quality, product
availability and delivery.
RESEARCH AND DEVELOPMENT
The Company does not have a research and development program.
CUSTOMERS
During fiscal 1997 the Company generated 66.9% of its revenues
from industrial customers in general and 44.7% of its revenues
from customers in the petroleum and petrochemical refining
business in particular. Huntsman Chemical, International Paper,
Mobil Oil, American Electric Power, Ashland Oil and Brown & Root
together accounted for approximately 31.3% of the Company's total
revenues in fiscal 1997, compared to 18.0% of its top six
customers in fiscal 1996. Huntsman Chemical accounted for 7.9%
of the Company's revenues during fiscal 1997.
The loss of any one of these key customers could
have a material adverse impact on the Company's results of
operations and financial condition. Management believes that the
Company's continued efforts to expand and diversify its customer
base, in addition to the effects of a full year of operations
from Chempower and the operations of Dominion Bridge, assuming
completion of such acquisition, will further reduce the Company's
dependence on certain key customers. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
BACKLOG
At November 30, 1997, the Company's backlog was approximately
$215.0 million, which included backlog of approximately $29.0
million at November 30, 1997 of CCG. This compares to
approximately $125.0 million of backlog for such contract work at
November 30, 1996. Between December 1, 1997 and February 28,
1998, the Company entered into additional contracts with an
estimated value of $17.8 million. Backlog represents the amount
of revenue that the Company expects to realize from work to be
performed on uncompleted contracts in progress and from
contractual agreements upon which work has not commenced
within the next 12-month period.
Contracts included in backlog may have provisions which permit
cancellation or delay in their performance and there can be no
assurance that any work orders included in backlog will not be
canceled or delayed.
EMPLOYEES
At February 28, 1998, the Company employed 576 full-time
employees and 1,723 hourly workers, some of whom were represented
by labor unions under agreements expiring at various dates.
Total employment levels ranged from 1,976 to 4,138 workers per
week during fiscal 1997. Management believes that it maintains
good relations with its employees.
It has been the Company's experience that hourly-rate
employees are generally available in the quantity required for
its projects over an extended period of time. The Company has
not experienced a significant work stoppage and considers its
employee relations to be good.
RAW MATERIALS
The Company has not experienced any difficulties obtaining the
raw materials needed by its operating segments.
GOVERNMENT REGULATION AND RISK MANAGEMENT
Certain of the Company's services involve contact with crude
oil, refined petroleum products, asbestos and other substances
classified as hazardous material under the various federal, state
and local environmental laws. Under these laws, hazardous
material is regulated from the point of generation to the point
of disposal. In addition, the EPA has issued regulations for
hazardous waste remediation contractors. To management's
knowledge, the operating segments have obtained all required
permits and licenses in the states in which they operate.
All of the Company's operations are subject to regulations
issued by the United States Department of Labor under the
Occupational Safety and Health Act ("OSHA"). These regulations
set forth strict requirements for protecting personnel involved
with any materials that are classified as hazardous, which
includes materials encountered when performing many of the
Company's services. Violations of these rules can result in
fines and suspension of licenses. To management's knowledge, the
Company and all of its subsidiaries are in material compliance
with OSHA.
The Company's safety and training efforts are directed through
its subsidiaries. In addition to training designed to advance
the skill level of individual employees, the Company uses entry
level screening and broad-based skills development programs to
improve the overall quality and technical competence of its work
force. The Company has a designated safety officer at each of
its subsidiaries who is responsible for compliance with
applicable governmental procedures and the Company's internal
policies and practices. All of the Company's technicians are
subject to pre-employment, scheduled and random drug testing.
The Company's operations and personnel are subject to significant
regulations and certification requirements imposed by federal,
state and other authorities.
The Company maintains worker's compensation insurance in
accordance with statutory requirements and contractors' general
liability insurance with an annual aggregate coverage limit that
varies with each subsidiary. The Company's general liability
insurance specifically excludes all pollution related claims and
fines levied against the Company as a result of any violations by
the Company of the regulations issued by the Department of Labor
under OSHA. To date, the Company has not incurred any
significant fines or penalties or any liability for pollution,
environmental damage, toxic torts or personal injury from
exposure to hazardous wastes. However, a successful liability
claim for which the Company is only partially insured or
completely uninsured could have a material adverse effect on the
Company. In addition, if the Company experiences a significant
amount of such claims, increases in the Company's insurance
premiums could materially and adversely affect the Company. Any
difficulty in obtaining insurance coverage consistent with
industry practice may also impair the Company's ability to obtain
future contracts, which in most cases are conditioned upon the
availability of specified insurance coverage. The Company has
not experienced any difficulty in obtaining adequate insurance
coverage for its businesses. Management has been advised by its
insurance carriers that access to such insurance coverage is not
likely to change in the near future.
Asbestos abatement projects, and to a lesser extent,
industrial cleaning and maintenance projects generally require
the Company to maintain appropriate levels and types of insurance
and, in certain instances, require the Company to post surety
bonds or letters of credit in lieu thereof. Building owners
require insurance to protect against third party, asbestos
related liabilities arising from the work performed at an
asbestos abatement site and may require performance and payment
bonds, or letters of credit in lieu thereof, to assure completion
of the project and payment of all subcontractors. To date, the
Company has not had any significant difficulty in obtaining such
bonds or letters of credit.
SEASONALITY
The Company's revenues from its industrial, environmental and
specialty fabrication segments may be affected by the timing and
planned outages at its industrial customers' facilities and by
weather with respect to outside projects. The effects of this
seasonality may be offset by the timing of large individual
contracts, particularly if all or a substantial portion of the
contracts fall within one or two quarters. Accordingly, the
Company's quarterly results may fluctuate and the results of one
quarter should not be deemed to be representative of the results
of any other quarter or for the year. The Company believes
revenues derived from its industrial segment long-term
maintenance contracts provide a more consistent revenue base.
ITEM 2. PROPERTIES
The location, ownership, primary use and approximate square
footage of the facilities of the Company are set forth in the
following table. The Company believes that its existing
facilities are adequate to meet current requirements and that
suitable additional or substitute space would be available as
needed to accommodate any expansion of operations.
BUSINESS UNIT AND APPROXIMATE
----------------- PRIMARY SQUARE FEET
SITE LOCATION OWNERSHIP USE (1) OF FLOOR SPACE
------------- --------- ------- --------------
AMERICAN ECO
Toronto, Ontario Leased Adm. 2,000
Houston, Texas . Leased Adm. 14,000
CCG
Dallas, Texas . Leased Adm. 7,000
CHEMPOWER
Canton, Ohio . . Owned(2) Adm./Mfg. 205,000
Cincinnati, Ohio Owned Adm./Const. 25,000
Las Vegas, Leased Adm./Mfg. 47,000
Nevada . . . .
Washington,
Pennsylvania . . Owned Adm./Const./Mfg. 112,000(3)
Knoxville,
Tennessee . . . Leased Adm. 1,000
Waverly,
Tennessee . . . Owned(2) Adm./Const./Mfg. 95,000
Winfield, West
Virginia . . . Owned(2) Adm./Const. 90,000
INDUSTRA SERVICE
Edmonton, Owned(2) Adm./Const./Fabr. 20,000
Alberta . . . . /Ther.
New Westminster,
British
Columbia . . . Owned(2) Adm./Const./Mfg. 74,000
/Fabr./Ther.
Portland, Oregon Leased Adm./Const./Eng. 22,300
Greenville,
South Carolina . Leased Adm./Eng. 14,200
Seattle,
Washington . . . Leased Adm 18,800
LAKE CHARLES GROUP
Lake Charles,
Louisiana . . . Owned Adm./Const./Fabr. 10,000
MM INDUSTRA
Dartmouth, Nova
Scotia . . . . Owned(2) Adm./Mfg. 60,000
Dartmouth, Nova
Scotia . . . . Leased Mfg./Const. 180,000
SRS
Irvine,
California . . Leased Adm./Mfg. 24,000
TURNER GROUP
Bridge City,
Texas . . . . . Owned Adm./Fabr. 2,686
Port Arthur,
Texas(4). . . . Owned Adm./Const./Mfg. 29,000
UNITED ECO
Highpoint, North
Carolina . . . Owned Adm./Const./Remed. 7,500
Apex, North
Carolina . . . Leased Adm. 5,000
Lexington, South
Carolina . . . Leased Adm./Remed. 5,000
Blacksburg,
Virginia . . . Leased Lab. 5,000
----------------
(1) Adm. = Administration; Const. = Construction warehouse; Mfg.
= Manufacturing facility; Fabr. = Fabrication facility;
Ther. = Thermal facility; Eng. = Engineering facility;
Remed. = Remediation facility; Lab. = Laboratory.
(2) Subject to mortgage.
(3) Amount includes approximately 30,000 square feet of floor
space leased to unaffiliated tenants.
(4) This facility is situated on 6.5 acres and contains 15,000
square feet of office and warehouse space and 14,000 square
feet of covered fabrication area. The facility is in close
proximity to the Intercoastal Waterway where piping and
other fabricated components can be shipped.
ITEM 3. LEGAL PROCEEDINGS
The Company and its operating subsidiaries are currently
involved in various claims and disputes in the normal course of
business. Management believes that the disposition of all such
claims, individually or in the aggregate, will not have a
material adverse effect on the Company's financial condition,
results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to a vote of
shareholders during the last quarter of fiscal 1997 through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
PUBLIC MARKET FOR COMMON SHARES
The Company's Common Shares are traded on The Toronto Stock
Exchange and The Nasdaq National Market under the trading symbols
ECX and ECGOF, respectively. The Company's Common Shares were
traded on the American Stock Exchange under the symbol ECG until
November 16, 1995 when the Company delisted from such exchange
and listed its Common Shares on The Nasdaq National Market. As
of February 27, 1998, there were 682 shareholders of record. The
Company believes that the number of beneficial holders is
significantly greater than the number of record holders as a
large number of shares are held of record in nominee or broker
names.
The following table provides the quarterly high ask and low
bid prices for the Company's Common Shares on the Nasdaq National
Market and The Toronto Stock Exchange for the two years ended
November 30, 1997.
THE NASDAQ TORONTO
NATIONAL STOCK
MARKET EXCHANGE
----------- -----------
(US$) (CDN$)
HIGH LOW
ASK BID HIGH LOW
---- --- ---- ---
Fiscal year ended November 30, 1996
First quarter . . . $6.25 $3.25 $8.37 $4.44
Second quarter . . . 9.19 5.50 12.45 7.25
Third quarter . . . 11.50 7.25 15.50 10.00
Fourth quarter . . . 11.25 6.38 15.10 8.75
Fiscal year ended November 30, 1997
First quarter . . . 9.43 6.68 12.60 9.10
Second quarter . . . 8.50 6.75 11.50 9.70
Third quarter . . . 10.18 5.87 14.05 8.25
Fourth quarter . . . 14.75 9.12 20.05 12.95
The Company is subject to covenants in loan agreements which
restrict or limit the payment of cash dividends on its Common
Shares. Notwithstanding such restrictions and limitations, it is
the Company's present policy to retain future earnings for use in
its business.
PRIVATE PLACEMENTS OF COMMON SHARES
The Company issued an aggregate of 265,000 shares of Common
Shares with a market value of $2.4 million in exchange for all of
the issued and outstanding shares of capital stock of CCG. The
exchanges of Common Shares for shares of capital stock of CCG was
exempt from registration under the Securities Act by virtue of
Section 4(2) therein and Regulation D promulgated thereunder.
See "Item 1. Description of Business -- Development of Business."
ITEM 6. SELECTED FINANCIAL DATA.
Eco Environmental was acquired by the Company in November
1992, the Turner Group was acquired in October 1993, Cambridge
was acquired in June 1994, the Lake Charles Group was acquired in
July 1995, Environmental Evolutions was acquired in January 1996,
both SRS and Industra Service were acquired in July 1996, MM
Industra was acquired in September 1996, Chempower was acquired in
March 1997 and CCG was acquired in
September 1997. Eco Environmental and Environmental Evolutions
were sold by the Company in August 1997, effective as of August
31, 1997. Accordingly, the statement of operations for the year
ended November 30, 1993 reflects twelve months of operations for
Eco Environmental and only one month of operations for the Turner
Group. The statement of operations for the year ended November
30, 1994 reflects six months of operations for Cambridge. The
statement of operations for the year ended November 30, 1995
reflects five months of operations for the Lake Charles Group.
The statement of operations for the year ended November 30, 1996
reflects eleven months of operations for Environmental
Evolutions, six months of operations for United Eco, four months
of operations for SRS and Industra Service and one month of
operations for MM Industra. The statement of operations for the
year ended November 31, 1997 reflects nine months of operations
for Chempower, three months of operations for CCG and nine months
of operations for Eco Environmental and Environmental Evolutions
prior to their sale.
The following information should be read in conjunction with the
Consolidated Financial Statements and the notes thereto and "Item
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations," included elsewhere herein.
FISCAL YEAR ENDED
NOVEMBER 30
--------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- -----
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
STATEMENT OF OPERATIONS DATA:
Total revenue . $220,478 $119,529 $ 46,684 $ 34,991 $ 7,565
Operating income 24,210 9,701 3,773 1,747 604
(loss)
Interest expense 4,946 1,747 713 681 229
Pretax income
(loss) . . . . 19,264 7,954 3,060 1,066 375
Net income
(loss) . . . . $ 17,435 $ 8,763 $ 2,852 $ 903 $ 322
========= ======== ======== ======== =======
Net income
(loss) per share $ 1.08 $ 0.81 $ 0.40 $ 0.15 $ 0.07
========= ======== ======== ======== =======
Weighted average
shares
outstanding(2) 16,218 10,846 7,217 6,191 4,680
BALANCE SHEET DATA:
Working capital $ 59,907 $ 3,280 $ 6,639 $ 6,441 $ 3,639
Total assets . 211,786 104,484 31,061 22,947 15,007
Current debt . 8,081 22,107 4,497 3,785 913
Long-term debt 51,722 6,720 2,100 4,977 9,031
Shareholders'
equity . . . . 107,099 55,043 18,736 11,299 3,288
-------------------
(1) Dollar amounts have been converted from Canadian dollars
into United States dollars using the exchange rate at
November 30, 1997 of one United States dollar to 1.4243
Canadian dollars.
(2) Reflects 1-for-10 reverse stock split in November 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company entered into its current lines of business in
November 1992 when it acquired Eco Environmental, and it has
continued to expand its service capabilities, geographic presence
and customer base primarily by acquiring other companies. The
Company acquired nine businesses between fiscal 1993 and fiscal
1997, and its revenues grew from $7.6 million in fiscal 1993 to
$220.4 million in fiscal 1997 primarily as a result of such
acquisitions. In fiscal 1997, the Company accelerated its
acquisition program by adding Chempower and CCG, while disposing
of Eco Environmental and Environmental Evolutions. The Company
is reevaluating its continued interest in Dominion Bridge.
The Company intends to continue to expand its business through
the acquisition of companies in the industrial support and
specialty fabrication businesses. The Company's acquisition
strategy entails the potential risks inherent in assessing the
value, strengths, weaknesses, contingent liabilities and
potential profitability of acquisition candidates and in
integrating the operations of acquired companies. There can be
no assurance that acquisition opportunities will continue to be
available, that the Company will have access to the capital
required to finance potential acquisitions or that any business
acquired will be integrated successfully or prove profitable.
The Company's acquisition strategy has led to rapid growth in
the Company's operations over the past five fiscal years. The
Company's operations generally are managed at each of its
subsidiaries, but core administrative, financing and strategic
planning functions are performed at the holding company level.
This rapid growth has increased, and may continue to increase,
the operating complexity of the Company as well as the level and
responsibility for both existing and new management personnel at
the holding company level. The Company's ability to manage its
expansion effectively will require it to hire and retain new
management personnel at the holding company level and to continue
to implement and improve its operational and financial systems,
and assuming the acquisition of Dominion Bridge, to integrate the
operations of Dominion Bridge and to oversee its Australian
subsidiary. The Company's inability to effectively manage its
expansion could have a materially adverse effect on its results
of operations and financial results.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's revenues from its industrial, environmental and
specialty fabrication segments may be affected by the timing of
scheduled outages at its industrial customers' facilities and by
weather conditions with respect to projects conducted outdoors.
The effects of seasonality may be offset by the timing of large
individual contracts, particularly if all or a substantial
portion of the contracts fall within a one-to two-quarter period.
Accordingly, the Company's quarterly results may fluctuate and
the results of one fiscal quarter should not be deemed to be
representative of the results of any other quarter or for the
full fiscal year.
RECOGNITION OF REVENUES
The Company recognizes revenues and profits on contracts using
the percentage-of-completion method of accounting. Under the
percentage-of-completion method, contract revenues are accrued
based upon the percentage that accrued costs to date bear to
total estimated costs. As contacts can extend over more than one
accounting period, revisions in estimated total costs and profits
during the course of work are reflected during the period in
which the facts requiring the revisions become know. Losses on
contracts are charged to income in the period in which such
losses are first determined. The percentage-of-completion method
of accounting can result in the recognition of either costs and
estimated profits in excess of billings or billings in excess of
costs and estimated profits on uncompleted contracts, which are
classified as current assets and liabilities, respectively, in
the Company's balance sheet. See Note 1 to Consolidated
Financial Statements.
RESULTS OF OPERATIONS
Fiscal 1997 Compared to Fiscal 1996 Revenues
Revenues
--------
The Company's revenues grew 84.0% to $220.4 million in
fiscal 1997 from $119.5 million in fiscal 1996, primarily as a
result of reporting the results of Chempower from February 27,
1997, CCG from September 1, 1997 and a full year of operations
for MM Industra, SRS and Industra Services which were acquired in
fiscal 1996. These results are partially offset by a decrease in
revenues from Lake Charles Construction that generated $49.0
million in revenues in fiscal 1996 from a single contract. In
addition, Eco Environmental and Environmental Evolutions were
included only through their disposal date of August 31, 1997.
During fiscal 1997, the Company generated approximately
66.9% of its revenues from the provision of industrial support
services and 44.7% of its revenues from the provisions of such
services to petroleum and petrochemical refining customers.
Huntsman Chemical, International Paper, Mobil Oil, American
Electric Power, Ashland Oil and Brown & Root together accounted
for approximately 31.3% of the Company's total revenues in fiscal
1997, compared to 18.0% of the Company's top six customers in
fiscal 1996. Huntsman Chemical accounted for 7.9% of the
Company's revenues in fiscal 1997. Although, none of the
customers represented more than 10% of the Company's revenues,
the loss of any one or more key customers could have a material
adverse effect on the Company's results of operations and
financial condition. Management believes that the Company's
continued efforts to expand and diversify its customer base, in
addition to the effects of a full year of operations from
Chempower and the operations of Dominion Bridge, assuming
completion of such acquisition, will further reduce the Company's
dependence on certain key customers.
The Company's industrial support segment generated $147.4
million or 66.9% of the Company's total revenues in fiscal 1997
compared to $94.6 million or 79.0% in fiscal 1996. This 56.0%
increase in revenue is primarily the result of reporting
Chempower's revenues from February 1997 and the effect of a full
year of revenue from Industra and CCG's revenues from September
1, 1997. Management anticipates that the revenues generated by
its industrial support service segment will represent a larger
percentage of revenues in fiscal 1998 as the Company benefits
from a full year of operations from Chempower and CCG.
The revenues generated from the Company's environmental
services segment decreased 34.6% to $12.1 million in fiscal 1997
from $18.5 million in fiscal 1996. This decrease primarily
reflects the sale of Eco Environmental and Environmental
Evolutions on August 31, 1997. As a percentage of total revenues
the Company's environmental remediation service segment
contributed approximately 5.5% of total revenues of fiscal 1997
compared to 15.5% of total revenues in fiscal 1996.
The specialty fabrication business segment generated $60.9
million or 27.7% of the Company's total revenues in fiscal 1997,
compared to $6.5 million or 5.4% in fiscal 1996. Management
anticipates that the increase in revenues from the Company's
specialty fabrication service segment will continue and this
segment will contribute a greater percentage of the Company's
total revenues in fiscal 1998 as a result of increased business
at MM Industra, SRS and Chempower's Controlled Power Division.
Operating Expenses
------------------
The Company's total operating expenses increased
approximately 81.3% to $199.5 million in fiscal 1997 from $110.1
million in fiscal 1996 primarily as a result of adding the
operations of Chempower, from February 27, 1997, CCG from
September 1, 1997 and the 1996 acquisitions of MM Industra and
Industra Services. Expressed as a percentage of total revenues,
operating expenses were approximately 90.5% in fiscal 1997
compared to 92.0% in fiscal 1996. Selling, general and
administrative expenses incurred to $31.2 million in fiscal 1997
compared to $20.6 million in fiscal 1996. As a percentage of
total revenues, selling, general and administrative expenses
decreased to 14.1% in fiscal 1997 compared to 17.2% in fiscal
1996. The decrease is attributable to the Company's plan to
control overhead expenses at all levels, which was implemented in
fiscal 1996 and continued in fiscal 1997. The Company's interest
expense on long-term debt increased to $4.9 million from $1.7
million, and as a percentage of total revenue, interest expense
increased to 2.2% compared to 1.5% in fiscal 1996. Depreciation
and amortization increased to $5.4 million in fiscal 1997 from
$2.2 million in fiscal 1996. As a percentage of total revenues,
depreciation and amortization increased to 2.4% in fiscal 1997
from 1.9% in fiscal 1996. Management believes that the Company
has been able to contain operating expenses through a program
instituted in fiscal 1994 pursuant to which project managers are
required to track such cost control indicators as labor
productivity and potential project cost overruns. Management
believes that the Company will continue to be able to control
operating expenses, but there can be no assurance that the
Company's cost control policies will be as effective in the
future as they have been in the past, especially if the Company
completes the acquisition of Dominion Bridge, in which case it
will be necessary to integrate operations, the cost of which
cannot presently be estimated.
Operating expenses of the Company's industrial support
segment increased to $135.7 million in fiscal 1997 compared to
$92.8 million in fiscal 1996. As a percentage of revenues from
the industrial support segment, operating expenses decreased to
92.0% in fiscal 1997 compared to 98.2% in fiscal 1996.
Operating expenses of the Company's environmental services
segment decreased to $13.6 million in fiscal 1997 compared to
$16.6 million in fiscal 1996. As a percentage of revenues from
the environmental services segment, operating expenses increased
to 111.9% in fiscal 1997 compared to 90.0% in fiscal 1996.
Management does not expect this deteriorating trend to continue
due to the sale of two environmental operating units as of August
31, 1997.
Operating expenses of the Company's specialty fabrication
services segment increased to $50.3 million in fiscal 1997
compared to $4.3 million in fiscal 1996. As a percentage of
revenues from the specialty fabrication services segment,
operating expenses increased to 82.5% in fiscal 1997 compared to
67.0% in fiscal 1996. This significant increase is due to a full
year of operations for MM Industra and nine months of operations
for Chempower's Controlled Power Division. Management believes
that the specialty fabrication services segment will continue to
grow based on the significant backlog of contracts in this
segment.
Provision for Income Tax.
------------------------
In fiscal 1997, the Company applied the remaining $3.2 million
in net loss carry forwards and began to accrue income taxes. The
Company had $1.8 million in tax expenses in fiscal 1997. At
November 30, 1997, the Company had no tax loss carry forwards.
Net Income.
----------
Net income increased approximately 99.0% to $17.4 million, or
$1.08 per share, in fiscal 1997 from $8.8 million, or $0.81 per
share, in fiscal 1996. A tax recovery of $809,000 contributed
approximately 9.2% of the Company's net income in fiscal 1996
compared to a provision of $1.8 million in tax expense in fiscal
1997.
Fiscal 1996 Compared to Fiscal 1995
Revenues
--------
During fiscal 1996, the Company generated approximately
79.0% of its revenues from the provision of industrial
maintenance services and 20.0% of its revenues from the provision
of such services to petroleum and petrochemical refining
customers. Huntsman Corporation, Star Enterprising, Goodyear and
Rubber and BioLab together accounted for approximately 18.0% of
the Company's total revenues in fiscal 1996 compared to 75.0% of
the total revenues in fiscal 1995. No single customer accounted
for more than 10.0% of the Company's total revenues during fiscal
1996.
The Company's industrial maintenance segment generated $94.6
million or 79.0% of the Company's total revenues in fiscal 1996
compared to $41.3 million or 88.5% in fiscal 1995. This 129.0%
increase in revenues reflects in part the addition of four months
of operations of Industra Services and a single project performed
by Lake Charles Construction in the amount of $49.0 million that
concluded in fiscal 1996. The revenues generated by the
Company's industrial maintenance operations that were in place at
November 30, 1995 grew 105.0% in fiscal 1996.
The revenues generated from the Company's environmental
services segment increased 245.0% to $18.5 million in fiscal 1996
from $5.4 million in fiscal 1995. The growth primarily reflects
the effects of eleven months of operation for Environmental
Evolutions and six months of operations of United Eco. As a
percentage of total revenues, the Company's environmental service
segment contributed approximately 15.5% of total revenues in
fiscal 1996 as compared to 11.5% of total revenues in fiscal
1995.
The Company significantly expanded its specialty fabricating
business in fiscal 1996 through the acquisition of SRS and MM
Industra, and this business segment generated $6.5 million or
5.4% of the Company's total revenues in fiscal 1996. Prior to
fiscal 1996, the Company had provided specialty fabricating
services through the Turner Group and the Lake Charles Group as
part of those subsidiaries' industrial maintenance services and
the Company did not separately report revenues for specialty
fabrication services.
Operating Expenses.
------------------
The Company's total operating expenses increased approximately
153.7% to $110.1 million in fiscal 1996 from $43.4 million in
fiscal 1995 primarily as a result of adding the operations of
five new subsidiaries during fiscal 1996. Expressed as a
percentage of total revenues, operating expenses were
approximately 92.0% in fiscal 1996 compared to 92.9% in fiscal
1995. The Company's interest expense on long-term debt increased
to $1.7 million from $713,000 but, as a percentage of total
revenue, interest expense remained unchanged at 1.5%.
Depreciation and amortization increased to $2.2 million in fiscal
1996 from $1.1 million in fiscal 1995. As a percentage of total
revenues, depreciation and amortization decreased slightly to
1.7% in fiscal 1996 from 2.4% in fiscal 1995.
Provision for Income Tax.
------------------------
The Company had net loss carry forwards in Canada with which
it was able to reduce its tax liabilities. In fiscal 1996, the
application of $786,000 in such net loss carry forwards
contributed to a tax recovery of $809,000 in fiscal 1996. The
Company paid $208,000 in taxes in fiscal 1995. At November 30,
1996, the Company had a total of $3.2 million in net loss carry
forwards that expire incrementally between 1999 and 2003.
Net Income.
----------
Net income from continuing operations increased approximately
207.0% to $8.8 million, or $0.81 per share, in fiscal 1996 from
$2.9 million, or $0.40 per share, in fiscal 1995. A tax recovery
of $809,000 contributed approximately 9.2% of the Company's net
income, or $0.07 per share, in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing capital resources consist of cash and
funds available under its line of credit. The Company's cash
and short-term investments increased to $1.3 million at
November 30, 1997 from $317,000 at November 30, 1996. Typically
the Company maintains cash levels of
between $1.5 million and $3.0 million for general corporate
needs, with any excess cash used to reduce borrowings under the
Company's line of credit. In fiscal 1997, the Company's
operations used $18.9 million of cash compared to providing $3.8
million in fiscal 1996. This use of cash was primarily due to a
$15.9 million increase in accounts receivable, a $14.0 million
note receivable, a $7.8 million
increase in cost and estimated earnings in excess of billings and
a decrease of $4.5 million of accounts payable and accrued
liabilities. The Company's financing activities in fiscal 1997
provided $32.4 million of net cash compared to $12.2 million in
fiscal 1996. The increase in 1997 was primarily due to $33.5
million of proceeds from notes payable compared to $14.9 million
in fiscal 1996.
In August 1997, the Company entered into a Credit and Guaranty
Agreement with Union Bank of California, N.A., as agent for the
lending banks, which provided (i) a six- year term loan of $52.5
million (the "Term Loan") and (ii) a five-year revolving credit
facility (the "Revolver"). The proceeds of the Term Loan were
used to repay and consolidate substantially all of the then
outstanding secured borrowings, including acquisition
indebtedness. The Loan bears interest at 3.25% above the
variable rate of the agent's reference rate and may be converted
into a Eurodollar Rate Loan, and is repayable in 22 consecutive
installments of $2,386,364 commencing on May 31, 1998. The
proceeds of the Revolver are being used for working capital and
for letter of credit arrangements. The loans are collateralized
by substantially all of the Company's assets.
The Company's investing activities use cash of $12.6 million,
primarily to finance acquisitions.
The Company's cash requirements consist of working capital
needs, obligations under its leases and promissory notes and the
funding of potential acquisitions. Management believes that the
Company's cash and funds available under its credit facilities
are sufficient
to meet its anticipated cash requirements, subject to raising
additional capital as necessary for the Dominion Bridge Loan
Facility and other aspects of the Dominion Bridge transaction,
or other possible acquisitions.
The Company is negotiating to fund its capital requirements by
increasing its current line of credit. The Company is also
seeking to raise additional capital by issuing debt (straight
or convertible) or equity
securities in private or public offerings. There can be no
assurance that the Company will be able to increase or
restructure its line of credit or that the Company will be able
to issue its securities to coincide with the funding of certain
capital requirements.
Accounts receivable at November 30, 1997 increased to $50.3
million from $21.1 million at November 30, 1996, after deducting
allowances of $2.1 million and $346,000 for doubtful accounts at
year-end fiscal 1997 and fiscal 1996, respectively. This
increase in accounts receivable primarily reflects the addition
of Chempower during fiscal 1997, which had, in the aggregate,
accounts receivable of $12.4 million at November 30, 1997. The
current portion of notes receivable increased to $17.8 million at
November 30, 1997 from $6.8 million at November 30, 1996 largely
as a result of the sale of Eco Environmental, Environmental
Evolutions and MART. Inventory increased to $18.1 million at
November 30, 1997 from $14.8 million at November 30, 1996. This
increase in inventory reflects the addition of Chempower during
fiscal 1997, which had, in the aggregate, inventory of $3.9
million at November 30, 1997.
Property, plant and equipment increased to $33.0 million at
November 30, 1997 from $25.2 million at November 30, 1996 as a
result of the Company's acquisitions effected during fiscal 1997.
Accounts payable and other accrued liabilities increased to
$28.4 million at November 30, 1997 from $18.8 million from
November 30, 1996 primarily due to the addition of new
operations.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward looking
statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Although the Company believes that its expectations are
based on reasonable assumptions, it can give no assurance that
such expectations will be achieved. Important factors that could
cause actual results to differ materially from those in the
forward looking statements made herein include the ability of the
Company to continue to expand through acquisitions, the
availability of capital to fund the Company's expansion program,
the ability of the Company to manage its expansion effectively,
any unexpected problems in connection with the proposed
acquisition of Dominion Bridge, economic conditions that could
affect demand for the Company's services, the ability of the
Company to complete projects profitably and severe weather
conditions that could delay projects.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four digits to define the
applicable year. Any of the Company's computer programs that
have data-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in other routine
business activities.
Based on a recent assessment, the Company determined that it
will be required to modify or replace significant portions of its
software so that its computer systems will properly utilize dates
beyond December 31, 1999. The Company presently believes that
with modifications to existing software and conversions to new
software, the Year 2000 Issue can be mitigated. However, if such
modifications and conversions are not made, or are not completed
timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
Based on presently available information, the Company has
initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which
the Company is vulnerable to the failure of these third parties
to remediate their own Year 2000 Issues. However, there can be
no guarantee that the systems of other companies on which the
Company's system rely will be timely converted, or that a failure
to convert by another company or a conversion that is
incompatible with the Company's systems, would not have material
adverse effect on the Company.
The Company will utilize both internal and external resources
to reprogram, or replace, and test the software for Year 2000
modifications. The Company plans to complete the Year 2000
project within one year, but no later than April 1999. The total
remaining cost of the Year 2000 project is estimated at $1.5
million and is being funded through operating cash flows of the
Company. Of the total project cost, approximately $1.0 million
is attributable to the purchase of new software, which will be
capitalized. The remaining $500,000, which will be expensed as
incurred over the next two years, is not expected to have a
material effect on the results of operations of the Company. To
date, the Company has not incurred any expense for its Year 2000
project and the development of a remediation plan.
The costs of the project and the date on which the Company
plans to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing
numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these
estimates will be achieved, and actual results could differ
materially from such plans. Specific factors that might cause
such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and
similar uncertainties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<PAGE>
AMERICAN ECO CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
[Letterhead of Coopers & Lybrand, L.L.P.]
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Shareholders and Directors of
AMERICAN ECO CORPORATION
We have audited the consolidated balance sheet of AMERICAN ECO
CORPORATION and subsidiaries as of November 30 1997, and the
consolidated statements of income, shareholders' equity and
changes in financial position for the year then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of AMERICAN ECO CORPORATION and subsidiaries
as of November 30, 1997, and the consolidated results of their
operations and changes in financial position for the year then
ended in conformity with generally accepted accounting principles
in Canada.
/s/ Coopers & Lybrand, L.L.P.
Miami, Florida
March 4, 1998
<PAGE>
[Letterhead of Karlins Fuller Arnold & Klodosky, P.C.]
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of
AMERICAN ECO CORPORATION
We have audited the accompanying consolidated balance sheet of
American Eco Corporation as of November 30, 1996 and 1995, and
the consolidated statements of income, shareholders' equity and
changes in financial position for the years then ended, which as
described in Note 15, have been prepared on the basis of
accounting principles generally accepted in Canada. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States (and in Canada). U.S.
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of American Eco Corporation as of November 30,
1996 and 1995, and the consolidated results of its operations and
changes in financial position for the years then ended in
conformity with generally accepted accounting principles in
Canada.
/s/ Karlins Fuller Arnold & Klodosky, P.C.
Houston, Texas
January 31, 1997
<PAGE>
AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEET
(United States Dollars in thousands)
At November 30
-----------------------
1997 1996
---- ----
ASSETS
------
CURRENT ASSETS
Cash $ 1,259 $ 317
Accounts receivable, trade, less allowance
for doubtful accounts of $2,078 in 1997
and $346 in 1996, respectively 50,349 21,098
Current portion of notes receivable 17,757 6,695
Costs and estimated earnings in excess of
billings 13,145 3,446
Inventory 18,079 14,846
Deferred income tax 1,133 1,393
Prepaid expenses and other current assets 6,920 4,499
------------ ----------
TOTAL CURRENT ASSETS 108,642 52,294
------------ ----------
PROPERTY, PLANT AND EQUIPMENT, net 33,023 25,199
------------ ----------
OTHER ASSETS
Goodwill, net of accumulated amortization of
$1,592 in 1997 and $762 in 1996,
respectively 30,484 18,969
Notes receivable 28,578 280
Investments 9,142 7,645
Other Assets 1,917 97
------------ ----------
TOTAL OTHER ASSETS 70,121 26,991
------------ ----------
TOTAL ASSETS $ 211,786 $ 104,484
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 28,400 $ 18,822
Notes payable 8,904 20,399
Current portion of long-term debt 8,081 1,708
Billings in excess of costs and estimated
earnings 3,350 419
------------ ----------
TOTAL CURRENT LIABILITIES 48,735 41,348
------------ ----------
LONG-TERM LIABILITIES
Long-term debt 51,722 6,720
Deferred income tax liability 3,144 1,373
Other liabilities 1,086 --
------------ ----------
TOTAL LONG-TERM LIABILITIES 55,952 8,093
------------ ----------
TOTAL LIABILITIES 104,687 49,441
------------ ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Share capital 75,577 39,411
Share capital subscribed -- 34
Contributed surplus 2,845 2,845
Cumulative foreign exchange (1,511) --
Retained earnings 30,188 12,753
------------ ----------
TOTAL SHAREHOLDERS' EQUITY 107,099 55,043
------------ ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 211,786 $ 104,484
============ ==========
The accompanying notes are an integral part of these
consolidated financial statements.
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE YEARS ENDED NOVEMBER 30, 1997
(United States Dollars in thousands)
1997 1996
------ -------
REVENUE $ 220,478 $ 119,529
----------- -----------
COSTS AND EXPENSES
Direct costs of revenue 162,882 87,203
Selling, general and administrative expenses 31,243 20,616
Interest expense, net 4,946 1,747
Depreciation and amortization 5,382 2,232
Gain on sale of assets and subsidiaries (2,682) (2)
Foreign exchange income (557) (221)
----------- -----------
201,214 111,575
----------- -----------
INCOME BEFORE PROVISION FOR (RECOVERY
OF) INCOME TAXES 19,264 7,954
PROVISION FOR (RECOVERY OF) INCOME TAXES 1,829 (809)
----------- -----------
NET INCOME $ 17,435 $ 8,763
=========== ===========
Earnings per common share
Basic $ 1.08 $ 0.81
=========== ===========
Adjusted basic $ 1.03 $ 0.78
=========== ===========
Fully diluted $ 0.90 $ 0.74
=========== ===========
Weighted average number of shares used in
computing earnings per common share
Basic 16,218,034 10,846,516
========== ==========
Adjusted basic 17,667,960 11,435,636
========== ==========
Fully diluted 21,809,562 12,325,043
========== ==========
1995
--------
REVENUE $ 46,684
----------
COSTS AND EXPENSES
Direct costs of revenue 39,456
Selling, general and administrative expenses 2,814
Interest expense, net 713
Depreciation and amortization 1,107
Gain on sale of assets and subsidiaries (370)
Foreign exchange income (96)
----------
43,624
----------
INCOME BEFORE PROVISION FOR (RECOVERY
OF) INCOME TAXES 3,060
PROVISION FOR (RECOVERY OF) INCOME TAXES 208
----------
NET INCOME $ 2,852
==========
Earnings per common share
Basic $ 0.40
==========
Adjusted basic $ 0.38
==========
Fully diluted $ 0.36
==========
Weighted average number of shares used in computing
earnings per common share
Basic 7,217,005
==========
Adjusted basic 8,174,509
==========
Fully diluted 8,995,005
==========
The accompanying notes are an integral part of these
consolidated financial statements.
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED NOVEMBER 30, 1997
(United States Dollars in thousands)
Share Capital
-------------------------
Share
Capital
Shares Amount Subscribed
-------- --------- ----------
Balance, November 30, 1994 6,822,341 $ 6,511 $ 805
Conversion of debentures 1,147,250 3,454
Issued for acquisitions 681,381 2,513
Issued for cash 78,500 145
Issued for services 130,000 460
Share Capital
-------------------------
Share
Capital
Shares Amount Subscribed
-------- --------- ----------
Share issue cost (1,280)
Subscriptions collected (707)
Net income
--------- -------- ------
Balance, November 30, 1995 8,859,472 11,803 98
Conversion of debentures 198,820 1,284
Issued for acquisitions 4,283,204 27,269
Issued for cash 594,940 1,743
Issued for services 281,000 1,753
Share issue cost (4,441)
Subscriptions collected (64)
Net income
--------- -------- ------
Balance, November 30, 1996 14,217,436 39,411 34
Conversion of debentures 3,126,366 21,150
Issued for acquisitions 1,010,913 8,570
Issued for notes 811,260 7,784
Issued for cash 376,575 1,613
Issued for services 66,530 578
Share issue cost (3,563)
Cumulative foreign exchange
Subscriptions collected 20,000 34 (34)
Net income
--------- -------- ------
19,629,080 $ 75,577 $ --
Balance, November 30, 1997 ========== ======== ======
Cumulative Total
Contributed Foreign Retained Shareholders'
Surplus Currency Earnings Equity
----------- ---------- -------- -------------
Balance, November 30,
1994 $ 2,845 $ -- $ 1,138 $ 11,299
Conversion of
debentures 3,454
Issued for acquisitions 2,513
Issued for cash 145
Issued for services 460
Share issue cost (1,280)
Subscriptions collected (707)
Net income 2,852 2,852
------- ------- ------- --------
Balance, November 30,
1995 2,845 -- 3,990 18,736
Conversion of
debentures 1,284
Issued for acquisitions 27,269
Issued for cash 1,743
Issued for services 1,753
Share issue cost (4,441)
Subscriptions collected (64)
Net income 8,763 8,763
------- ------- ------- --------
Balance, November 30,
1996 2,845 -- 12,753 55,043
Conversion of
debentures 21,150
Issued for acquisitions 8,570
Issued for notes 7,784
Issued for cash 1,613
Issued for services 578
Share issue cost (3,563)
Cumulative Total
Contributed Foreign Retained Shareholders'
Surplus Currency Earnings Equity
----------- ---------- -------- -------------
Balance, November 30,
1994 $ 2,845 $ -- $ 1,138 $ 11,299
Cumulative foreign
exchange (1,511) (1,511)
Subscriptions collected --
Net income 17,435 17,435
------- ------- ------- --------
Balance, November 30, $ 2,845 $(1,511) $30,188 $107,099
1997 ======= ======= ======= ========
The accompanying notes are an integral part of these
consolidated financial statements.
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE THREE YEARS ENDED NOVEMBER 30, 1997
(United States Dollars in thousands)
1997 1996 1995
-------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,435 $ 8,763 $ 2,852
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of assets and subsidiaries (2,682) (2) (370)
Depreciation and amortization 5,382 2,232 1,107
Change in deferred income taxes 1,829 490 (64)
Noncash income, net 325 -- --
Change in certificate of deposit,
restricted -- (8) (6)
Change in accounts receivable (15,932) (1,823) (1,356)
Change in notes receivable (14,000) -- --
Change in costs and estimated earnings in
excess of billings (7,824) (363) (1,059)
Change in inventory 106 (2,511) 189
Change in prepaid expenses 1,424 (748) 256
Change in accounts payable and accrued
liabilities (4,523) (2,312) 981
Change in billings in excess of costs and
estimated earnings (458) 34 75
---------------- -------
Net cash provided by (used in) operating
activities (18,918) 3,752 2,605
-------- -------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,134) (4,803) (386)
Proceeds from sale of equipment 3,448 53 --
Acquisition of business, net of cash
acquired (10,493) (568) (805)
Proceeds from notes receivable 996 3,257 288
Disbursements for notes receivable (2,094) (8,350) (625)
Increase in investment (1,277) (6,156) (727)
------- ------- -----
Net cash used in investing activities (12,554) (16,567) (2,225)
------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 33,500 14,920 800
Proceeds from long-term debt 58,500 428 --
Principal payments on notes payable (53,196) 7,412 (739)
Principal payments on long-term debt (7,607) (1,015) (464)
Proceeds from sales/leaseback 4,000 -- --
Deferred foreign exchange -- -- (27)
Debt issuance costs (1,917) -- --
Debenture issuance costs -- (193) --
Stock issuance costs (2,479) -- (125)
Issuance of common stock 1,613 5,506 229
---------------- -------
Net cash provided by (used in) financing
activities 32,414 12,234 (326)
---------------- -------
NET INCREASE (DECREASE) IN CASH 942 (581) 24
CASH AT BEGINNING OF YEAR 317 898 874
---------------- -------
CASH AT END OF YEAR $ 1,259 $ 317 $ 898
================ =======
The accompanying notes are an integral part of these
consolidated financial statements.
(United States Dollars in thousands)
American Eco Corporation and its wholly-owned subsidiaries ( the Company"
or "AEC") provide industrial services, environmental services and specialty
manufacturing to the petrochemical, refining, forest products and offshore
fabrication industries.
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). The
differences between Canadian and United States GAAP are described in Note
15.
The accompanying consolidated financial statements include the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Revenue Recognition - The Company recognizes revenues and profits on fixed
-------------------
price contracts using the percentage-of-completion method. Under the
percentage-of-completion method, contract revenues are accrued based upon
the percentage that accrued costs to date bear to total estimated costs.
As contracts can extend over more than one accounting period, revisions in
estimated total costs and profits during the course of work are reflected
during the period in which the facts requiring the revisions become known.
Losses on contracts are charged to income in the period in which such
losses are first determined.
Inventory - Inventory is valued on the lower of cost or market method,
---------
with cost determined on the first-in, first-out method.
Property, Plant and Equipment - Property and equipment are stated at cost.
-----------------------------
Depreciation and amortization are provided over the estimated useful lives
of the respective assets using the straight-line method over the following
periods based on their estimated useful lives:
Buildings 20-40 years
Fabrication machinery, mobile and other equipment 3-15 years
Expenditures for additions, major renewals and betterments are capitalized
and expenditures for maintenance and repairs are charged to earnings as
incurred. When property and equipment are retired or otherwise disposed
of, the cost thereof and the applicable accumulated depreciation are
removed from the respective accounts and the resulting gain or loss is
reflected in earnings.
Goodwill - The cost in excess of the fair value of the net assets of
--------
businesses acquired at their respective acquisition dates are amortized on
a straight-line basis over 40 years. On an annual basis, the Company
assesses the carrying value in order to determine whether an impairment has
occurred, taking into account both historical and forecasted results of
operations.
Income Taxes - The Company reflects income taxes based on the tax
------------
allocation method. Under this method, timing differences between reported
and taxable income result in provisions for taxes not currently payable.
Such timing differences arise principally as a result of claiming
depreciation and amortization for tax purposes at amounts differing from
those charged to income.
Other Assets - Included in other assets is approximately $1.5 million of
------------
debt issuance costs which are being amortized over the term of the debt.
Earnings Per Share - Basic earnings per share has been calculated on the
------------------
basis of net earnings for the year divided by the weighted average number
of common shares outstanding during the period. Adjusted basic earnings
per share has been calculated assuming the actual debt conversions
occurring during the year had taken place at the beginning of the year, or
at the date of issuance if issued during the year. Fully diluted earnings
per share additionally assumes all options and warrants have been exercised
at the later of the beginning of the fiscal period or the option issue
date.
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
1997 1996 1995
---- ---- ----
Cash paid during the years for:
Interest $4,718 $1,614 $713
Income taxes $ 281 $ -- $ 66
Translation of Financial Statements into United States Dollars - The
--------------------------------------------------------------
consolidated financial statements are expressed in United States dollars
using foreign currency translation procedures established by the Canadian
Institute of Chartered Accountants.
For self-sustaining operations, the assets and liabilities denominated in a
foreign currency are translated at exchange rates in effect at the balance
sheet date. The resulting gains and losses are accumulated in a separate
component of shareholders' equity. Revenues and expenses are translated at
average exchange rates prevailing during the period. For integrated
purposes current assets, current liabilities and long-term debt are
translated into United States dollars using year end rates of exchange; all
other assets and liabilities are translated at applicable historical rates
of exchange. Revenues, expenses and certain costs are translated at annual
average exchange rates except for inventory, depreciation and amortization
which are translated at historical rates. Realized exchange gains and
losses and currency translation adjustments relative to long-term monetary
items with a fixed and ascertainable life are deferred and amortized on a
straight-line basis over the life of the item.
Use of estimates - The preparation of financial statements in conformity
----------------
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications - Certain amounts from prior years have been reclassified
-----------------
to conform to the current year's presentation.
2. BUSINESS COMBINATIONS
1997
Effective February 28, 1997, the Company acquired all of the outstanding
common stock of Chempower, Inc. ( Chempower"). All of the stockholders of
Chempower, other than two principal stockholders (the Principal
Stockholders") received $6.20 in cash for each of their Chempower shares.
The Principal Stockholders received a portion of their consideration in
cash and the balance was represented by a $15.9 million promissory note
paid in August 1997. Based upon a total of approximately 7.6 million
Chempower shares outstanding, the total acquisition cost was approximately
$50 million, including acquisition costs of approximately $3 million. The
acquisition was partially funded by a placement by the Company of $15
million, 9.5%, 10 year Convertible Debentures. Concurrent with the
Chempower acquisition, the Company entered into installment purchase
agreements with Holiday Properties, a general partnership owned by the
Principal Stockholders. These agreements provide for the acquisition of
three parcels of real property which had been leased to Chempower. The
aggregate purchase price for the three properties amounted to $4.5 million,
of which $.5 million was paid on February 28, 1997. The purchase price and
expenses associated with the acquisition exceed the fair value of net
assets acquired by approximately $12 million.
Effective September 1, 1997, the Company acquired all of the outstanding
common stock of CCG Commercial Construction Group, Inc. in exchange for
265,000 shares of Company common stock with a fair market value of
approximately $2.6 million. The aggregate purchase price and expenses
associated with the acquisition exceed the fair value of net assets
acquired by approximately $3 million.
2. BUSINESS COMBINATIONS (continued)
1996
Effective January 1, 1996, the Company acquired all of the outstanding
common stock of Environmental Evolutions, Inc. in exchange for 400,000
shares of Company common stock with a fair market value of $2.4 million.
The purchase price and expenses associated with the acquisition exceeded
the fair value of net assets by approximately $3.3 million and has been
included in goodwill. Pro forma results were not material to the Company's
financial position or results of operations. See Note 3 to Consolidated
Financial Statements.
Effective May 31, 1996, the Company acquired substantially all the assets
and assumed certain liabilities of United Eco Systems, Inc. ( United Eco").
The purchase price consisted of 315,000 shares of Company common stock with
a fair market value of $2.5 million. The purchase price and expenses
associated with the acquisition exceeded the fair market value of net
assets acquired by approximately $2.8 million and has been included in
goodwill. Pro forma results were not material to the Company's financial
position or results of operations.
Effective July 1, 1996, the Company acquired all of the outstanding common
stock of Separation and Recovery Systems, Inc. ("SRS"). The purchase price
consisted primarily of 753,634 shares of the Company common stock with a
fair market value of $5.7 million, which approximated the book value of
SRS.
Effective July 22, 1996, the Company acquired all of the outstanding common
stock of Industra Service Corporation ("Industra"). AEC exchanged 0.425
common shares for each common share of Industra, or 1,647,459 shares of AEC
common shares. The purchase price and expenses associated with the
acquisition exceeded the fair value of net assets of the business acquired
by approximately $5.6 million.
All acquisitions have been accounted for using the purchase method;
accordingly, the assets and liabilities have been recorded at their
estimated fair values at the date of acquisition. The excess purchase
price and related expenses over the fair value of net assets acquired is
included in Goodwill. Under the purchase method of accounting, the results
of operations are included in the consolidated financial statements from
their acquisition dates.
The unaudited pro forma results, assuming the CCG, Chempower, SRS and
Industra acquisitions had occurred at December 1, 1995, are as follows:
1997 1996
-------- -------
Revenues $245,898 $252,928
Net income $ 12,348 $ 9,997
Basic earnings per share $ 0.74 $ 0.80
The unaudited pro forma summary is not necessarily indicative either of
results of operations that would have occurred had the acquisitions been
made at the beginning of the periods presented, or of future results of
operations of the combined companies.
1995
In July, 1995, the Company acquired all of the outstanding capital stock of
Lake Charles Construction Corporation in exchange for issuance of 520,000
shares of the Company's common stock valued at $2 million. The purchase
price and expenses associated with the acquisition exceeded the fair value
of net assets acquired by approximately $4.6 million.
2. BUSINESS COMBINATIONS (continued)
A summary of total assets, total liabilities and goodwill from the above
business combinations are as follows:
Consideration Assets
------------- ------
1997
Chempower $ 50,000 $55,543
CCG 2,600 5,103
1996
Environmental Evolutions 2,400 370
United Eco 2,500 5,489
SRS 5,700 11,907
Industra 16,300 27,816
Net Book
Liabilities Value Goodwill
----------- -------- --------
1997
Chempower $ 15,543 $ 40,000 $ 10,000
CCG 5,503 (400) 3,000
1996
Environmental Evolutions 1,270 (900) (3,300)
United Eco 5,789 (300) (2,800)
SRS 6,207 5,700 --
Industra 17,116 10,700 5,600
3. DISPOSAL OF ECO ENVIRONMENTAL AND ENVIRONMENTAL EVOLUTIONS
On August 31, 1997, the Company sold its wholly owned subsidiaries, Eco
Environmental, Inc. and Environmental Evolutions, Inc., to Eurostar
Interests, Ltd. ("Eurostar"), a company controlled by the Vice-Chairman of
AEC, in exchange for a note in the amount of $11 million. This note bears
interest at the rate of 10% and is due on August 31, 1998. The note is
collateralized by all of the common stock of Eurostar and is also supported
by a performance bond in the amount of $3 million. As a result of this
transaction, the Company recorded a gain of approximately $2.5 million.
4. NOTES RECEIVABLE
1997 1996
-------- --------
EIF Holdings, Inc., due August, 1998, maximum borrowings
of $20 million, interest at prime plus 2%,
uncollateralized. See Note 5 to Consolidated Financial
Statements. $ 17,876 $ 4,908
George E. Phillips Holdings, Ltd., $2.8 million due
January, 1998, quarterly payments of $446,166 from
February, 1998 through August, 2002, with final payment
due in November 2002, interest at 10% collateralized by
50% of the issued and outstanding shares of common stock
of Mid Atlantic Recycling Technologies, Inc. ("MART").
See Note 21 to Consolidated Financial Statements. 14,000 --
Eurostar, due August 1998, interest at 10%,
collateralized by 100% of the issued and outstanding
shares of common stock of Eurostar and a performance
bond for $3 million. 11,000 --
Receivables from joint ventures. See Note 6 to
Consolidated Financial Statements. 1,500 --
Notes receivable from officers and directors. 1,468 840
4. NOTES RECEIVABLE (continued)
1997 1996
-------- --------
Mid Atlantic Recycling Technologies, Inc., monthly
payments of $5,175, interest at 12.5%,
collateralized by equipment. 219 --
Kam Biotechnology International, LLC, due December,
1998, interest at 6% uncollateralized. 200 200
Impala Development, Ltd., interest at 12%,
collateralized by 144,500 shares of AEC common stock -- 775
Miscellaneous notes receivable 72 252
-------- -------
46,335 6,975
Current portion 17,757 6,695
-------- -------
Long-term portion $ 28,578 $ 280
======== =======
5. EIF Holdings, Inc.
During June, 1996, the Company purchased 4,600,000 shares of EIF Holdings,
Inc. ("EIFH") common stock for $2.8 million. On November 7, 1996, the
Company acquired an additional 200,000 shares of EIFH common stock through
the issuance of 25,000 shares of its common stock, and on November 20,
1996, the Company purchased 4,000,000 shares of EIFH in exchange for $70
thousand and 300,000 shares of the Company's common stock. At November 30,
1997, the Company's total investment in EIFH was approximately $5.2 million
and represents 36% of EIFH's total common stock. Additionally during 1996,
the Company entered into a Stock Purchase Agreement with EIFH whereby the
Company has an option to purchase 10,000,000 shares of EIFH for $1 million.
This option is subject to EIFH stockholders increasing the authorized
number of common shares. The Company has accounted for its investment in
EIFH pursuant to the equity method of accounting commencing January 1,
1997.
In February 1996, the Company agreed to loan money to EIFH pursuant to a
line of credit agreement with a maximum borrowing of $5.2 million. This
line of credit was not collateralized and was due on July 31, 1997.
Effective July 31, 1997, the line of credit was renewed, extended and
modified to increase the maximum borrowing amount to $15 million and extend
the maturity to February 18, 1998. On September 30, 1997, the Company
increased the maximum borrowing amount to $20 million. This renewal
included an option for the Company to convert the entire indebtedness into
common shares of EIFH at 85% of the average market price of the previous
five days, subject to approval of an increase in the number of authorized
shares by EIFH's stockholders. On February 18, 1998, the Company extended
the maturity date of the line of credit to August 18, 1998. As of November
30, 1997, the total receivable from EIFH is $17.9 million, which includes
accrued interest of $1.04 million. The Company received interest income of
$0.8 million related to the loan outstanding during 1997.
On December 22, 1997, the Company granted an option to Frank Fradella,
Chief Executive Officer of EIFH, to purchase the Company's 8,800,000 shares
of EIFH for a price of $0.65 per share. Additionally, the Company granted
Frank Fradella a proxy to vote the Company's shares of EIFH.
On November 19, 1997, EIFH completed its acquisition of JL Manta, Inc.
("Manta"), an Illinois corporation which provides specialized maintenance
services for clients in the industrial, environmental and low-level nuclear
sectors. Pursuant to the terms of a Stock Purchase Agreement, EIFH
acquired all of the issued and outstanding common stock of Manta for
consideration of $4.7 million in cash and $2.2 million in convertible
promissory notes of EIFH, payable in installments with a final payment due
on November 18, 2000 (the "Stockholder Notes"). Subject to the approval by
EIFH stockholders of an amendment to EIFH's charter authorizing the
requisite amount of stock, at any time after June 30, 1998 the holders of
the Stockholder Notes may convert any principal payment due under the
Stockholder Notes into shares of
5. EIF HOLDINGS, INC. (continued)
EIFH's common stock at a conversion price equal to the closing transaction
price of EIFH Stock on the date a conversion notice is received by EIFH.
Also concurrently with the Acquisition, in connection with financing
provided to EIFH, EIFH issued a $6.5 million Convertible Promissory Note.
The Note bears interest at the rate of 5 1/4% per annum, becomes due on May
18, 1999 and is collateralized by a pledge of all of the Manta Stock.
Subject to approval of EIFH's Stockholders of an amendment to EIFH's
charter authorizing the requisite amount of preferred and common stock at a
conversion price of $1.00 per share, with such Preferred Convertible Stock
convertible into EIFH common stock.
Also in connection with the Acquisition, EIFH issued a $2.5 million
Promissory Note. The note bears interest at the rate of 9% per annum and
becomes due on February 16, 1998. The loan amount represented by the note
was used by EIFH to refinance certain indebtedness of Manta.
The Company's investment in EIFH exceeds the net assets of EIFH by
approximately $15 million. Such amounts are being amortized over 40 years.
As of November 30, 1997, the quoted market value of the Company's 8.8
million shares of EIFH is approximately $4.1 million.
Summarized financial information for EIFH as of September 30, 1997 and for
the nine months then ended is as follows:
Current assets $ 13,806
Noncurrent assets 870
Current liabilities (including note payable to the Company) 25,017
Stockholders' deficit (10,341)
Revenues 10,858
Operating loss (1,344)
Net loss (100)
6. INVESTMENT IN JOINT VENTURES
The Company, through it's wholly owned subsidiary SRS, participates in four
joint ventures with equity interests ranging from 33% to 50%. Each of
these joint ventures is involved in operating SRS' waste treatment
equipment.
At November 30, 1997, the Company's total investment in these joint
ventures is approximately $3.7 million and the Company has receivables from
the joint ventures of approximately $1.5 million. During 1997, the Company
sold and leased certain equipment to the joint ventures in the amount of
approximately $5 million. The Company has deferred profit on these
transactions to the extent of its ownership interest in the amount of
approximately $1.6 million. The results of operations and financial
position of these joint ventures are not material to the Company's
financial position and results of operations as of November 30, 1997.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
1997 1996
-------- --------
Land $ 5,570 $ 1,965
Buildings 14,140 7,345
Fabrication machinery, mobile and other equipment 18,678 20,901
Furniture and fixtures 1,978 1,645
Equipment under capital leases 1,040 626
Leasehold improvements 1,389 908
-------- --------
42,795 33,390
Accumulated depreciation and amortization 9,772 8,191
-------- --------
$ 33,023 $ 25,199
======== ========
Depreciation expense for the years ended November 30, 1997, 1996 and 1995
was $4,467, $1,695 and $986, respectively.
8. INVENTORY
The components of inventory are as follows:
1997 1996
-------- --------
Raw materials $ 6,358 $ 3,897
Consumable supplies 3,345 2,103
Finished goods 8,376 8,846
-------- --------
$ 18,079 $ 14,846
======== ========
9. LONG-TERM DEBT INCLUDING CAPITAL LEASES
1997 1996
--------------------
Note payable to Union Bank of California, payable
$2,386,364 per quarter beginning April, 1998,
interest at LIBOR plus 3.25% collateralized by the
stock of AEC's subsidiaries, their guarantees and
substantially all assets of AEC. $ 52,500 --
Note payable to Deere Park Capital Management,
payable interest only until June, 1998 then monthly
payments of $83,333 plus interest until final
payment in May, 2000, interest at 10%,
uncollateralized. 5,000 --
Note payable to Semamor Enterprises, L.P., payable
interest only until June, 1998 then monthly
payments of $16,667 plus interest until final
payment in May, 2000, interest at 10%,
uncollateralized. 1,000 --
Note payable to Bank of America, payable $83,000
per month beginning January, 1997, plus interest at
bank's reference rate plus 0.75%, collateralized by
receivables, inventory, machinery and equipment
of SRS. -- 3,000
Note payable to Hongkong Bank of Canada, payable
$23,000 per month, including interest at 9.00%,
collateralized by real estate of Industra. -- 2,062
Note payable to The C.A. Turner Construction Company,
Texas payable $92,000 quarterly including interest
at 8.00%, collateralized by substantially all of
the fixed assets of C.A. Turner Construction, Inc.
and Action Contract Services, Inc., two subsidiaries
of the Company, maturing December 2000. -- 1,240
Notes payable, other 1,303 2,126
-------- --------
59,803 8,428
Current portion 8,081 1,708
-------- --------
Long-term portion $ 51,722 $ 6,720
======== ========
The aggregate principal payments on long-term debt during the years
subsequent to November 30, 1997 are: 1998 - $8,081; 1999 - $11,381; 2000 -
$13,914; 2001 - $9,686; 2002 - $9,582; thereafter $7,159.
At November 30, 1997, there is approximately $8,904 of notes payable
outstanding. Included in this amount is a payable to Union Bank of
California under a revolving credit facility in the amount of $8,500. The
maximum borrowings under the credit facility is $12,000, bears interest at
either the prime rate plus 2% or LIBOR plus 3% and is collateralized by
substantially all of the assets of the Company. This revolving credit
facility expires on August 31, 2002. Additionally, the Company has a
balance of $397 under a revolving credit facility with Comerica. The
maximum borrowings under this facility are $500 and it is collateralized by
the assets of CCG.
Under the Union Bank of California credit facility, the Company is required
to maintain certain financial ratios and is restricted by covenants from
certain corporate actions including a prohibition on the Company paying
dividends.
At November 30, 1996, the Company had borrowings under various credit
facilities, all of which were repaid in connection with the borrowings from
Union Bank of California in 1997.
10. LEASE AGREEMENTS
The Company leases equipment and office and warehouse space under operating
leases that expire at various times through September 2002. Future minimum
payments, by year and in the aggregate, under these operating leases,
consisted of the following at November 30:
1998 $2,662
1999 2,210
2000 1,751
2001 1,464
2002 629
------
Total minimum lease payment $8,716
======
Rent expense for the years ended November 30, 1997, 1996 and 1995 amounted
to $634, $538 and $181, respectively.
In May, 1997, the Company entered into a sales/leaseback transaction with a
third party for machinery and equipment. In conjunction with this
transaction, the Company recorded a deferred gain of $1.2 million, which is
being amortized over the sixty month life of the lease.
11. COSTS AND ESTIMATED EARNINGS ON JOBS IN PROGRESS
1997 1996
-------- --------
Costs, estimated earnings and billings are
summarized as follows:
Costs incurred on uncompleted jobs $186,518 $ 66,476
Estimated earnings 28,432 8,417
-------- --------
214,950 74,893
Billings to date 205,155 71,866
-------- --------
$ 9,795 $ 3,027
======== ========
Included in the accompanying balance sheet under
the following captions:
Costs and estimated earnings in excess of billings $ 13,145 $ 3,446
Billings in excess of costs and estimated earnings (3,350) (419)
-------- --------
$ 9,795 $ 3,027
======== ========
12. RELATED PARTY TRANSACTIONS
For the years ended November 30, 1997, 1996 and 1995, the Company had
business transactions with related parties. The details of these
transactions and balances owing from and to these parties are as follows:
During the year ended November 30, 1997, fees aggregating $522 were paid to
a director in his capacity as an officer of the Company. Of this amount
$20 is included in share issue costs, as a reduction to common stock, and
$502 is included in administrative expenses. Additionally, another
director was paid $113 for services rendered during the year, which is
included in deferred financing costs.
During the year ended November 30, 1996, fees aggregating $120 were paid to
a director, in his capacity as an officer of the Company. Of this amount,
$80 is included in deferred financing costs, $30 is
12. RELATED PARTY TRANSACTIONS (continued)
included in share issue costs, as a reduction to common stock, and $10 is
included in administrative expenses. Additionally, another director was
paid $109 for services rendered during the year, of which $27 is
included in deferred financing costs, $18 is included in share issue costs,
as a reduction to common stock, and $64 is included in administrative
expenses.
During the year ended November 30, 1995, fees aggregating $84 were paid to
a director, in his capacity as an officer of the Company. Of this amount,
$75 is included in share issue costs, as a reduction to common stock, and
$9 is included in administrative expenses. Additionally, another director
was paid $140 for services rendered during the year, of which $110 is
included in deferred bid costs and $30 is included in deferred financing
costs.
13. INCOME TAXES
CANADA
Income tax expense varies from the amount that would be computed by
applying the basic combined Canadian federal and provincial rate of 44.34%,
as follows:
1997 1996 1995
------ ------ ------
Basic rate applied to pre-tax income $ 8,542 $ 3,526 $ 419
Reduction due to income taxed in other
jurisdictions (5,316) (2,603) --
Other (247) (137) (315)
Reduction of income taxes due to
application of loss carry forwards (2,507) (786) (104)
---------- --------- --------
Effective Canadian tax expense $ 472 $ -- $ --
========== ========= ========
UNITED STATES
The components of the provision for (recovery of)
income taxes are as follows:
1997 1996 1995
------ ------ ------
Federal $ 4,076 $ (865) $ 16
State 360 50 128
Reduction of income taxes due
to application of loss
carryforwards (1,701) -- --
Benefits from previously unrecorded
tax items (1,529) -- --
Other 151 6 64
------- -------- --------
Effective US tax expense (benefit) $ 1,357 $ (809) $ 208
======= ======== ========
Total tax expense (benefit)
consisting of
Current $ - $ (815) $ 144
Deferred 1,829 6 64
------- -------- --------
$ 1,829 $ (809) $ 208
======= ======== ========
Deferred income taxes result from timing differences between the recording
of income for accounting purposes and for income tax purposes and from the
estimated future tax benefit from operating losses when, in the opinion of
management, realization of such benefits is not virtually certain.
14. SHARE CAPITAL
AUTHORIZED SHARE CAPITAL
The authorized share capital consists of unlimited Class A Preference
shares and unlimited, no par value common shares.
SHARE WARRANTS
As of November 30, 1997, the Company had 3.6 million outstanding share
warrants, which call for the issuance of one common share upon presentation
of the warrant at issue prices ranging from $4.00 to $9.56. These warrants
expire at various times through September 2002.
STOCK OPTIONS
In 1997 the Stockholders adopted the Company's 1997 Stock Option Plan (the
"Plan"). Under the Plan, the Company is authorized to issue 2,956,700
options to purchase shares.
Information with regard to stock options is as follows:
Shares Option Price Range
------ ------------------
Outstanding, November 30, 1994 43,800 $1.75-$2.10
Granted 512,500 $1.80-$1.86
Cancelled -- --
Exercised (60,600) $1.75-$2.10
--------
Outstanding, November 30, 1995 495,700 $1.75-$1.86
Granted 460,313 $3.23-$9.76
Cancelled (66,000) 3.23-$5.69
Exercised (336,850) 1.79-$6.00
---------
Outstanding, November 30, 1996 553,163 $1.76-$9.76
Granted 993,500 $6.67-$7.72
Cancelled (143,888) $1.76-$7.09
Exercised (261,075) $1.79-$9.76
----------
Outstanding, November 30, 1997 1,141,700 $1.79-$7.72
========== ===========
Options current exercisable 391,300 $1.79-$9.76
======= ===========
The weighted average fair value of options granted during 1997, 1996 and
1995 were $6.42, $3.04 and $1.01, respectively.
The weighted average exercise price and remaining term as of November 30,
1997 are $6.42 and 4.0 years, respectively.
15. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES AND PRACTICES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada ("Canadian Basis") which
differ in certain respects from those principles and practices that the
Company would have followed had its consolidated financial statements been
prepared in accordance with accounting practices generally accepted in the
United States ("U.S. Basis").
During 1997, the Company sold $18 million aggregate principal amount of
convertible debentures (the "Debentures"). In connection with these
Debentures, the Company issued approximately 1.7 million stock purchase
warrants to the holders and as placement fees to third parties. Under
Canadian Basis, the total amount allocated to the conversion feature was
being charged to interest expense over ten years. All of these Debentures
were converted during 1997 and the unamortized amount of $11.8 million was
charged to equity. Had the U.S. Basis been followed, the intrinsic value
of the conversion feature of approximately $3.5 million would have been
charged to interest expense immediately as the Debentures contained a
beneficial conversion feature on the date of issuance.
During June, 1996, the Company acquired a 16% interest in EIFH. This
interest was accounted for under the cost method of accounting. Commencing
on January 1, 1997, the Company began accounting for its investment in EIFH
under the equity method as its ownership percentage had increased to 36%.
Under Canadian Basis, the change is accounted for prospectively. Under
U.S. Basis, the Company would have recorded an adjustment to accrue its
proportionate share (16%) of EIFH's losses from the period when the Company
first invested in EIFH through the period when they commenced equity method
accounting. The total amount of additional losses which the Company would
have recorded is approximately $1.5 million.
Under Canadian Basis, income tax losses available to be carried forward are
recognized only when there is virtual certainty that they will be realized.
Under U.S. Basis, income tax losses available to be carried forward are
recognized when it is more likely than not that they will be realized. For
the years ended November 30, 1996 and 1995, there were no significant
differences between these two methods.
Under U.S. Basis, utilization of pre-acquisition net operating losses
should be credited to goodwill rather than as a reduction in the income tax
provision, as is practice under Canadian Basis. Therefore, under U.S.
Basis, the goodwill and income tax provision would have been adjusted by
approximately $1.0 million.
The following is a reconciliation of net income under Canadian Basis to net
income under U.S. Basis.
Canadian Basis U.S. Basis
-------------- ----------
Pre-tax income $19,264 $14,264
Tax provision 1,829 2,878
------- -------
Net income $17,435 $11,386
======= =======
Under U.S. Basis, primary and fully diluted earnings per share is
calculated using the treasury stock method. The calculation of earnings per
share under U.S. Basis is as follows:
Net income $11,386
Net income per share - Primary $0.66
Net income per share - Fully diluted $0.65
Weighted average number of shares
Primary 17,142,519
Fully Diluted 18,784,330
SFAS No. 123 "Accounting for Stock Based Compensation," issued in October
1995, defines a fair value method of accounting for employee stock
options. Under this fair value method, compensation cost is measured at
the grant date on the fair value of the award and is recognized over the
vesting period. SFAS No. 123 allows, and the Company has elected, to
continue to measure compensation cost in accordance with APB No. 25 for
purposes of the U.S. to Canadian GAAP reconciliation. Accordingly, the
Company is providing the disclosures required by SFAS No. 123.
The pro forma net income and basic earnings per share amounts below have
been derived using the Black -Scholes stock option pricing model with the
following assumptions for each stock option grant during the respective
year:
1997 1996 1995
Assumptions ---------- ---------- ----------
Risk-free interest rates 6.37%-6.63%5.60%-5.75% 5.68%-5.75%
Expected life of stock options (years) 5 5 5
Expected volatility of common stock 55% 55% 55%
Expected annual dividends of stock
options 0 0 0
Net income - as reported $17,435 $8,763 $2,852
Net income - pro forma $17,191 $8,311 $2,543
Basic earnings per share - as reported $1.08 $0.81 $0.40
Basic earnings per share - pro forma $1.06 $0.77 $0.35
The pro forma effects on net income and income per common share for fiscal
1997, 1996 and 1995 may not be representative of the pro forma effects
Statements of Financial Accounting Standards No. 123 "Accounting for Stock
Based Compensation" may have in future years.
In February, 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share", which is effective for years ending after
December 15, 1997. This statement replaces the presentation of primary
earnings per share with a presentation of basic earnings per share ("EPS").
Basic EPS excludes the dilution effect of common
stock equivalents previously included in primary EPS and is computed by
dividing net earnings by the weighted-average number of common shares
outstanding for the period. The calculation of diluted EPS will not change
under SFAS No. 128. The adoption of SFAS 128 by the Company, will not
materially change the amounts disclosed as basic EPS.
In June, 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which are both
effective for years beginning after December 15, 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full set of
general-purposes financial statements. It further requires that an
enterprise a) classify items of other comprehensive income by their nature
in a financial statement and b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-
in capital in the equity section of a statement of financial position.
SFAS 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
The adoption of SFAS 130 and 131 are for disclosure purposes only.
16. RETIREMENT PLANS
The Company has a profit-sharing plan (defined contribution) retirement
plan covering substantially all employees, except employees who are members
of a union who bargained separately for retirement benefits. Employees are
eligible upon attaining the age of twenty-one (21) and completing one (1)
year of service. The amount of contribution to the plan is determined
annually by the Board of Directors and may vary from zero to fifteen
percent of covered compensation.
The Company, through it's collective bargaining agreements with various
unions, contributes to the unions' retirement plans. For the years ended
November 30, 1997, 1996 and 1995, an expense of $2.7 million, $1.5 million
and $0.6 million, respectively, was incurred for these retirement plans.
17. CONVERTIBLE DEBT
On January 24, 1997, the Company sold $15 million aggregate principal
amount of 9.5% Convertible Debentures ("January Debentures") due January
24, 2007, together with 1,125,000 warrants to purchase the Company's common
stock at a price of $9.56. In connection with this transaction, the
Company issued 300,000 warrants to a placement agent and incurred costs of
approximately $1.5 million.
On February 14, 1997, the Company sold $1 million aggregate principal
amount of 9.5% Convertible Debentures ("February Debentures") due February
14, 2007, together with 71,429 warrants to purchase the Company's common
stock at a price of $9.49. In connection with this transaction, the
Company incurred costs of approximately $100 thousand.
On March 3, 1997, the Company sold $3 million aggregate principal amount of
9.5% Convertible Debentures ("March Debentures") due March 3, 2007,
together with 225,000 warrants to purchase the Company's common stock at a
price of $9.21. In connection with this transaction, the Company incurred
costs of approximately $50 thousand.
The total proceeds have been allocated between the warrants issued to the
holders, the conversion feature and debt based on discounted cash flows and
an effective interest rate of 12%. All of these debentures were converted
into common shares during 1997 and the unamortized costs were charged to
shareholders' equity upon conversion.
18. LITIGATION
The Company had been involved in an arbitration with a customer whereby the
customer claimed damages from the Company totaling $19.3 million consisting
of delay damages and cost of completion. The Company counter claimed $2.4
million for breach of subcontract and $10.0 million for the customer bad
faith and intentional misconduct. On June 16, 1997, the arbitrator ruled
in favor of the Company and awarded the Company $1.3 million net of costs
of $1.1 million. The Company has received such amounts and has included
them in its results of operations for 1997.
At November 30, 1997, there were various claims and disputes incidental to
the business. The Company believes that the disposition of all such claims
and disputes, individually or in the aggregate, should not have a material
adverse affect upon the Company's financial position, results of operations
or cash flows.
19. FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash and trade accounts receivable.
At November 30, 1997 and 1996, the Company had notes receivable balances of
$46,335 and $6,975, respectively, with various entities or persons as
described in Note 4 to Consolidated Financial Statements. Although some of
the notes are collateralized or partially collateralized, the ultimate
collectibility is dependent on the financial conditions of the various
debtors. Concentrations of credit risk with respect to trade receivables
are limited due to the large number of customers comprising the Company's
customer base and their diverse industries and geographic areas. The
Company has write offs, net of recoveries of $466 in 1997, $286 in 1996 and
$60 in 1995.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate fair value because of
the short maturity of these items. The carrying amounts of long-term debt
approximate fair value because the interest rates on these instruments
change with market interest rates.
20. SEGMENTS OF THE BUSINESS
The Company operates in Canada and the United States in three primary
industry segments: (1) Environmental Remediation Services which involves
asbestos removal, insulation and other environmental services, (2)
Industrial Support Services which involves the repair, maintenance and
modification of boilers, pressure vessels and tubing used in industrial
facilities and the provision of engineering services and (3) Specialty
Fabrication Services which involves construction of high-quality custom
steel and alloy products. It is the Company's policy to price intersegment
contracts on an equivalent basis to that used for pricing external
contracts. The following is a summary of selected data for these business
segments:
Environmental Industrial
Remediation Support
Services Services
------------ ----------
1997
Contract income $ 12,125 $147,424
Operating income (loss) (514) 15,104
Depreciation and amortization 923 3,336
Capital expenditures during the year 312 1,871
Identifiable assets 7,375 133,390
1996
Contract income $ 18,489 $ 94,584
Operating income 2,539 2,812
Depreciation and amortization 699 1,063
Capital expenditures during the year 516 1,336
Identifiable assets 22,988 29,121
1995
Contract income $ 5,362 $ 41,322
Operating income 505 2,555
Depreciation and amortization 214 893
Capital expenditures during the year 54 1,675
Identifiable assets 4,636 17,163
Specialty
Fabrication Consolidated
Services Total
------------------------
1997
Contract income $ 60,929 $220,478
Operating income (loss) 11,763 26,353
Depreciation and amortization 1,123 5,382
Capital expenditures during the year 1,536 3,719
Identifiable assets 71,021 211,786
1996
Contract income $ 6,456 $119,529
Operating income 2,603 7,954
Depreciation and amortization 470 2,232
Capital expenditures during the year 6,155 8,007
Identifiable assets 19,668 71,777
1995
Contract income $ -- $ 46,684
Operating income -- 3,060
Depreciation and amortization -- 1,107
Capital expenditures during the year -- 1,729
Identifiable assets -- 21,799
The following table provides information with respect to the geographics
segmentation of the Company's business
Canada
--------
1997
Contract income $ 50,835
Operating income 7,728
Depreciation and amortization 1,223
Capital expenditures during the year 124
Identifiable assets 122,472
1996
Contract income $ 6,509
Operating income 90
Depreciation and amortization 166
Capital expenditures during the year 6,151
Identifiable assets 20,988
1995
Contract income --
Operating income --
Depreciation and amortization --
Capital expenditures during the year --
Identifiable assets --
United States Consolidated
------------- ------------
1997
Contract income $169,643 $220,478
Operating income 18,625 26,353
Depreciation and amortization 4,159 5,382
Capital expenditures during the year 3,595 3,719
Identifiable assets 89,314 211,786
1996
Contract income $113,020 $119,529
Operating income 7,864 7,954
Depreciation and amortization 2,066 2,232
Capital expenditures during the year 1,856 8,007
Identifiable assets 50,789 71,777
1995
Contract income $ 46,684 $ 46,684
Operating income 3,060 3,060
Depreciation and amortization 1,107 1,107
Capital expenditures during the year 1,729 1,729
Identifiable assets 21,799 21,799
21. SIGNIFICANT TRANSACTIONS
In November 1997, the Company sold its 50% ownership in MART to a third
party for $14.0 million, payable quarterly over five years with interest at
10% per annum. During fiscal 1997, two of the Company's subsidiaries (SRS
& United Eco) sold equipment and provided services to MART. SRS sold to
MART equipment for $4.0 million and United Eco provided construction,
maintenance and operation services for approximately $6.6 million. MART is
a state of the art thermal treatment facility which treats soils, sediments
and other materials contaminated with hazardous and non-hazardous
chemicals.
The Consolidated Statement of Income includes revenue and direct costs of
$24.6 million and $14.4 million, respectively resulting from these
transactions.
22. SUBSEQUENT EVENT-PROPOSED ACQUISITION OF DOMINION BRIDGE CORPORATION
On February 20, 1998, the Company and Dominion Bridge Corporation entered
into a non-binding Letter of Intent which provides for a) the purchase of
$5.0 million of Dominion Bridge common stock by the Company, b) a working
capital loan facility of up to $25.0 million to be provided by the Company
to Dominion Bridge, c) the engagement of the Company to provide certain
management services to Dominion Bridge, and d) the acquisition by the
Company of the business and assets of Dominion Bridge.
The purchase of $5.0 million dollars of Dominion Bridge stock was
consummated on February 20, 1998.
The proposed consideration for the acquisition is 7 1/2% convertible
subordinated notes and the principal amount of $3.00 for each outstanding
share of Dominion Bridge stock payable three years after closing and
convertible into American Eco common shares at a conversion rate of $15.00
per share. Aggregate value of the acquisition, including debt assumed of
$37.5 million would be approximately $135.0 million.
Consummation of the transaction will be subject to approval of the
respective boards of directors, shareholders, along with the required
regulatory and governmental consents. There is no assurance that the
transaction will be consummated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
In May 1997, the shareholders ratified the selection of
Coopers & Lybrand, L.L.P. as auditors of the Company, effective
May 7, 1997. Karlins Fuller Arnold & Klodosky, P.C. ("Karlins
Fuller"), which had been the Company's prior auditors, resigned
as auditors of the Company, effective May 7, 1997.
The Company has had no disagreements with Karlins Fuller
during fiscal 1996 or 1995 on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or
procedure. The reports of Karlins Fuller for either fiscal 1996
or 1995 did not contain an adverse opinion or a disclaimer of
opinion or were qualified or modified as to uncertainty, audit
scope or accounting principles.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The names of the executive officers, directors and certain
significant employees are set forth below, together with the
positions held by each such person in the Company and their ages
as of March 13, 1998. All directors are elected annually by the
shareholders of the Company and serve until their successors are
duly elected and qualified. Officers are elected by the Board of
Directors and serve at the will of the Board of Directors.
NAME AGE Positions
---- --- ---------
Michael E. McGinnis 48 Chairman, President, Chief
Executive Officer and Director
John C. Pennie 59 Vice-Chairman of the Board of
Directors
David L. Norris 48 Senior Vice President and Chief
Financial Officer
Bruce Tobecksen 53 Vice President and Treasurer
Bruce A. Rich 58 Secretary
Barry Cracower 60 Director
William A. Dimma 70 Director
Hon. Donald R. Getty 64 Director
Francis J. Sorg Jr. 76 Director
Larry Cundy 47 Division Chief Executive Officer,
Industra
Joseph D. DeFranco 76 Division President, SRS
Besim Halef 42 Division President, MM Industra
Matthew D. Hill 28 Division President, Turner Group
John Hoyle 51 Division President, United Eco
C.N. Jones 40 Division President, CCG
Toomas Kukk 57 Division President, Chempower
EXECUTIVE OFFICERS
MICHAEL E. MCGINNIS has been the President and Chief
Executive Officer of the Company since 1993, a director since
1994 and Chairman since May 1997. He was the President and Chief
Executive Officer of Eco Environmental, Inc., a provider of
environmental remediation services to industrial clients, when it
was acquired by the Company in 1993. Prior to joining Eco
Environmental, Inc. in 1992, Mr. McGinnis was employed with The
Brand Companies, Inc., one of the largest asbestos abatement
contractors in the United States. Mr. McGinnis joined The Brand
Companies in 1965 and served in various operational and
administrative capacities for over 27 years. Mr. McGinnis has
been a director of EIF since February 1996, having served as its
Chairman of the Board from June 1996 to October 1997, and was
President of EIF from March 1996 to August 1996. He has been a
director of Dominion Bridge since February 1998.
JOHN C. PENNIE has been a director of the Company since
February 1992 and the Vice-Chairman of the Board of Directors
since October 1993. Mr. Pennie served as the Company's President
and Chief Executive Officer in 1992 in order to execute the
downsizing and reorganization of the Company. Prior to joining
the Company, Mr. Pennie was a business consultant with over 25
years of experience in assisting turnaround and start-up
companies. He is the Chairman and Chief Executive Officer
of Unistar Corporation, a Canadian company.
DAVID L. NORRIS has been Senior Vice President and Chief
Financial Officer of the Company since March 1997. He also had
been President and Chief Executive Officer and a director of EIF
from August 1996 through February 1997. Prior thereto, Mr.
Norris was the President of Tonopah Resources International, Inc.
and Citadel Environmental Group, Inc., which owned and operated
several abatement and remediation companies in the environmental
industry. From 1994 to 1996, Mr. Norris was the President and
Managing Member of WNH Investments, L.L.C., which is a private
investment banking company investing principally in companies in
the environmental and energy industries. From 1992 to 1994, Mr.
Norris was the President and Chief Operating Officer of North
American Recycling Systems, Inc. Prior thereto, from 1972 to
1992, Mr. Norris was employed by Evergren Bankcorp, Inc., most
recently as Executive Vice President in charge of corporate
banking.
BRUCE TOBECKSEN has been Vice President and Treasurer of
the Company since January 1998. Prior thereto, he served as Vice
President, Finance of Chemical Waste Management, a waste
management services company, from 1993 to 1997 and as Chief
Financial Officer and Controller of Chemical Waste Management
from 1982-1993.
BRUCE A. RICH has been Secretary of the Company since May
1997. He has been a partner in Reid & Priest LLP, a New York,
New York law firm since 1992, and prior thereto was a partner in
another law firm. His law firm has performed legal services for
the Company.
OUTSIDE DIRECTORS
BARRY CRACOWER has been a director of the Company since
December 1996. Mr. Cracower has been the President of Pharmx
Rexall Drug Stores Ltd., a drug store chain based in Concord,
Ontario, since 1990. Prior to 1990, he held senior executive
positions at several major Canadian corporations. Mr. Cracower
served on the Board of Directors of the predecessor corporation
to the Company, ECO Corp., in 1992 during its restructuring. He
also is as a director of Algonquin Mercantile Corporation, a
Canadian company.
WILLIAM A. DIMMA has been a director of the Company since
January 1997. Mr. Dimma has served as the Chairman of the Board
of Canadian Business Media Ltd since 1992, and York University
since 1991. For more than five years through 1993, Mr. Dimma
served as the Deputy Chairman and also as the President and Chief
Executive Officer of Royal LePage Limited, a Canadian real estate
company. In addition to the companies mentioned above, Mr. Dimma
is a director of the Greater Toronto Airport Authority, Magellan
Aerospace Corporation, IPL Energy Inc., a pipeline and gas
distribution company, London Life Insurance Company, Sears Canada
Inc. and Trilon Financial Corporation, a financial services
company.
HON. DONALD R. GETTY has been a director of the Company
since January 1997. Mr. Getty has been the President and Chief
Executive Officer of Sunnybank Investments Ltd., an investment
and consulting company located in Edmonton, Alberta, since
December 1992. Mr. Getty has held elected and appointive offices
in Canadian government, most recently as the Premier of the
Province of Alberta from 1985 to 1992 and as the Minister of
Energy and Natural Resources for the federal government of Canada
between 1971 and 1979. Mr. Getty currently serves on the boards
of directors of Mera Petroleum, an oil and gas company, Cen Pro
Technologies, an engineering company, Farm Energy Corporation, an
ethanol production company, and Guyanor Resources, a mining
company, all located in Canada.
FRANCIS J. SORG JR. has been a director of the Company
since May 1997. For more than the past five years, he has served
as Chairman of the Board of SRS, which the Company acquired in
July 1996.
SIGNIFICANT EMPLOYEES
LARRY CUNDY has served as the Division Chief Executive
Officer of Industra since April 1997. For more than twenty years
prior thereto, he had been employed by Parsons Power Inc. and its
predecessor, his last position being Regional Director of Sales.
JOSEPH D. DEFRANCO has been as the Division President of
SRS since July 1996 when SRS was acquired by the Company. Mr.
DeFranco had served as the President, Chief Executive Officer,
Treasurer and a director of SRS since 1973.
BESIM HALEF has been the Division President of MM Industra
since June 1996. Between April 1994 and May 1996, Mr. Halef
served as a project general manager for National Heavy Industries
Limited, Saudi Arabia in connection with a project to build
specialty fabrication facilities in the Kingdom of Saudi Arabia.
Mr. Halef had served in various capacities at M&M Manufacturing
Limited Partnership, the predecessor of MM Industra, between 1994
and 1985, most recently as the Executive Vice President and
General Manager of that company from March 1991 to April 1994.
MATTHEW D. HILL has served as the Division President and
Vice President/Director of Operations, Gulf Coast, of Turner
Group since April 1997. He served as the Company's Executive
Director of Administration from January 1997 until March 1997 and
as the Company's Director of Special Projects from March 1996
until January 1997. Prior thereto, Mr. Hill was Manager of Eco
Environmental's Spill Response Division from April 1995 to March
1996. Prior to joining Eco Environmental, Mr. Hill had been
Plant Manager of Alumatech, Inc., a specialty aluminum trailer
manufacturer, since May 1992.
JOHN HOYLE has been as the Division President of United
Eco since November 1996. Mr. Hoyle had been the President of
Four Seasons Environmental, Inc., an environmental services
company, between July 1996 and August 1993, and served as the
Vice President of that corporation between August 1993 and
September 1990.
C.N. JONES has served as the Division President of CCG
since September 1997 when CCG was acquired by the Company. Mr.
Jones had served as the President of CCG since 1991.
TOOMAS KUKK has served as the Division President of
Chempower since its acquisition in March 1997. Mr. Kukk founded
Chempower and Powerhouse Equipment, Inc., the predecessor to
Chempower, and he served as the Chief Executive Officer and
Chairman of the Board of Directors of Chempower since its
organization in 1985.
BOARD OF DIRECTORS MATTERS
The Board of Directors has an Audit Committee, a
Compensation Committee and a Corporate Governance Committee. The
Audit Committee reviews the annual and quarterly financial
statements, and material investments and transactions, and meets
with the outside accountants and senior management regarding,
among other items, internal control procedures established by the
Company. The Compensation Committee sets the level of
compensation of the Company's executive officers. The Corporate
Governance Committee monitors compliance with the corporate
governance guidelines of the Company.
During the 1997 fiscal year, the Board of Directors met in
person or telephonically 11 times, and each director attended at
least 64.0% of the meetings. The Board of Directors also
authorized corporate actions through written consents.
COMPLIANCE WITH CERTAIN REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934
requires that the officers, directors and 10.0% shareholders of a
domestic issuer report the ownership and purchase or sale of the
equity securities of such issuer to the SEC. In 1997, the Company
ceased being a foreign private issuer and its officers, directors
and 10.0% shareholders became subject to Section 16(a). Based
on the Company's records, the Company believes that its officers,
directors and 10.0% shareholders are in compliance with Section
16(a) for fiscal 1997.
ITEM 11. EXECUTIVE COMPENSATION.
The following table discloses the compensation awarded to
or earned by the Chief Executive Officer and the other most
highly compensated executive officers of the Company as of the
end of fiscal 1997 whose annual salary plus other forms of
compensation exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------------
NAME OTHER ANNUAL
AND COMPENSATION
POSITION YEAR SALARY ($) BONUS ($) ($)
-------------- ---- ---------- -------- ---------------
Michael E. 1997 279,166 (1) 0 10,885 (2)
McGinnis 1996 252,276 (1) 0 6,439 (2)
Chairman of the 1995 102,201 (1) 0 6,440 (2)
Board,
President and
Chief Executive
Officer
David L. Norris 1997 161,538 (3) 0 4,900 (2)
Senior Vice 1996 0 0 0
President and 1995 0 0 0
Chief Financial
Officer (3)
John C. Pennie 1997 0 0 112,885 (4)
Vice-Chairman 1996 0 0 109,140 (4)
of the Board 1995 0 0 119,100 (4)
SUMMARY COMPENSATION TABLE
LONG-TERM ALL OTHER
COMPENSATION COMPENSATION
----------------- ------------------
NAME SECURITIES
AND UNDERLYING
POSITION OPTIONS (#)
-------------- -----------------
Michael E. McGinnis 150,000 0
Chairman of the Board, 20,000 0
President and 100,000 0
Chief Executive
Officer
David L. Norris 70,000 0
Senior Vice President 15,000 0
and Chief Financial 0 0
Officer (3)
John C. Pennie 100,000 0
Vice-Chairman 0 0
of the Board 50,000 0
---------------------
(1) Includes $1,600, $1,138 and $1,158 of deferred
compensation contributed by the Company to Mr.
McGinnis' 401K Plan in fiscal 1997, 1996 and fiscal
1995, respectively.
(2) Represents automobile lease payments paid by the
Company.
(3) Mr. Norris became an employee in August 1996. From
August 1996 to February 1997, he had been an
executive officer of EIF, and the Company
reimbursed EIF for compensation amounts paid by EIF
to Mr. Norris.
(4) Represents fees paid to Windrush Corporation, 50%
of which is owned by Mr. Pennie, for executive
services including rent and secretarial services
for the Company's Toronto office.
EMPLOYMENT CONTRACTS
The Company and Michael E. McGinnis have entered into an
employment agreement pursuant to which Mr. McGinnis receives an
annual base salary of $300,000, an automobile allowance of $750
per month plus any operating and maintenance expenses associated
with such vehicle, and is entitled to participate in an annual
bonus program determined by the level of basic earnings per share
of the Company for each fiscal year of the term of the employment
agreement. The agreement provides for up to five years
compensation if he is terminated without cause, or upon his death
or disability, subject to certain limitations. The employment
agreement terminates on May 1, 2002. Mr. McGinnis waived his
annual bonus for fiscal 1997.
The Company and David L. Norris entered into an employment
agreement effective May 1, 1997 pursuant to which Mr. Norris will
be paid an annual base salary of $225,000, an automobile
allowance of $750 per month plus any operating and maintenance
expenses associated with such vehicle, and he is entitled to
participate in an annual bonus program determined by the level of
basic earnings per share of the Company for each fiscal year of
the term of the employment agreement. The agreement provides for
up to three years compensation if Mr. Norris is terminated by the
Company without cause subject to certain limitations. Mr.
Norris' employment agreement with the Company terminates on May
1, 2000. Mr. Norris waived his annual bonus for fiscal 1997.
The Company and Bruce Tobecksen entered into an employment
agreement effective January 1, 1998 pursuant to which Mr.
Tobecksen will be paid an annual base salary of $250,000, an
automobile allowance of $750 per month plus any operating and
maintenance expenses associated with such vehicle, and he is
entitled to participate in an annual bonus program determined by
the level of basic earnings per share of the Company for each
fiscal year of the term of the employment agreement. The
agreement provides for up to three years compensation if Mr.
Tobecksen is terminated by the Company without cause subject to
certain limitations. Mr. Tobecksen's employment agreement with
the Company terminates on January 1, 2001.
COMPENSATION OF DIRECTORS
The directors of the Company who are not otherwise employees
or consultants of the Company receive CDN$20,000 per year. In
addition, the directors of the Company receive CDN$1,000 per
meeting and all reasonable expenses incurred by the directors in
respect of their duties are reimbursed by the Company. None of
the directors of the Company receives compensation in his
capacity as a director pursuant to any other arrangement or in
lieu of any standard arrangement except through the granting of
stock options.
The following table provides information with respect to stock
options granted to the Named Executive Officers during fiscal
1997.
STOCK OPTIONS GRANTED
IN FISCAL YEAR ENDED NOVEMBER 30, 1997
--------------------------------------
% OF TOTAL
OPTIONS
SECURITIES GRANTED TO
UNDER EMPLOYEES EXERCISE
OPTIONS IN FINANCIAL PRICE
NAME GRANTED (#) YEAR (CDN$)
---- ------------ ------------ ------------
Michael E. McGinnis 150,000 15 % 9.50
David L. Norris 70,000 7 % 10.10
John C. Pennie 100,000 10 % 9.50
MARKET VALUE
OF SECURITIES
UNDERLYING
OPTIONS ON
THE DATE OF
GRANT EXPIRATION
NAME (CDN$) DATE
---- ----------- ----------
Michael E. McGinnis 9.50 1/15/2002
David L. Norris 10.10 3/3/2002
John C. Pennie 9.50 1/15/2002
The following table provides information with respect to stock
options exercised by the Named Executive Officers during the
fiscal year ended November 30, 1997 and the balance of stock
options remaining after such exercises. All stock options
described below were presently exercisable at November 30, 1997.
AGGREGATED STOCK OPTIONS EXERCISED
IN FISCAL YEAR ENDED NOVEMBER 30, 1997
AND FISCAL YEAR-END VALUES
----------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS AT
FISCAL
YEAR-END
(#)
-------------
SECURITIES
ACQUIRED
UPON VALUE REALIZED EXERCISABLE/
NAME EXERCISE(#) (US$) UNEXERCISABLE
---- ---------- ------------- -------------
Michael E. McGinnis 0 -- $138,000/132,000
David L. Norris 10,000 37,900 $14,000/71,000
John C. Pennie 0 -- $20,000/80,000
VALUE OF UNEXERCISED IN-THE-MONEY STOCK
OPTIONS AT FISCAL
YEAR-END
(CDN$)(1)
----------------------
EXERCISABLE/
NAME UNEXERCISABLE
---- -------------
Michael E. McGinnis 1,513,900/804,600
David L. Norris 70,700/351,050
John C. Pennie 113,000/452,000
--------
(1) Based on the closing price of the Common Shares on The
Toronto Stock Exchange on November 28, 1997 of CDN$15.15.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth as of March 13, 1998 the number
of Common Shares beneficially owned by (i) each person known to
be the beneficial owner of more than five percent of the
outstanding Common Shares, (ii) each director of the Company,
(iii) each Named Executive Officer and (iv) all officers and
directors of the Company as a group as known by the Company or as
reflected on the records of the transfer agent.
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)
------------------------------------ -------------------------
NUMBER PERCENTAGE
-------- ----------
Barry Cracower . . . . . . . . . . . 40,000(2) *
William A. Dimma . . . . . . . . . . 40,000(2) *
Hon. Donald R. Getty . . . . . . . . 40,000(2) *
Michael E. McGinnis . . . . . . . . . 432,010(3) *
David L. Norris . . . . . . . . . . . 14,000(2) *
John C. Pennie . . . . . . . . . . . 42,500(4) *
Francis J. Sorg Jr. . . . . . . . . . 91,229(5) *
Directors and executive
officers as a group (7 persons) . . . 699,739(6) *
-----------------------
* Represents less than one percent of the issued and outstanding
Common Shares.
(1) Unless otherwise indicated, all persons have sole voting and
investment power over the Common Shares.
(2) Represents Common Shares underlying presently exercisable
stock options.
(3) Includes (i) 138,000 Common Shares underlying presently
exercisable stock options and (ii) 81,750 shares owned by
his wife.
(4) Includes 40,000 Common Shares underlying presently
exercisable stock options.
(5) Includes 20,000 Common Shares underlying presently
exercisable stock options.
(6) Includes Common Shares disclosed in notes (2), (3), (4) and
(5) above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH MANAGEMENT OR AFFILIATES OF MANAGEMENT
Pursuant to an agreement between the Company and Windrush
Corporation ("Windrush"), dated December 1, 1997, Windrush
receives a fee of $9,000 per month in consideration for executive
services for administration, strategic and marketing planning
provided to the Company plus fees which are negotiated on a
project-by-project basis for other specific services rendered.
This agreement expires on December 1, 2000. John C. Pennie, the
Vice-Chairman of the Board of Directors of the Company, owns 50%
of Windrush.
As of August 31, 1997, the Company sold Eco Environmental and
Environmental Evolutions to Eurostar Interests Ltd. ("Eurostar")
for an aggregate of $11.0 million payable in a one-year
promissory note, which was to be collateralized by all of the
capital stock of Eurostar.
Eurostar expects to assign its interest in Eco Environmental
and Environmental Evolutions to UKStar (Canada) Inc. ("UKStar"),
which, in turn, expects to transfer its interest in Eco
Environmental and Environmental Evolutions to Unistar Corporation
("Unistar"), a Canadian company. Windrush owns 6.66% of UKStar.
Mr. Pennie, the Chairman and Chief Executive Officer of Unistar,
owns 50% of Windrush.
In February 1998, Unistar paid $603,000 to the Company for
reimbursement of monies advanced by the Company for the operating
expenses of Eco Environmental and Environmental Evolutions from
September 30, 1997 to November 30, 1997.
Unistar posted a guaranty bond in the amount of $3.0 million
payable to the Company on June 30, 1998.
In March 1997, the Company entered into a three-year consulting
contract with Mark White, Chairman of the Board of Directors at the
time. On May 7, 1997, a new slate of directors was elected by the
shareholders of the Company, and Mr. White's directorship terminated.
The consideration for the three-year consulting contract of $500,000
was paid in full in fiscal 1997.
INDEBTEDNESS OF MANAGEMENT OR AFFILIATES OF MANAGEMENT
During fiscal 1997, the Company loaned $84,100 to Michael E.
McGinnis for the purpose of purchasing Common Shares of the
Company in the open market. The loan increased his indebtedness
to the Company to $630,057. The loan matures on May 7, 1998,
bears interest at the rate of 10.0% per annum and is
collateralized by the purchased shares. The balance of the loan,
including interest, as of March 13, 1998 is $630,057.
In May 1997, the Company loaned $305,000 at 8.5% interest per
annum to David L. Norris for the purchase of a home in connection
with his relocation to the Company's headquarters in Houston,
Texas. The loan matures in May 1998 and is unsecured. The balance
of the loan, including interest, as of March 13, 1998 is $318,000.
In June 1997, the Company loaned $60,105 to John C. Pennie.
The loan matures in June 1998, bears interest at the rate of 8.5%
per annum and is unsecured. The balance of the loan, including
interest, as of March 13, 1998 is $60,105.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) FINANCIAL STATEMENTS:
The following audited consolidated financial statements
of American Eco Corporation and subsidiaries are included
in Item 8:
Report of Independent Auditors
Consolidated Balance Sheet as of November 30, 1997 and
1996
Consolidated Statement of Income for the years ended
November 30, 1997, 1996 and 1995
Consolidated Statement of Shareholders' Equity for the
years ended November 30, 1997, 1996 and 1995
Consolidated Statement of Changes in Financial Position
for the years ended November 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
The following consolidated financial statement schedules
of American Eco Corporation and subsidiaries are included
in Item 14(d):
All schedules to the consolidated financial statements
required by Article 7 of Regulation S-X are not required
under related instructions or are not applicable and,
therefore, have been omitted.
(b) REPORTS ON FORM 8-K
Current Report on Form 8-K, dated February 20, 1998
(c) EXHIBITS
3.1.1 Letters Patent (Certificate of Incorporation) filed
February 6, 1969 (incorporated by reference to Exhibit
3.1.1 to the Company registration statement on Form 10,
dated September 19, 1990 [the "Form 10"]).
3.1.2 Supplementary Letters Patent, dated June 26, 1970
(incorporated by reference to Exhibit 3.1.2 to the Form
10).
3.1.3 Articles of Amendment, filed June 16, 1975 (incorporated
by reference to Exhibit 3.1.3 to the Form 10).
3.1.4 Articles of Amendment, filed June 23, 1978 (incorporated
by reference to Exhibit 3.1.4 to the Form 10).
3.1.5 Articles of Amendment, filed June 20, 1986 (incorporated
by reference to Exhibit 3.1.5 to the Form 10).
3.1.6 Articles of Amendment, filed June 17, 1987 (incorporated
by reference to Exhibit 3.1.6 to the Form 10).
3.1.7 Articles of Amendment, certified on November 19, 1993
(incorporated by reference 3.1.7 to the Company's Form
10-K for the fiscal year ended November 30, 1996 [the
"1996 Form 10-K"]).
3.1.8 Articles of Amendment, certified on May 27, 1997
(incorporated by reference to Exhibit 3.1 to the
Company's Form 10-Q for the quarter ended May 31, 1997
[the "May 1997 Form 10-Q"]).
3.2.1 By-Laws (incorporated by reference to Exhibit 3.2 to the
Form 10.).
3.2.2 By-Law Number 10 (incorporated by reference to Exhibit
3.2.2 to the 1996 Form 10-K).
4.1 Share Option Plan (incorporated by reference to Exhibit
to Management Information Circular to the Company's Form
6-K, dated September 27, 1995).
4.2 Form of 9.5% Cumulative Convertible Debenture due January
24, 2007 (incorporated by reference to Exhibit 2 to the
Company's Form 6-K, dated February 7, 1997).
4.3 Form of 9.5% Cumulative Convertible Debenture due March
3, 2007 (incorporated by reference to Exhibit 2 to the
Company's Form 6-K, dated March 14, 1997).
4.4 Form of Stock Purchase Warrant (incorporated by reference
to Exhibit 3 to the Company's Form 6-K, dated February 7,
1997).
4.5 Form of Common Stock Purchase Warrant expiring May 29,
2002 (incorporated by reference to Exhibit 4.5 to the May
1997 Form 10-Q).
10.1 Memorandum, dated October 5, 1995, between the Company
and Windrush Corporation (incorporated by reference to
Exhibit 10.6 to the 1994 Form 20-F).
10.2 Share Exchange Agreement, dated June 1, 1994, among
Westlake Interests, Ltd., Cambridge, the Company and Marc
A. Sparks (incorporated by reference to Exhibit 10.7.1 to
the 1994 Form 20-F).
10.3 Acquisition Agreement, dated July 31, 1995, between the
Company and Kenneth Hagan and Janet Hagan. (incorporated
by reference to Exhibit 2.7.1 to the 1995 Form 20-F).
10.4.1 Agreement and Plan of Merger dated as of April 26, 1996,
among the Company SRS Acquisition Corporation and
Separation and Recovery Systems, Inc. ("SRS")
(incorporated by reference to Exhibit 10.4.1 to the 1996
Form 10-K).
10.4.2 Business Loan Agreement, dated as of February 7, 1996,
between Bank of America National Trust and Savings
Association ("BA") and SRS (incorporated by reference to
Exhibit 10.4.2 to the 1996 Form 10-K).
10.4.3 Amendment No. 1 to Business Loan Agreement, dated as of
July 3, 1996, between SRS and BA (incorporated by
reference to Exhibit 10.4.3 to the 1996 Form 10-K).
10.4.4 Continuing Guarantee, dated as of July 3, 1996 from the
Company to BA (incorporated by reference to Exhibit
10.4.4 to the 1996 Form 10-K).
10.4.5 Subordination Agreement, dated July 3, 1996, among the
Company, SRS and BA (incorporated by reference to Exhibit
10.4.5 to the 1996 Form 10-K).
10.5 Acquisition Agreement, dated as of May 31, 1996, between
the Company and United Eco Systems, Inc. (incorporated by
reference to Exhibit 10.5 to the 1996 Form 10-K).
10.6.1 WCMA Note, Loan and Security Agreement, dated as of
August 23, 1996 between American Eco/SP Corporation and
Merrill Lynch Business Financial Services, Inc. ("MLBFS")
(incorporated by reference to Exhibit 10.6.1 to the 1996
Form 10-K).
10.6.2 Security Agreement, dated as of August 26, 1996 between
C.A. Turner Maintenance, Inc. ("Turner") and MLBFS
(incorporated by reference to Exhibit 10.6.2 to the 1996
Form 10-K).
10.6.3 Unconditional Guaranty, dated as of August 26, 1996 of
Turner in favor of MLBFS (incorporated by reference to
Exhibit 10.6.3 to the 1996 Form 10-K).
10.6.4 Unconditional Guaranty, dated as of August 26, 1996 of
American Eco/SP Corporation in favor of MLBFS
(incorporated by reference to Exhibit 10.6.4 to the 1996
Form 10-K).
10.7 Acquisition Agreement and Plan of Reorganization, dated
as of January 1, 1996 between Jim Wright, Mark L.
Crawford and Aaron Fine (as shareholders of Environmental
Evolutions, Inc.) and the Company, as amended March 15,
1996 (incorporated by reference to Exhibit 10.7 to the
1996 Form 10-K).
10.8.1 Agreement, dated April 9, 1996 between the Company and
Wayne E. Shaw, and as amended on April 17, 1996, April
18, 1996, May 23, 1996 and June 12, 1996 (incorporated by
reference to Exhibit 1 to the Company's Registration
Statement on Form F-8).
10.8.2 Arrangement Agreement, dated November 13, 1996, among
Industra Service Corporation, 519742 B.C. Ltd. and the
Company (incorporated by reference to Exhibit 10.8.2 to
the 1996 Form 10-K).
10.9.1 Agreement and Plan of Merger, dated as of September 10,
1996, among the Company, Sub Acquisition Corp. and
Chempower, Inc. ("Chempower") (incorporated by reference
to Exhibit 10.9.1 to the 1996 Form 10-K).
10.9.2 Financing Agreement, dated February 28, 1997, among the
Company, Chempower, Toomas J. Kukk and Mark L. Rochester
(incorporated by reference to Exhibit 10.9.2 to the 1996
Form 10-K).
10.9.3 Letter Agreement, dated February 28, 1997, between the
Company and Toomas J. Kukk, as agent (the "Agent")
(incorporated by reference to Exhibit 10.9.3 to the 1996
Form 10-K).
10.9.4 Guaranty, dated February 28, 1997, by the Company in
favor of the Agent (incorporated by reference to Exhibit
10.9.4 to the 1996 Form 10-K).
10.9.5 Pledge Agreement, dated February 28, 1997, between the
Company and the Agent (incorporated by reference to
Exhibit 10.9.5 to the 1996 Form 10-K).
10.9.6 Security Agreement, dated February 28, 1997, between the
Company and the Agent (incorporated by reference to
Exhibit 10.9.6 to the 1996 Form 10-K).
10.9.7 Loan Agreement, dated as of February 28, 1997, by and
between Chempower, Inc. and First National Bank of Ohio
("FNBO") (incorporated by reference to Exhibit 10.9.7 to
the 1996 Form 10-K).
10.9.8 Promissory Note, dated February 28, 1997, of Chempower in
favor of the Agent (incorporated by reference to Exhibit
10.9.8 to the 1996 Form 10-K).
10.9.9 Purchase Agreement, dated as of February 28, 1997,
between Chempower and Holiday Properties ("Holiday")
(incorporated by reference to Exhibit 10.9.9 to the 1996
Form 10-K).
10.9.10 Commercial Guaranty, dated February 28, 1997, by the
Company in favor of FNBO (incorporated by reference to
Exhibit 10.9.10 to the 1996 Form 10-K).
10.9.11 Promissory Note, dated February 28, 1997, of Chempower in
favor of FNBO (incorporated by reference to Exhibit
10.9.11 to the 1996 Form 10-K).
10.9.12 Subordination Agreement, dated as of February 28, 1997,
among Chempower, FNBO, Thomas J. Kukk, Mark L. Rochester
and the Agent (incorporated by reference to Exhibit
10.9.12 to the 1996 Form 10-K).
10.9.13 Commercial Security Agreement, dated as of February 28,
1997, between Chempower and FNBO (incorporated by
reference to Exhibit 10.9.13 to the 1996 Form 10-K).
10.10 Acquisition Agreement, dated as of August 31, 1997,
between the Company and Eurostar Interests Ltd.
(incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended August 31,
1997).
10.11 Lease, dated as of August 15, 1996, between 11011 Jones
Road Joint Venture Group and the Company (incorporated by
reference to Exhibit 10.11 to the 1996 Form 10-K).
10.12.1 Employment Agreement, dated December 1, 1995, between the
Company and Michael E. McGinnis, as amended May 1, 1996
(incorporated by reference to Exhibit 10.12.1 to the 1996
Form 10-K).
* 10.12.2 Employment Agreement, effective as of January 1, 1998,
between the Company and Bruce Tobecksen.
10.12.3 Employment Agreement, effective as of August 1, 1996,
between the Company and David L. Norris (incorporated by
reference to Exhibit 10.12.3 to the 1996 Form 10-K).
10.13.1 Credit and Guaranty Agreement, dated as of August 22,
1997, among American Eco Funding Corp., as Borrower, the
Company, as Parent Guarantor, and Union Bank of
California, N.A. as Agent ("Union Bank") (without
schedules or exhibits) (incorporated by reference to
Exhibit 10.1.1 to the Company's Form 8-K for an event of
August 29, 1997 [the "August 1997 Form 8-K"]).
10.13.2 $52.5 million Term Note, dated August 29, 1997, issued by
American Eco Funding Corp. (incorporated by reference to
Exhibit 10.1.2 to the August 1997 Form 8-K").
10.13.3 $12.0 million Revolving Note, dated August 29, 1997,
issued by American Eco Funding Corp. (incorporated by
reference to Exhibit 10.1.3 to the August 1997 Form 8-
K").
10.13.4 Borrower Security Agreement, dated as of August 22, 1997,
by and between American Eco Funding Corp. and Union Bank
(incorporated by reference to Exhibit 10.1.4 to the
August 1997 Form 8-K").
10.13.5 Parent Guarantor Security Agreement, dated as of August
22, 1997, by and between the Company and Union Bank
(incorporated by reference to Exhibit 10.1.5 to the
August 1997 Form 8-K").
10.13.6 Parent Guarantor Stock Pledge Agreement, dated as of
August 22, 1997, by and between the Company and Union
Bank (incorporated by reference to Exhibit 10.1.6 to the
August 1997 Form 8-K").
10.13.7 Form of Subsidiary Stock Pledge Agreement, dated as of
August 22, 1997, by and between certain American Eco
Corporation subsidiaries and Union Bank (incorporated by
reference to Exhibit 10.1.7 to the August 1997 Form 8-
K").
10.13.8 Form of Limited Guaranty and Security Agreement, dated as
of August 22, 1997, by and between certain American Eco
Corporation subsidiaries and Union Bank (incorporated by
reference to Exhibit 10.1.8 to the August 1997 Form 8-
K").
10.13.9 Form of Unlimited Guaranty and Security Agreement, dated
as of August 22, 1997, by and between certain American
Corporation Eco subsidiaries and Union Bank (incorporated
by reference to Exhibit 10.1.9 to the August 1997 Form 8-
K").
10.14.1 Letter of Intent, dated February 20, 1998, between the
Company and Dominion Bridge Corporation ("Dominion
Bridge") (incorporated by reference to Exhibit 10.1 to
the Company's Form 8-K for an event of February 20, 1998
[the "February 1998 Form 8-K"]).
10.14.2 Securities Purchase Agreement, dated as of February 20,
1998, between the Company and Dominion Bridge
(incorporated by reference to Exhibit 10.2 to the
February 1998 Form 8-K"]).
10.14.3 Warrant Agreement, dated February 20, 1998, issued by
Dominion Bridge (incorporated by reference to Exhibit
10.3 to the February 1998 Form 8-K").
10.14.4 Registration Rights Agreement, dated as of February 20,
1998, between the Company and Dominion Bridge
(incorporated by reference to Exhibit 10.4 to the
February 1998 Form 8-K").
* 10.15 Acquisition Agreement, dated as of September 1, 1997,
between the Company and Specialty Management Group, Inc.,
d.b.a./CCG.
* 16 Letter of Karlins Fuller Arnold & Klodosky, P.C.
regarding such account firm's resignation as independent
auditors of the Company.
* 21. Subsidiaries of the Company.
* 24. Power of Attorney.
* 27. Financial Data Schedule.
--------
*Filed herewith
(d) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules required by
Regulation S-K are incorporated by reference to Item 14(a).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICAN ECO CORPORATION
Dated: March 16, 1998 By:/s/ Michael E. McGinnis
---------------------------
-
Michael E. McGinnis,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Michael E. McGinnis Chairman of the
---------------------- Board, President,
Michael E. McGinnis Chief Executive March 16, 1998
/s/ John C. Pennie*
---------------------- Vice-Chairman of the
John C. Pennie Board of Directors March 16, 1998
/s/ David L. Norris Senior Vice President
---------------------- and Chief Financial
David L. Norris Officer March 16, 1998
/s/ Barry Cracower*
----------------------
Barry Cracower Director March 16, 1998
/s/ William A. Dimma*
----------------------
William A. Dimma Director March 16, 1998
/s/ Hon. Donald R. Getty
------------------------
Hon. Donald R. Getty Director March 16, 1998
/s/ Francis J. Sorg, Jr.*
-------------------------
Francis J. Sorg, Jr. Director March 16, 1998
* By /s/ David L. Norris
-----------------------
David L. Norris
Attorney-in-Fact
INDEX TO EXHIBITS
Exhibit Number Document
-------------- --------
* 10.12.2 Employment Agreement, effective as of January 1, 1996,
between the Company and Bruce Tobecksen.
* 10.15 Acquisition Agreement, dated as of September 1, 1997,
between the Company and Specialty Management Group,
Inc., d.b.a./CCG.
* 16 Letter of Karlins Fuller Arnold & Klodosky, P.C.
regarding such accounting firm's resignation as
independent auditors of the Company.
* 21. Subsidiaries of the Company.
* 24. Power of Attorney.
* 27. Financial Data Schedule.
----------
*Filed herewith
EXHIBIT 10.12.2
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT (the "Agreement") effective as of
January 1, 1998 by and between American Eco Corporation, an Ontario,
Canada corporation whose principal executive offices are in Houston,
Texas (the "Company"), and Bruce D. Tobecksen (the "Executive").
R E C I T A L S
- - - - - - - -
Executive has served Vice President and Treasurer of the
Company since January 1, 1998.
The Board of Directors of the Company has determined that it
is in the best interests of the Company to retain the Executive's
services and to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the
Executive, to their assigned duties without distraction in potentially
disturbing circumstances arising from the possibility of a change in
control of the Company or the assertion of claims and actions against
employees.
Both the Company and the Executive recognize the increased
risk of litigation and other claims being asserted against officers
and directors of companies in today's environment.
The Bylaws of the Company require the Company to indemnify
its directors and officers to the full extent permitted by law.
Costs, limits in coverage and availability of directors' and
officers' liability insurance policies and developments in the
application, amendment and enforcement of statutory and bylaw
indemnification provisions generally have raised questions concerning
the adequacy and reliability of the protection afforded to directors
and officers and have increased the difficulty of attracting and
retaining qualified persons to serve as directors and officers.
In recognition of the Executive's need for substantial
protection against personal liability to enhance and induce the
Executive's continued service to the Company in an effective manner
and the Executive's reliance on the Bylaws, and in part to provide the
Executive with specific contractual assurance that the protection
promised by the Bylaws will be available to the Executive (regardless
of, among other things, any amendment to or revocation of the Bylaws
or any change in the composition of the Company's Board of Directors
or acquisition transaction relating to the Company), the Company
wishes to provide in this Agreement for the continuing employment of
the Executive and the indemnification of, and the advancing of
expenses to, the Executive to the full extent (whether partial or
complete) permitted by law and as set forth in this Agreement, and, to
the extent insurance is maintained, for the coverage of the Executive
under the Company's directors' and officers' liability insurance
policies.
The Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement and the Executive
wishes to serve in the employ of the Company on the terms and
conditions hereinafter provided.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive
hereby agree as follows:
ARTICLE 1
EMPLOYMENT
1.1 Employment. The Company hereby employs the Executive and the
----------
Executive hereby accepts employment by the Company for the period and upon the
terms and conditions contained in this Agreement.
1.2 Office and Duties.
-----------------
(a) Position. The Executive shall serve the Company as Vice
--------
President and Treasurer, with authority, duties and
responsibilities not less than the Executive has on the date of
this Agreement, with his actions at all times subject to the
direction of the Board of Directors of the Company.
(b) Commitment. Throughout the term of this Agreement, the
----------
Executive shall devote substantially all of his time, energy,
skill and best efforts to the performance of his duties hereunder
in a manner that will faithfully and diligently further the
business and interests of the Company. Subject to the foregoing,
the Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in,
companies or organizations that are disclosed to the Board of
Directors and that will not materially affect the performance of
tile Executive's duties pursuant to this Agreement. The Executive
has, by prior agreement, agreed to cooperate from time-to-time
with his former employer, in the event that he is needed to
assist in litigation or regulatory matters, the Company agrees to
allow the Executive to cooperate if he is needed to fulfill his
prior agreement as long as his commitment does not materially
effect the performance of the Executive's duties. The Executive
will not be paid during the time he is absent from the Company in
fulfillment of this obligation.
1.3 Term. The term of this Agreement shall commence on January 1,
----
1998 and shall end on the third anniversary of the date on which the
Board of Directors of the Company notifies the Executive that the
Board of Directors has determined to discontinue this Agreement (the
period of time between the commencement and the end of this Agreement
is referred to herein as the "Term").
1.4 Compensation.
------------
(a) Base Salary. The Company shall pay the Executive as
-----------
compensation an aggregate salary ("Base Salary") of $250,000 per
year during the Term, or such greater amount as shall be approved
by the Compensation Committee of the Company's Board of
Directors. The Compensation Committee shall review the
Executive's Base Salary at least annually. The Base Salary for
each year shall be paid by the Company in accordance with the
regular payroll practices of the Company.
(b) Annual Bonus. Each year during the Term, the Executive
------------
shall be eligible to participate in an annual bonus pool equal to
5% of the Company's net income, which shall mean the consolidated
net income of the Company for its fiscal year, calculated in
accordance with generally accepted accounting principles as
applied by the Company's auditors during their annual audit. The
Company shall pay the Executive such bonus (the "Annual Bonus")
no later than 90 days following the end of each Company's fiscal
year. The amount of the Annual Bonus to which the Executive may
be entitled shall be determined in advance by the Compensation
Committee and shall be described on Appendix A, which shall be
attached to this Agreement. Appendix A shall be revised from time
to time to reflect the Annual Bonus to which the Executive may be
entitled in future years, and a copy of such revised Appendix A
shall be provided to the Executive prior to the start of the year
for which an Annual Bonus is payable; provided, however, that the
amount of the Annual Bonus and the conditions for the payment of
such amount may not be changed after the start of the fiscal year
for which such Annual Bonus is payable.
(c) Stock Options. The Executive shall be eligible to
-------------
receive grants of stock options pursuant to the Company's
Employee Stock Option Plan, as amended May 7, 1997, and as
amended hereafter, in amounts (if any) and on terms and
conditions to be determined by the Compensation Committee of the
Company's Board of Directors. For 1998, the Executive shall be
granted an option to purchase 50,000 shares of the common stock
of the Company.
(d) Life Insurance. During the Term and subject to the
--------------
Executive's qualification under normal life insurance
underwriting standards as of the date hereof and at any policy
renewal date, the Company shall provide, at the Company's
expense, a term life insurance policy on the life of the
Executive in a face amount equal to $2,000,000. The proceeds from
such policy shall be payable as follows: 50% to the Company and
50% to the Executive's estate.
(e) Fringe Benefits and Perquisites. During the Term, the
-------------------------------
Executive shall be entitled to participate in or receive benefits
under any plan or arrangement made available by the Company to
its senior executive officers, including but not limited to any
hospitalization, medical, dental or pension plan, subject to and
on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Nothing paid to
the Executive under any plan or arrangement made available to the
Executive shall be deemed to be in lieu of compensation
hereunder.
(f) Automobile Allowance. During the Term, the Executive
--------------------
shall be provided a car or paid a car allowance of $750.00 per
month. This amount shall be paid on the first day of each month,
and the Company shall also reimburse the Executive for all actual
expenses associated with operating and maintaining the
Executive's vehicle. The Executive shall submit receipts or other
evidence of such expenditures, and the Company shall pay these
amounts to the Executive within 30 days of receipt of such
documentation.
(g) Payment and Reimbursement of Expenses. During the Term,
-------------------------------------
the Company shall pay or reimburse the Executive for all
reasonable travel and other expenses incurred by the Executive in
performing his obligations under this Agreement in accordance
with the policies and procedures of the Company for its senior
executive officers, provided that the Executive properly accounts
therefor in accordance with the regular policies of the Company.
(h) Vacations. During the Term and in accordance with the
---------
regular policies of the Company, the Executive shall be entitled
to the number of paid vacation days in each calendar year
determined by the Company from time to time for its senior
executive officers, but not less than four weeks in any calendar
year (prorated in any calendar year in which the Executive is
employed hereunder for less than the entire year in accordance
with the number of days in such calendar year during which the
Executive is so employed).
(i) Benefits Not in Lieu of Compensation. No benefit or
------------------------------------
perquisite provided to the Executive shall be deemed to be in
lieu of Base Salary, Annual Bonus, or other compensation.
(j) The Company agrees to relocate the Executive and his
spouse from Lisle, IL to Houston, TX. The Company will reimburse
the Executive for all of his out-of-pocket relocation expenses
including temporary living in Houston, commuting during
reasonable transition period, two house-hunting trips to Houston,
realtor's commission on sale of the Lisle House, expenses of
closing and attorneys fees. Furthermore any expenses of acquiring
a new house including mortgage points, closing costs, and
attorney's fees. Finally, the moving cost of household effects
including the automobile will be reimbursed. Any taxes associated
with the moving expense will be reimbursed by the Company.
1.5 Termination.
-----------
(a) Disability. The Company may terminate this Agreement for
----------
Disability, "Disability" shall exist if because of ill health or
physical or mental disability, and notwithstanding reasonable
accommodations made by the Company, the Executive shall have been
unable, unwilling or shall have failed to perform his duties
under this Agreement, as determined in good faith by the
Compensation Committee of the Company's Board of Directors, for a
period of 180 consecutive days, or if, in any 12-month period,
the Executive shall have been unable or unwilling or shall have
failed to perform his duties for a period of 270 days,
irrespective of whether or not such days are consecutive.
(b) Cause. The Company may terminate the Executive's
-----
employment for Cause. Termination for "Cause" shall mean
termination because Of the Executive's (i) willful gross
misconduct that causes material economic harm to the Company or
that brings substantial discredit to the Company's reputation,
(ii) final, nonappealable conviction of a felony involving moral
turpitude, or (iii) material breach of any provision of this
Agreement. Items (i) and (iii) of this subsection shall not
constitute Cause unless the Company notifies the Executive
thereof in writing, specifying in reasonable detail the basis
therefor and stating that it is grounds for Cause, and unless the
Executive fails to cure such matter within 60 days after such
notice is sent or given under this Agreement. The Executive shall
be permitted to respond and to defend himself before the Board of
Directors or any appropriate committee thereof within a
reasonable time after written notification of any proposed
termination for Cause under item (i) or (iii) of this subsection.
(c) Without Cause. During the Term, the Company may
-------------
terminate the Executive's employment Without Cause, subject to
the provisions of subsection 1.6(d) (Termination Without Cause or
for Company Breach). Termination "Without Cause" shall mean
termination of the Executive's employment by the Company other
than termination for Cause or for Disability.
(d) Company Breach. The Executive may terminate his
--------------
employment hereunder for Company Breach. For purposes of this
Agreement "Company Breach" shall mean:
(i) without his express written consent, any material
reduction in the authority, duties and responsibilities
that the Executive has on the date of this Agreement,
or the assignment to the Executive of any duties
inconsistent with his positions, duties,
responsibilities and status with the Company, or a
change in his reporting responsibilities, titles or
offices, or any removal of the Executive from or any
failure to re-elect the Executive to any of such
positions, except in connection with the termination of
his employment for Cause, Disability or retirement or
as a result of his death or by the Executive other than
for Company Breach or Change in Control;
(ii) a reduction in the Executive's Base Salary as in
effect on the date of this Agreement or as the same may
be increased from time to time;
(iii) a relocation of the Company's principal executive
offices to any county other than Harris County or any
county contiguous thereto or the Company's requiring
the Executive to be based anywhere other than Harris
County or any county contiguous thereto, except for
required travel on the Company's business to an extent
substantially consistent with his present business
travel obligations, or, in the event the Executive
consents to any relocation, the failure by the Company
(a) to retain a real estate broker, at the Company's
expense, and otherwise assist the Executive in selling
the Executive's principal residence in Harris County,
(b) to pay (or reimburse the Executive) for all
reasonable moving expenses incurred by him relating to
a change of his principal residence in connection with
such relocation and (c) to indemnify the Executive
against any loss (defined as the difference between the
actual sale price of such residence and the higher of
(1) his aggregate investment in such residence or (2)
the fair market value of such residence as determined
by a real estate appraiser designated by the Executive
and reasonably satisfactory to the Company) realized on
the sale of the Executive's principal residence in
connection with any such change of residence;
(iv) the failure by the Company to continue in effect
any benefit or compensation plan (including but not
limited to any stock option plan, pension plan, life
insurance plan, health and accident plan or disability
plan) in which the Executive is participating (or plans
providing substantially similar benefits), the taking
of any action by the Company which would adversely
affect the Executive's participation in or materially
reduce his benefits under any of such plans or deprive
him of any material fringe benefit enjoyed by him, or
the failure by the Company to provide the Executive
with the number of paid vacation days to which he is
then entitled on the basis of years of service with the
Company in accordance with the Company's normal
vacation policy in effect on the date hereof;
(v) any failure of the Company to obtain the assumption
of, or the agreement to perform, this Agreement by any
successor as contemplated in Section 4.13 (Binding
Effect Etc.) hereof; or
(vi) any material breach of this Agreement by the
Company;
provided, however, that a material breach of this Agreement by the
- -------- -------
Company shall not constitute Company Breach unless the Executive
notifies the Company in writing of the breach, specifying in
reasonable detail the nature of the breach and stating that such
breach is grounds for Company Breach, and unless the Company fails to
cure such breach within 60 days after such notice is sent or given
under this Agreement.
(e) Change in Control. The Executive may terminate his
employment hereunder with 12 months of a Change in Control
(defined below):
(i) "Change in Control" shall mean any of the
following:
(1) any consolidation or merger of the
Company in which the Company is not the continuing
or surviving corporation or pursuant to which
shares of the Company's common stock would be
converted into cash, securities or other property,
other than a merger of the Company in which the
holders of the Company's common stock immediately
prior to the merger have the same proportionate
ownership of common stock of the surviving
corporation immediately after the merger;
(2) any sale, lease, exchange or other
transfer (in one transaction or a series of
related transactions) of all or substantially all
of the assets of the Company;
(3) any approval by the stockholders of the
Company of any plan or proposal for the
liquidation or dissolution of the Company;
(4) the cessation of control (by virtue of
their not constituting a majority of directors) of
the Company's Board of Directors by the
individuals (the "Continuing Directors") who (x)
at the date of this Agreement were directors or
(y) become directors after the date of this
Agreement and whose election or nomination for
election by the Company's stockholders was
approved by a vote of at least two-thirds of the
directors then in office who were directors at the
date of this Agreement or whose election or
nomination for election was previously so
approved); or
(5) the acquisition of beneficial ownership
(within the meaning of Rule 13d- 3 under the
Securities Exchange Act of 1934, as amended) of an
aggregate of 15% of the voting power of the
Company's outstanding voting securities by any
person or group (as such term is used in Rule
13d-5 under such Act) who beneficially owned less
than 10% of the voting power of the Company's
outstanding voting securities on the date hereof,
or the acquisition of beneficial ownership of an
additional 5% of the voting power of the Company's
outstanding voting securities by any person or
group who beneficially owned at least 10% of the
voting power of the Company's outstanding voting
securities on the date hereof, provided, however,
that notwithstanding the foregoing, an acquisition
shall not constitute a Change in Control hereunder
if the acquiror is (w) the Executive, (x) a
trustee or other fiduciary holding securities
under an employee benefit plan of the Company and
acting in such capacity, (y) a corporation owned,
directly or indirectly, by the stockholders of the
Company in substantially the same proportions as
their ownership of voting securities of the
Company or (z) any other person whose acquisition
of shares of voting securities is approved in
advance by a majority of the Continuing Directors;
(6) subject to applicable law, in a Chapter
11 bankruptcy proceeding, the appointment of a
trustee or the conversion of a case involving the
Company to a case under Chapter 7.
(f) Without Good Reason. During the Term, the Executive
may terminate his employment Without Good Reason.
Termination "Without Good Reason" shall mean termination of
the Executive's employment by the Executive other than
termination for Company Breach or as a result of a Change in
Control.
(g) Explanation of Termination of Employment. Any party
terminating this Agreement shall give prompt written notice
("Notice of Termination") to the other party hereto advising
such other party of the termination of this Agreement.
Within thirty (30) days after notification that the
Agreement has been terminated, the terminating party shall
deliver to the other party hereto a written explanation (the
"Explanation of Termination of Employment"), which shall
state in reasonable detail the basis for such termination
and shall indicate whether termination is being made for
Cause, Without Cause or for Disability (if the Company has
terminated the Agreement) or for Company Breach, upon a
Change in Control or Without Good Reason (if the Executive
has terminated the Agreement).
(h) Date of Termination. "Date of Termination" shall
mean the date on which Notice of Termination is sent or
given under this Agreement.
1.6 Compensation During Disability or Upon Termination.
(a) During Disability. During any period that the Executive
-----------------
fails to perform his duties hereunder because of Disability, he
shall continue to receive his full Base Salary and benefits
pursuant to Section 1.4 (Compensation) until the Date of
Termination.
(b) Termination for Disability. If the Company shall
--------------------------
terminate the Executive's employment for Disability, then the
Company shall have no further obligation to make any payment
under this Agreement which has not already become payable, but
has nor yet been paid, except that the Company shall continue to
provide the Executive with the benefits set forth in Section
1.6(f) (Employee Benefits) for the period described therein. The
Company also shall make any additional payments necessary to
provide the disability benefits set forth in Section 1.4(e)
(Disability Insurance) above.
(c) Termination for Cause or Without Good Reason. If the
--------------------------------------------
Company shall terminate the Executive's employment for Cause or
if the Executive shall terminate his employment Without Good
Reason, then the Company shall have no further obligation to make
any payment under this Agreement which has not already become
payable, but has not yet been paid, except as may otherwise be
provided under the terms of any employee benefit programs in
which the Executive is participating.
(d) Termination With Without Cause or for Company Breach. If
----------------------------------------------------
the Company shall terminate the Executive's employment Without
Cause or if the Executive shall terminate his employment for
Company Breach, then the Company shall pay to the Executive, as
severance pay in a lump sum no later than the 15th day following
the Date of Termination, the following amounts:
(i) any payment of Base Salary (at the rate in effect
as of the Date of Termination) or Annual Bonus which has
already become payable, but has not yet been paid, through
the Date of Termination;
(ii) his Annual Bonus for the fiscal year in which the
Date of Termination occurs, as prorated through the Date of
Termination. If such Annual Bonus is dependent upon
financial results for the fiscal year that are unknown at
the Date of Termination, his Annual Bonus received for the
past fiscal year shall substitute as his Annual Bonus for
the fiscal year in which the Date of Termination occurs; and
(iii) in lieu of any further Base Salary and Annual
Bonus for periods subsequent to the Date of Termination, an
amount equal to the product of (A) the sum of the
Executive's Base Salary at the rate in effect as of the Date
of Termination. plus the average Annual Bonus paid to the
Executive during the preceding two (2) years (or such
shorter period for which any Annual Bonus has been paid),
multiplied by (B) the number three (3).
The Company shall also continue to provide the Executive
with the employee benefits set for in Section 1.6(f) (Employee
--------
Benefits) for the period described therein.
--------
If the Executive terminates his employment for Company
Breach based upon a material reduction by the Company of the
Executive's Base Salary, then for purposes of this Section 1.6(d)
(Termination Without Cause or for Company Breach), the
-----------------------------------------------
Executive's Base Salary as of the Date of Termination shall be
deemed to be the Executive's Base Salary immediately prior to the
reduction that the Executive claims as grounds for Company
Breach.
(e) Termination Upon a Change in Control. If the Executive
------------------------------------
terminates his employment 1.5(e) (Change in Control), then the
Company shall pay to the Executive as severance pay and as
liquidated damages (because actual damages ire difficult to
ascertain), in a lump sum, in cash, within 15 days after
termination, an amount equal to The amounts provided in Sections
1.6(d)(i), (ii), and (iii) above. In addition, if the Executive
is liable for the payment of any excise tax (the "Basic Excise
Tax") because of Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), or any successor or similar
provision, with respect to any payments or benefits received or
to be received from the Company or its affiliates, or any
successor to the Company or its affiliates, whether provided
under this Agreement or otherwise, the Company shall pay the
Executive an amount (the "Special Reimbursement") which, after
payment by the Executive (or on the Executive's behalf) of any
federal, state and local taxes applicable thereto, including,
without limitation, any further excise tax under such Section
4999 of the Code, on, with respect to or resulting from the
Special Reimbursement, equal the net amount of the Basic Excise
Tax. The determination of the amount of the payment described in
this Section 1.6(e) shall be made by the Company's independent
auditors.
(f) Employee Benefits. Unless the Company terminates the
-----------------
Executive's employment for Cause or the Executive terminates his
employment Without Good Reason, the Company shall maintain in
full force and effect, for the continued benefit of the Executive
and, if applicable, his wife and children, the employee benefits
set forth in Sections 1.4(d) (Life Insurance) and 1.4(e)
(Disability Insurance), and any hospitalization, medical and
dental coverage included in Section 1.4(f) (Fringe Benefits and
Perquisites) above that he was entitled to receive immediately
prior to the Date of Termination (subject to the general terms
and conditions of the plans and programs under which he receives
such benefits) for the balance of the Term or for the period
provided for under the terms and conditions of such plans and
programs, whichever is longer, with the full amount of any
applicable premiums to be borne by the Company.
(g) No Mitigation. The Executive shall not be required to
-------------
mitigate the amount of any payment provided for in this Section
1.6 (Compensation During Disability or Upon Termination) by
seeking other employment or otherwise.
1.7 Death of Executive. If the Executive dies prior to the
------------------
expiration of this Agreement, the obligations under this Agreement
shall automatically terminate and all compensation to which the
Executive is or would have been entitled hereunder (including without
citation under Sections 1.4(a) (Base Salary) and 1.4(b) (Annual Bonus)
shall terminate as of the end of the month in which the Executive's
death occurs; provided, however, that (i) the Company shall pay to the
Executive's estate, as soon as practicable, a prorated Annual Bonus,
if earned in accordance with the Company's annual bonus plan; (ii) for
the balance of the Term, the Executive's wife and children shall be
entitled to continue participation in the Company's group
hospitalization, medical and dental plans (if any), with the full
amount of any premium to be borne by the Company; and (iii) the
Executive's named beneficiary or beneficiaries shall receive the
benefits payable pursuant to Section 1.4(d) (Life Insurance) hereof
and such reimbursement as may have been due to the Executive pursuant
to Section 1.4(h) (Payment and Reimbursement of Expenses) hereof.
ARTICLE 2
NON-COMPETITION AND CONFIDENTIALITY
2.1 Non-Competition.
---------------
(a) Description of Proscribed Actions. Throughout the
---------------------------------
Executive's employment during the term of this Agreement and,
unless the Agreement terminates pursuant to Section 1.5(a)
(Disability), Section 1.5(c) (Without Cause), Section 1.5(d)
---------- -------------
(Company Breach), or Section 1.5(e) (Change in Control), for a
-------------- -----------------
period of two (2) years after the termination of the Executive's
employment, in consideration for the Company's obligations
hereunder, including without limitation the Company's disclosure
(pursuant to Section 2.2(b) (Obligation of The Company) below) of
-------------------------
Confidential Information and the Company's agreement to indemnify
the Executive (pursuant to Article 3 (Indemnification) hereof),
---------------
the Executive shall not:
(i) directly or indirectly, engage or invest in, own,
manage, operate, control or participate in the ownership,
management, operation or control of, be employed by,
associated or in any manner connected with, or render
services or advice to, any Competing Business (as defined in
Section 2.1(d) below); provided, however, that the Executive
may invest in the securities of any enterprise (but without
otherwise participating in the activities of such
enterprise) if (x) such securities are listed on any
national or regional securities exchange or have been
registered under Section 12(g) of the Securities Exchange
Act of 1934 and (y) the Executive does not beneficially own
(as defined Rule 13d-3 promulgated under the Securities
Exchange Act of 1934) in excess of 5% of the outstanding
capital stock of such enterprise;
(ii) directly or indirectly, either as principal,
agent, independent contractor, consultant, director,
officer, employee, employer, advisor (whether paid or
unpaid), stockholder, partner or in any other individual or
representative capacity whatsoever, either for his own
benefit or for the benefit of any other person or entity,
solicit, diver or take away any suppliers, customers or
clients of the Company or any of its Affiliates (as defined
in Section 2.1(e) below); or
(iii) directly or indirectly, either as principal,
agent, independent contractor, consultant, director,
officer, employee, employer, advisor (whether paid or
unpaid), stockholder, partner or in any other individual or
representative capacity whatsoever, either for his own
benefit or for the benefit of any other person or entire,
either (i) hire, attempt to hire, contact or solicit with
respect to hiring, any employee of the Company or any
Affiliate thereof, (ii) induce or otherwise counsel, advise
or encourage any employee of the Company or any Affiliate
thereof to leave the employment of the Company or any
Affiliate thereof, or (iii) induce any representative or
agent of the Company or any Affiliate thereof to terminate
or modify its relationship with the Company or such
Affiliate.
(b) Judicial Modification. The Executive agrees that if a
---------------------
court of competent jurisdiction determines that the length of
time or any other restriction, or portion thereof, set forth in
this Section 2.1 (Non-Competition) is overly restrictive and
---------------
unenforceable, the court may reduce or modify such restrictions
to those which it deems reasonable and enforceable under the
circumstances, and as so reduced or modified, the parties hereto
agree that the restrictions of this Section 2.1 (Non-Competition)
shall remain in full force and effect. The Executive further
agrees that if a court of competent jurisdiction determines that
any provision of this Section 2. 1 (Non-Competition) is invalid
---------------
or against public policy, the remaining provisions of this
Section 2.1 (Non-Competition) and the remainder of this Agreement
---------------
shall not be affected thereby, and shall remain in full force and
effect.
(c) Nature of Restriction. The Executive acknowledges that
---------------------
the business of the Company and its Affiliates is international
in scope and that the Restrictions imposed by this Agreement are
legitimate, reasonable and necessary to protect the Company's and
its Affiliates' investment in their businesses and the goodwill
thereof. The Executive acknowledges that the scope and duration
of the restrictions contained herein are reasonable in light of
the time that the Executive has been engaged in the business of
the Company and its Affiliates, the Executive's reputation in the
markets for the Company's and its Affiliates' businesses and the
Executive's relationship with the suppliers, customers and
clients of the Company and its Affiliates. The Executive further
acknowledges that the restrictions contained herein are not
burdensome to the Executive in light of the consideration paid
therefor and the other opportunities that remain open to the
Executive. Moreover, the Executive acknowledges that he has other
means available to him for the pursuit of his livelihood.
(d) Competing Business. "Competing Business" shall mean any
------------------
individual, business, firm, company, partnership, point venture,
organization, or other entity engaged in the industrial support
services, specialty fabrication, or environmental remediation
business in any domestic or international market area in which
the Company or any of its Affiliates does business at any time
during the Executive's employment with the Company.
(e) Affiliate. When used with reference to the Company,
---------
"Affiliate" shall mean any person or entity that directly or
indirectly through one or more intermediaries controls or is
controlled by or is under common control with the Company.
2.2 Confidentiality. For the purposes of this Section 2.2
---------------
(Confidentiality), the term "the Company" shall be construed also to
include any and all Affiliates of the Company.
(a) Confidential Information. "Confidential
------------------------
Information" shall mean information that is used in the
Company's business and
(i) is proprietary to, about or created by the
Company;
(ii) gives the Company some competitive advantage,
the opportunity of obtaining such advantage or the
disclosure of which could be detrimental to the
interests of the Company;
(iii) is not typically disclosed to non-employees
by the Company, or otherwise is treated as confidential
by the Company; or
(iv) is designated as Confidential Information by
the Company or from all the relevant circumstances
should reasonably be assumed by the Executive to be
confidential to the Company.
Confidential Information shall not include information
publicly known (other than as a result of a disclosure by
the Executive). The phrase "publicly known" shall mean
readily accessible to the public in a written publication
and shall not include information that is only available by
a substantial searching of the published literature or
information the substance of which must be pieced together
from a number of different publications and sources, or by
focused searches of literature guided by Confidential
information.
(b) Obligation of The Company. During the Term, the Company
-------------------------
shall provide access to, or furnish to, the Executive
Confidential Information of the Company necessary to enable the
Executive properly to perform his obligations under this
Agreement.
(c) Non-Disclosure. The Executive acknowledges, understands
--------------
and agrees that all Confidential Information, whether developed
by the Company or others or whether developed by the Executive
while carrying out the terms and provisions of this Agreement (or
previously while serving as an officer of the Company), shall be
the exclusive and confidential property of the Company and (i)
shall not be disclosed to any person other than employees of the
Company and professionals engaged on behalf of the Company, and
other than disclosure in the scope of the Company's business in
accordance with the Company's policies for disclosing
information, (ii) shall be safeguarded and kept from
unintentional disclosure and (iii) shall not be used for the
Executive's personal benefit. Subject to the terms of the
preceding sentence, the Executive shall not use, copy or transfer
Confidential Information ocher than as is necessary in carrying
out his duties under this Agreement.
2.3 Injunctive Relief. Because of the Executive's experience and
-----------------
reputation in the industries in which the Company operates, and
because of the unique nature of the Confidential Information, the
Executive acknowledges, understands and agrees that the Company will
suffer immediate and irreparable harm if the Executive fails to comply
with any of his obligations under Article 2 (Non-Competition and
-------------------
Confidentiality) of this Agreement, and that monetary damages will be
- ---------------
inadequate to compensate the Company for such breach. Accordingly, the
Executive agrees that the Company shall, in addition to any other
remedies available to it at law or in equity, be entitled to
injunctive relief to enforce the terms of Article 2 (Non-Competition
---------------
and Confidentiality) without the necessity of proving inadequacy of
- -------------------
legal remedies or irreparable harm.
ARTICLE 3
INDEMNIFICATION
3.1 Basic Indemnification Arrangement.
(a) Claims Arising from the Executive's Position with the
-----------------------------------------------------
Company. In addition to any separate agreements between the
-------
Executive and the Company relating to indemnification, the
Company will indemnify and hold harmless the Executive, to the
fullest extent permitted by applicable law, in respect of any
liability, damage, cost or expense (including reasonable counsel
fees) incurred in connection with the defense of any claim.
action, suit or proceeding to which he is a party, or threat
thereof, by reason of his being or having been an officer or
director of the Company or any subsidiary or affiliate of the
Company, or his serving or having served at the request of the
Company as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, business
organization, enterprise or other entity, including service with
respect to employee benefit plans. Without limiting the
generality of the foregoing, the Company will pay the expenses
(including reasonable counsel fees) of defending any such claim,
action, Suit or proceeding in advance of its final disposition.
(b) Contests of this Agreement. The Company agrees to pay
--------------------------
promptly as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur
as a result of any contest (regardless of the outcome thereof) by
the Company, the Executive or others of the validity or
enforceability of, or liability under any provision of this
Agreement or any guarantee of performance thereof (including as a
result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest
on any delayed payment at the applicable Federal rate provided
for in Section 7872(f)(2)(A) of the Code.
(c) Liability Insurance. During the Term, the Company agrees
-------------------
to continue on the Executive's behalf, directors and officers
insurance or any other indemnity policy presently carried on
behalf of the Executive, and further agrees to supplement any
such existing policy to cover all actions taken by the Executive
in connection with his employment by the Company.
ARTICLE 4
MISCELLANEOUS
4.1 Period of Limitations. No legal action shall be brought and
---------------------
no cause of action shall be asserted by or on behalf of the Company or
any Affiliate of the Company against the Executive, the Executive's
spouse, heirs, executors or personal or legal representatives after
the expiration of two years from the date of accrual of such cause of
action, and any claim or cause of action of the Company or any
Affiliate shall be extinguished and deemed released unless asserted by
the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action such shorter period
shall govern.
4.2 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
4.3 Indulgences, Etc. Neither the failure nor any delay on the
----------------
part of either party to exercise any right, remedy, power or privilege
under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or of any right,
remedy, power or privilege, nor shall any waiver of any right, remedy,
power, or privilege with respect to any occurrence be construed as a
waiver of such right, remedy, power or privilege with respect to any
other occurrence.
4.4 Executive's Sole Remedy. The Executive's sole remedy shall be
-----------------------
against the Company for any claim, liability or obligation of any
nature whatsoever arising out of or relating to this Agreement or an
alleged breach of this Agreement or for any other claim arising out of
the Executive's employment by the Company, his service to the Company,
any indemnification obligation of the Company or the termination of
the Executive's employment hereunder (collectively, "Executive
Claims"). The Executive shall have no claim or right of any nature
whatsoever against any of the Company's directors, former directors,
officers, former officers, employees, former employees, stockholders,
former stockholders, agents, former agents or the Independent Counsel
in their individual capacities arising out of or relating to any
Executive Claim. The Executive hereby releases and covenants not to
sue any person other than the Company over any Executive Claim. The
persons described in this Section 4.4 (other than the Company and the
Executive) shall be third-party beneficiaries of this Agreement for
purposes of enforcing the terms of this Section 4.4 (Executive's Sole
Remedy) against the Executive.
4.5 Notices. All notices, requests, demands and other
-------
communications required or permitted under this Agreement and the
transactions contemplated herein shall be in writing and shall be
deemed to have been duly given, made and received when sent by
telecopy (with a copy sent by mail) or when personally delivered or
one business day after it is sent by overnight service, addressed as
set forth below:
If to the Executive:
Bruce D. Tobecksen
2508 Pebble Creek Drive
Lisle, IL 60532
If to the Company:
American Eco Corporation
11011 Jones Road
Houston, Texas 77070
Attn: President
<PAGE>
Any party may alter the address to which communications or copies are
to be sent by giving notice of such change of address in conformity
with the provisions of this subsection for the giving of notice, which
shall be effective only upon receipt.
4.6 Provisions Separable. The provisions of this Agreement are
--------------------
independent of and separable from each other, and no provision shall
be affected or rendered invalid or unenforceable by virtue of the fact
that for any reason any other or others of them may be invalid or
unenforceable in whole or in part.
4.7 Entire Agreement. This Agreement contains the entire
----------------
understanding between the parties hereto with respect to the subject
matter hereof, and supersedes all prior and contemporaneous agreements
and understandings, inducements or conditions, express or implied,
oral or written, except as herein contained, which shall be deemed
terminated effective immediately. The express terms hereof control and
supersede any course of performance and/or usage of the trade
inconsistent with any of the terms hereof. This Agreement may not be
modified or amended other than by an agreement in writing.
4.8 Headings; Index. The headings of paragraphs and Index of
---------------
Defined Terms herein are included solely for convenience of reference
and shall not control the meaning or interpretation of any of the
provisions of this Agreement.
4.9 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Texas, without
giving effect to principles of conflict of laws.
4.10 Dispute Resolution. Subject to the Company's right to seek
------------------
injunctive relief in court as provided in Section 2.3 (Injunctive
----------
Relief) of this Agreement and the Executive's right to such a judicial
- ------
determination that the Executive should be indemnified by the Company
(as provided in Section 3.1(b) (Conditions) of this Agreement), any
----------
dispute, controversy or claim arising our of or in relation to or
connection with this Agreement, including without limitation any
dispute as to the construction, validity, interpretation,
enforceability or breach of this Agreement, shall be exclusively and
finally settled by arbitration, and any party may submit such dispute,
controversy or claim, including a claim for indemnification under this
Section 4.10 (Dispute Resolution), to arbitration.
------------------
(a) Arbitrators. The arbitration shall be heard and
-----------
determined by one arbitrator, who shall be impartial and who
shall be selected by mutual agreement of the parties, provided,
--------
however, that if the dispute involves more than $2,000,000, then
-------
the arbitration shall be heard and determined by three (3)
arbitrators. If three (3) arbitrators are necessary as provided
above, then (i) each side shall appoint an arbitrator of its
choice within thirty (30) days of the submission of a notice of
arbitration and (ii) the party- appointed arbitrators shall in
turn appoint a presiding arbitrator of the tribunal within thirty
(30) days following the appointment of the last party-appointed
arbitrator. If (x) the parties cannot agree on the sole
arbitrator, (y) one party refuses to appoint its party-appointed
arbitrator within said thirty (30) day period or (z) the
party-appointed arbitrators cannot reach agreement on a presiding
arbitrator of the tribunal, then the appointing authority for the
implementation of such procedure shall be the Senior United
States District Judge for the Southern District of Texas, who
shall appoint an independent arbitrator who does not have any
financial interest in the dispute, controversy or claim. If the
Senior United States District Judge for the Southern District of
Texas refuses or fails to act as the appointing authority within
ninety (90) days after being requested to do so. then the
appointing authority shall be the Chief Executive officer of the
American Arbitration Association, who shall appoint an
independent arbitrator who does not have any financial interest
in the dispute, controversy or claim. All decisions and awards by
the arbitration tribunal shall be made by majority vote.
(b) Proceedings. Unless otherwise expressly agreed in
-----------
writing by the parties to the arbitration proceedings:
(i) The arbitration proceedings shall be held in
Houston, Texas, at a site chosen by mutual agreement of the
parties, or if the parties cannot reach agreement on a
location within this (30) days of the appointment of the
last arbitrator, then at a site chosen by the arbitrators;
(ii) The arbitrators shall be and remain at all times
wholly independent and impartial;
(iii) The arbitration proceedings shall be conducted in
accordance with the Commercial Arbitration Rules of the
American Arbitration Association, as amended from time to
time;
(iv) Any procedural issues not determined under the
arbitral rules selected pursuant to item (iii) above shall
be determined by the law of the place of arbitration, other
than those laws which would refer the matter to another
jurisdiction;
(v) The costs of the arbitration proceedings (including
attorneys' fees and costs) shall be borne in the manner
determined by the arbitrators;
(vi) The decision of the arbitrators shall be reduced
to writing; final and binding without the right of appeal;
the sole and exclusive remedy regarding any claims,
counterclaims, issues or accounting presented to the
arbitrators; made and promptly paid in United States dollars
free of any deduction or offset; and arty costs or fees
incident to enforcing the award shall, to the maximum extent
permitted by law, be charged against the party resisting
such enforcement;
(vii) The award shall include interest from the date of
any breach or violation of this Agreement, as determined by
the arbitral award, and from the date of the award until
paid in full, at 6% per annum; and
(viii) Judgment upon the award may be entered in any
court having jurisdiction over the person or the assets of
the party owing the judgment or application may be made to
such court for a judicial acceptance of the award and an
order of enforcement, as the case may be.
4.11 Survival. The covenants and agreements of the parties set
--------
forth in Article 2 (Non-Competition and Confidentiality), Article 3
-----------------------------------
(Indemnification) and Article 4 (Miscellaneous) are of a continuing
--------------- -------------
nature and shall survive the expiration, termination or cancellation
of this Agreement, regardless of the reason therefor.
4.12 No Duplication of Payments. Subrogation. The Company shall
--------------------------
not be liable under this Agreement to make any payment in connection
with any claim made against the Executive to the extent the Executive
has otherwise actually received payment (under any insurance policy,
Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder.
In the event the Executive actually receives payment (under any
insurance policy, Bylaw or otherwise) of any amount with respect to
which the Company has already indemnified or subsequently indemnities
the Executive. The Company shall be subrogated to the extent of such
payment to all of the rights of recovery of the Executive, who shall
execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to
enforce such rights.
4.13 Binding Effect, Etc. This Agreement shall be binding upon
-------------------
and inure to the benefit of and be enforceable by the parties hereto
and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to
all or substantially all of the business or assets of the Company),
spouses, heirs, and personal and legal representatives. The Company
shall require and cause any successor (whether direct or indirect by
purchase, merger, consolidation or otherwise) to all, substantially
all, or a substantial part, of the business or assets of the Company,
by written agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. The
indemnity provisions of this Agreement shall continue in effect
regardless of whether the Executive continues to serve as an employee
of the Company.
4.14 Contribution. If the indemnity contained in this Agreement
------------
is unavailable or insufficient to hold the Executive harmless in a
Claim for an Indemnifiable Event, then separate from and in addition
to the indemnity provided elsewhere herein, the Company shall
contribute to Expenses, judgments, penalties, fines and amounts paid
in settlement actually and reasonably incurred by or on behalf of the
Executive in connection with such Claim in such proportion as
appropriately reflects the relative benefits received by, and fault
of, the Company on the one hand and the Executive on the other in the
acts, transactions or matters to which the Claim relates and other
equitable considerations.
* * * * * * * *
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its officer thereunto duly authorized, and Executive
has signed this Agreement, all as of the day and year first above
written.
AMERICAN ECO CORPORATION
By:/s/ Hon. Donald R. Getty
-----------------------------
Name: Hon. Donald R. Getty
--------------------------
Title: Director
--------------------------
/s/ Bruce D. Tobecksen
-------------------------------
Bruce D. Tobecksen
<PAGE>
INDEX OF DEFINED TERMS
----------------------
TERM SECTION
- ---- -------
Affiliate 2.1(e)
Agreement Preamble
Annual Bonus 1.4(b)
Base Salary 1.4(a)
Cause 1.5(b)
Change in Control 1.5(e)
Company Preamble
Company Breach 1.5(d)
Competing Business 2.1(d)
Confidential Information 2.2(a)
Date of Termination 1.5(h)
Disability 1.5(a)
Executive Preamble
Executive Claims 4.4
Explanation of Termination of Employment 1.5(g)
Notice of Termination 1.5(g)
Term 1.3
Without Cause 1.5(c)
Without Good Reason 1.5(f)
<PAGE>
APPENDIX A
----------
EXECUTIVE'S BONUS CALCULATION FOR FISCAL YEAR 1997
--------------------------------------------------
The Executive is not eligible for a bonus for fiscal year 1997.
<PAGE>
EXHIBIT 10.15
ACQUISITION AGREEMENT
By and Between
American Eco Corporation
and
Jones Partners, Ltd.
September 1, 1997
<PAGE>
THIS ACQUISITION AGREEMENT is made as of the 1st day of
September, 1997.
B E T W E E N:
AMERICAN ECO CORPORATION
a corporation amalgamated pursuant to the laws of
Canada
("American Eco" or "Buyer")
OF THE FIRST PART
- and -
JONES PARTNERS, LTD.
a limited partnership amalgamated pursuant to the laws
of the State of Texas
(the "Shareholder" or "Seller")
OF THE SECOND PART
WHEREAS the Shareholder is the owner of 100% of the issued and
outstanding shares of common stock of CCG Commercial Construction
Group, Inc., a Texas corporation ("CCG"), and the Shareholder
seeks to exchange CCG Shares (as hereinafter defined) solely for
publicly-traded common stock in American Eco (who seeks to
acquire CCG Shares from the Shareholder), pursuant to the meaning
of 368(a)(1)(B) of the U.S. Internal Revenue Code of 1986, as
amended and accounted for as a pooling of interests, all on and
subject to the terms and conditions of this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of
the mutual covenants, agreements and premises herein contained
and other good and valuable consideration (the receipt and
sufficiency whereof being hereby acknowledged by each party), the
parties hereto do hereby covenant and agree as follows:
1. DEFINITIONS AND SCHEDULES
-------------------------
1.1 Definitions. In this Agreement:
-----------
"Accounts Receivable" means all accounts receivable and
other book debts due or accruing to CCG as of the Reference
Date and the full benefit of all security, if any, for such
accounts or debts.
"Affiliate" has the meaning ascribed thereto in the OBCA
(Business Corporation Act, Ontario).
"Agreement", "this Agreement", "hereto" and "herein" means
this Agreement and all schedules attached hereto, as may be
amended from time to time.
"Associate" has the meaning ascribed thereto in the OBCA.
"Best Knowledge" or "known" means actual knowledge or
awareness of the Party.
"Business Day" means a day other than a Saturday or a Sunday
or any other day which is a statutory holiday in the State
of Texas.
"CCG Contracts" has the meaning ascribed thereto in Section
4.1(aa).
"CCG Shares" means 100% of the issued and outstanding shares
of capital stock of CCG, registered in the name of the
Shareholder, as set forth on Schedule 4.1(f), hereto.
"CCG Financial Statements" has the meaning attributed
thereto in Section 4.1(p).
"Closing" means the consummation of the Transaction as
herein contemplated.
"Closing Date" means September 1, 1997 or such earlier or
later date as may be agreed to in writing by the Parties.
"Contract" means any agreement, indenture, contract, bond,
debenture, security agreement, lease, deed of trust,
license, option, instrument or other legally binding
commitment, whether written or oral.
"Direct Claim" has the meaning ascribed thereto in
subsection 6.3.
"Encumbrances" means any and all claims, liens, security
interests, mortgages, pledges, pre-emptive rights, charges,
options, equity interests, encumbrances, proxies, voting
agreements, voting trusts, leases, tenancies, easements or
other interests of any nature or kind whatsoever, howsoever
created.
"Indemnified Party" has the meaning ascribed thereto in
Section 6.3.
"Indemnifying Party" has the meaning ascribed thereto in
Section 6.3.
"Indemnification Claim" has the meaning ascribed thereto in
Section 6.3.
"Intellectual Property" means all patents, copyrights,
trademarks and trade names, service marks and all software,
data bases, trade secrets, know how and other proprietary
rights as of the Reference Date.
"Losses" means any and all claims, demands, debts, suits,
actions, obligations, proceedings, losses, damages,
liabilities, deficiencies, costs and expenses (including
without limitation, all reasonable legal and other
professional fees and disbursements, interest, penalties and
amounts paid in settlement).
"Material Adverse Effect" means a material adverse effect on
the business, assets, liabilities, condition (financial or
otherwise), operations or prospects of the Party in question
or upon such Party's ability to perform its obligations
under this Agreement or to consummate the Transaction.
"Nasdaq" means the Nasdaq Stock Market.
"OBCA" means the Business Corporations Act, Ontario.
"Parties" means collectively, the parties to this Agreement.
"Person" means any individual, partnership, company,
corporation, unincorporated association, joint venture,
trust, the Crown or any other agency or instrumentality
thereof or any other judicial entity or person, government
or governmental agency, authority or entity howsoever
designated or constituted.
"Reference Date" means June 30, 1997.
"Subsidiary" has the meaning ascribed thereto in the OBCA.
"Survival Period" has the meaning ascribed thereto in
Section 5.1
"Taxes" means all income, profits, franchise, royalty,
withholding, payroll, excise, sales, value added, use,
occupation and property taxes and any liability, whether
disputed or not, imposed by the U.S. or any state,
municipality, country or foreign government or subdivision
or agency thereof.
"Third Party" has the meaning ascribed thereto in Section
6.3.
"Third Party Claim" has the meaning ascribed thereto in
Section 6.3.
"Time of Closing" means 1:00 p.m. (Central time) on the
Closing Date or if the Transaction is not completed at such
time, then such other time on the Closing Date on which the
Transaction is completed.
"Transaction" means the transfer of CCG Shares in exchange
for the Buyer Shares as contemplated by this Agreement.
"TSE" means The Toronto Stock Exchange.
1.2 Disclosure. Any fact or circumstance or combination of facts
----------
and/or circumstances disclosed in this Agreement or in any
schedules hereto shall be deemed to be disclosed for all purposes
of this Agreement.
1.3 Act. Any reference in this Agreement to any act, by-law, rule
---
or regulation or to a provision thereof shall be deemed to
include a reference to any act, by-law, rule or regulation or
provision enacted in substitution or amendment thereof.
1.4 Time. Except where otherwise expressly provided in this
----
Agreement any reference to time shall be deemed to be a reference
to Houston, Texas time.
1.5 Gender and Extended Meanings. In this Agreement words and
----------------------------
personal pronouns relating thereto shall be read and construed as
the number and gender of the party or parties referred to in each
case require and the verb shall be construed as agreeing with the
required word and pronoun. For greater certainty and without
limitation, in this Agreement the word "shall" has the same
meaning as the word "will".
1.6 U.S. Dollars and Payment. All dollar amounts referred to in
------------------------
this Agreement are in U.S. funds, unless otherwise expressly
specified.
1.7 Section Headings. The division of this Agreement into
----------------
sections is for convenience of reference only and shall not
effect the interpretation or construction of this Agreement.
1.8 Business Day. In the event that the date for the taking of
------------
any action under this Agreement falls on a day which is not a
Business Day, then such action shall be taken on the next
following Business Day.
2. AGREEMENT TO EXCHANGE
---------------------
2.1 Transfer. Subject to the terms and conditions hereof, on the
--------
Closing Date at the Time of Closing, the Shareholder shall
transfer to Buyer and Buyer shall accept from the Shareholder the
CCG Shares and the Shareholder shall deliver to Buyer
certificates representing CCG Shares duly endorsed in blank for
transfer together with new certificates therefor.
2.2 Purchase Price. In consideration for the transfer of the CCG
--------------
Shares, the Buyer shall issue the Shareholder 265,000 fully paid
common shares of American Eco (the "Buyer Shares"). The Buyer
Shares will be assigned a price per share based on the closing
price per share on the date immediately preceding the date that a
Treasury Directive is issued by the Buyer to its transfer agent.
The Buyer Shares shall be free trading through the facilities of
the TSE subsequent to 41 days after the date of issuance. The
Buyer Shares will be restricted against transfer in the United
States pursuant to Rule 144 of the Securities Act of 1933, as
amended.
2.3 Closing. Closing shall occur at the Time of Closing on the
-------
Closing Date at the offices of American Eco Corporation, 11011
Jones Road, Houston, Texas 77070, or at such other place or other
time and date as the Parties may agree.
2.4 Retirement of Debt. The Shareholder shall, within one hundred
------------------
twenty (120) days subsequent to the Closing Date, use its
resources to pay off or otherwise retire all of the notes or
other indebtedness owed to CCG by the Shareholder or C. N. Jones.
3. COVENANTS, REPRESENTATIONS AND WARRANTIES OF BUYER
--------------------------------------------------
3.1 Covenants, Representations and Warranties. Buyer hereby
-----------------------------------------
covenants, represents and warrants to the Shareholder as follows
and acknowledges and confirms that the Shareholder is relying
upon such covenants, representations and warranties in connection
with the Transaction and that unless otherwise indicated herein,
such covenants, representations and warranties shall be true and
correct as at the Closing Date:
(a) Organization. Buyer is duly incorporated and validly
subsisting under the laws of the Province of Ontario
and has the corporate power to own or lease its
property and to carry on its business as it is now
being conducted and on the Closing Date Buyer will have
the corporate power to execute, deliver and perform its
obligations under this Agreement. Buyer is duly
qualified to do business in those jurisdictions wherein
the failure to so qualify could have a Material Adverse
Effect on Buyer.
(b) Corporate Authority. On the Closing Date, Buyer will
have taken all requisite corporate action to authorize
the valid execution, delivery and performance of this
Agreement and the consummation of the Transaction.
(c) Agreement Enforceable. This Agreement constitutes a
valid and legally binding obligation of Buyer
enforceable against Buyer in accordance with its terms.
(d) Securities Laws Matters. The common shares of Buyer
are listed and posted for trading on the TSE and
Nasdaq. Buyer is in compliance in all material
respects with all applicable requirements of the TSE
and Nasdaq concerning maintenance of such listings and
has received no notification nor has any reasonable
basis to believe that such listings may or will be
terminated. Buyer is a "reporting issuer" under the
Securities Exchange Act of 1934, as amended, the
Securities Act, Ontario and the Securities Act, Quebec
and is not in material default of any of its
requirements under any such legislation, regulations or
published policies thereunder.
(e) No Violations. The execution and delivery of this
Agreement and all other agreements contemplated herein
by Buyer and the observance and performance of the
terms and provisions of this Agreement and any such
agreements; (i) does not and will not require Buyer to
obtain or make any consent, authorization, approval,
filing or registration under any law, by-law, rule,
regulation, judgment, order, writ, injunction or decree
which is binding upon Buyer; (ii) does not and will not
constitute a violation or breach of the charter
documents or by-laws of Buyer; (iii) does not and will
not constitute a violation or breach of applicable law,
any material provision of any Contract to which Buyer
is a party or by which Buyer is bound or any law,
by-law, rule, regulation, judgment, order, writ,
injunction or decree applicable to Buyer; and (iv) does
not and will not constitute a material default (nor
would with the passage of time or the giving of notice
or both or otherwise, constitute a material default)
under any Contract, to which Buyer is a party or by
which Buyer is bound.
4. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
------------------------------------------------------------
4.1 Covenants, Representations and Warranties. The Shareholder
-----------------------------------------
hereby covenants, represents and warrants to Buyer as follows and
acknowledges and confirms that Buyer is relying upon such
covenants, representations and warranties in connection with the
Transaction and that unless otherwise indicated herein, such
covenants, representations and warranties shall be true and
correct as at the Closing Date:
(a) Legal Capacity of Shareholder and Authority of Signatory.
--------------------------------------------------------
The Shareholder has the legal capacity and competence
to execute, deliver and perform his obligations under
this Agreement. The Shareholder is a duly formed
limited partnership and validly subsisting under the
laws of Texas. True and correct copies of the
Shareholder's Certificate of Limited Partnership and
Limited Partnership Agreement are attached hereto as
Schedule 4.1(a). The individual executing this
Agreement as agent for the Shareholder has been
properly authorized by the Shareholder to do so.
(b) Organization. CCG is duly incorporated and validly
------------
subsisting under the laws of Texas and has the
corporate power to own or lease its property and to
carry on its business as it is now being conducted and
has the corporate power to execute, deliver and perform
its obligations under this Agreement. CCG is duly
qualified to do business in those jurisdictions wherein
the failure to so qualify could have a Material Adverse
Effect on CCG, being those jurisdictions set forth on
Schedule 4.1(b).
(c) Corporate Authority. The Shareholder has caused CCG to
-------------------
take all requisite corporate action to authorize the
valid execution, delivery and performance of this
Agreement and the consummation of the Transaction.
(d) No Violations. The execution and delivery of this
-------------
Agreement and all other agreements contemplated herein
by the Shareholder and the observance and performance
of the terms and provisions of this Agreement and any
such agreements; (i) does not and will not require the
Shareholder or CCG to obtain or make any consent,
authorization, approval, filing or registration under
any law, by-law, rule, regulation, judgment, order,
writ, injunction or decree which is binding upon the
Shareholder or CCG; (ii) does not and will not
constitute a violation or breach of the charter
documents or by-laws of CCG; (iii) does not and will
not constitute a violation or breach of applicable law,
any material provision of any Contract to which the
Shareholder or CCG is a party or by which the
Shareholder or CCG is bound or any law, by-law, rule,
regulation, judgment, order, writ, injunction or decree
applicable to the Shareholder or CCG; (iv) does not and
will not constitute a default (nor would with the
passage of time or the giving of notice or both or
otherwise, constitute a default) under any Contract, to
which the Shareholder or CCG is a party or by which
the Shareholder or CCG is bound; and (v) does not and
will not result in the creation or imposition of any
Encumbrance on CCG Shares or any property or assets of
the Shareholder or CCG.
(e) Issued Shares. All of the issued and outstanding shares
-------------
of CCG, being CCG Shares, have been duly authorized,
created and issued as fully paid and non-assessable
shares. There are outstanding no other shares,
warrants, rights or securities convertible into shares
or any other evidence whatsoever of an interest in CCG.
(f) Owner of CCG Shares. The Shareholder is the owner
-------------------
beneficially and of record of CCG Shares in the amounts
and proportions identified on Schedule 4.1(f), hereto,
and has good and marketable title thereto, free and
clear of any Encumbrances and/or pre-emptive rights.
The Shareholder has the exclusive right and full power
to transfer CCG Shares to Buyer as herein contemplated,
free and clear of any Encumbrances.
(g) Subsidiaries. CCG has no Subsidiaries and owns no shares
------------
of any other corporation or entity nor any rights,
warrants or other securities convertible into shares of
any other corporation or entity. CCG is not bound by
or a party to any Contract which contemplates its
amalgamation, merger, consolidation or other
acquisition with or by any other entity.
(h) Acts of Bankruptcy. Neither the Shareholder nor CCG is
------------------
insolvent, has proposed a compromise or arrangement to
its or their creditors generally, has taken any
proceeding with respect to a compromise or arrangement,
has taken any proceeding to have itself declared
bankrupt or wound-up, has taken any proceeding to have
a receiver appointed of any part of their assets and at
present, no encumbrancer or receiver has taken
possession of any of their property and no execution or
distress is enforceable or levied upon any of its
property and no petition for a receiving order in
bankruptcy is filed against them.
(i) Private Company. CCG does not distribute its securities
---------------
to the public.
(j) Resident. The Shareholder is a resident of the United
--------
States. CCG's principal place of business is within
the United States.
(k) Actions - CCG Shares. There is not pending or, to the
--------------------
Best Knowledge of the Shareholder, threatened or
contemplated, any suit, action, legal proceeding,
litigation or governmental investigation of any sort
which would; (i) in any manner restrain or prevent the
Shareholder from effectually and legally transferring
CCG Shares to Buyer in accordance with this Agreement;
(ii) cause an Encumbrance to attach to CCG Shares;
(iii) divest title to CCG Shares in any manner
whatsoever; or (iv) make Buyer liable for damages in
connection with the Transaction.
(l) Litigation. Other than in the course of insurance
----------
business related claims, and except as set forth on
Schedule 4.1(l), there is not pending, or, to the Best
Knowledge of the Shareholder, threatened or
contemplated, any suit, action, legal proceeding,
litigation or governmental investigation of any sort
relating to the Shareholder, CCG or the Transaction nor
is there any present state of facts or circumstances
which can be reasonably anticipated to be a basis for
any such suit, action, legal proceeding, litigation or
governmental investigation nor is there presently
outstanding against the Shareholder or CCG any
judgment, decree, injunction, rule or order of any
court, governmental department, commission, agency,
instrumentality or arbitrator.
(m) Minute Books. The minute book of CCG contains accurate
------------
and complete copies of its organizational documents
together with minutes of all meetings of directors,
committees and shareholders of CCG. The articles and
the by-laws of CCG are attached as Schedule 4.1(m).
There are outstanding no applications or filings which
would alter in any way the organizational documents or
corporate status of CCG. No resolutions or by-laws
have been passed, enacted, consented to or adopted by
the directors or shareholders of CCG except as are
contained in the minute book of CCG. The directors and
officers of CCG are as set forth on Schedule 4.1(m)(1).
(n) Books of Account. The books of account and financial
----------------
records of CCG fairly set out and disclose in all
material respects, the current financial position of
CCG. All material transactions involving CCG have been
accurately recorded in such books and records. All
bonuses, commissions and other payments relating to the
employees of CCG are reflected in the books of CCG in a
manner consistent with past record keeping practices
and none of such payables are in arrears.
(o) Permits and Licenses. CCG has all necessary permits,
--------------------
certificates, licenses, approvals, consents and other
authorizations required to carry on and conduct
business and to own, lease or operate its assets at the
places and in the manner in which such business is
conducted. Schedule 4.1(o) contains a full, complete
and accurate list of such permits, certificates,
licenses, approvals, consents and other authorizations.
(p) Financial Statements. True copies of CCG's audited
--------------------
and/or unaudited financial statements as of and for the
year ended December 31, 1996, and as of and for the six
months ended June 30, 1997 (the "CCG Financial
Statements") are annexed hereto as Schedule 4.1(p).
The CCG Financial Statements:
(1) Have been prepared in accordance with U.S.
generally accepted accounting principles applied
on a basis consistent with those of the preceding
fiscal period.
(2) Present fairly the assets, liabilities and
financial position of CCG as of June 30, 1997 and
the results of operations for the period then
ended subject to normal year end adjustments, if
applicable. Other than the liabilities specified
in the balance sheet forming part of CCG Financial
Statements or incurred since the Reference Date in
the ordinary course of business (all of which is
consistent with past practice) or otherwise noted
or disclosed in this Agreement, to the Best
Knowledge of the Shareholder, there are no known
liabilities or obligations of CCG (whether
absolute, contingent or otherwise) including
without limitation, any Tax liabilities due or to
become due or contingent losses for unasserted
claims which are capable of assertion.
(3) Are substantially in accordance with the books and
records of CCG.
(4) Contain and reflect all necessary adjustments for
a fair presentation of the results of operations
and financial position of CCG for the period
covered thereby.
(5) Contain and reflect adequate provision or
allowance for all reasonably anticipated
liabilities, expenses and losses of CCG.
(q) Guarantees. Except as disclosed on Schedule 4.1(q), CCG
----------
does not have any outstanding guarantees or has any
outstanding security for any liability, debt or
obligation of any Person.
(r) Bonds, Debentures. CCG does not have any outstanding
-----------------
bonds or debentures, and it is not under any agreement
to create or issue any bonds, debentures or other
indebtedness.
(s) No Further Expenditures. No capital expenditures or
-----------------------
leasehold improvements have been made by CCG since the
date of CCG Financial Statements, other than in the
ordinary course of business.
(t) Dividends or Distributions. Except as disclosed on
--------------------------
Schedule 4.1(u), no dividends or other distributions on
any of the shares in the capital of CCG have been
authorized, declared or paid since the date of CCG
Financial Statements and there has not been any direct
or indirect redemption, purchase or acquisition of any
such shares.
(u) No Changes. Since the Reference Date, CCG has carried on
----------
business and conducted its operations and affairs only
in the ordinary and normal course consistent with past
practice and there has not been:
(1) Any material adverse change in the condition
(financial or otherwise), assets, liabilities,
operations, earnings, business or prospects of
CCG.
(2) Any damage, destruction or loss (whether or not
covered by insurance) affecting the property or
assets of CCG or any failure to regularly maintain
and repair such property and assets in the
ordinary course of business.
(3) Any payment, discharge or satisfaction of any
Encumbrance, liability or obligation of CCG
(whether absolute, accrued, contingent or
otherwise and whether due or to become due)
greater than $1,000.00 other than payment of
accounts payable and Tax liabilities incurred in
the ordinary course of business consistent with
past practice.
(4) Any issuance or sale by CCG or any Contract
entered into by CCG for the issuance or sale by
CCG of any shares in the capital of or securities
convertible into or exercisable into shares in the
capital of CCG.
(5) Any labor disturbances having a Material Adverse
Affect on CCG.
(6) Any license, sale, assignment, transfer,
disposition, pledge, mortgage or granting of a
security interest or other Encumbrance on or over
any property or assets of CCG other than in the
ordinary course of business.
(7) Any write-off as uncollected of any Accounts
Receivable or any portion there of CCG in amounts
exceeding the allowance set out in CCG Financial
Statement.
(8) Any cancellation of any other debts or claims or
any amendment, termination or waiver of any other
rights of value to CCG in amounts exceeding
$1,000.00 in each instance or $5,000.00 in the
aggregate.
(9) Any general increase in the compensation of
employees of CCG (including without limitation,
any increase pursuant to any employee plan or
commitment) or any increase in any such
compensation or bonus payable to any officer,
employee, consultant or agent thereof (having an
annual salary or remuneration in excess of
$30,000.00) or the making of any loan to or
engagement in any transaction with any employee,
officer or director of CCG.
(10) Any material change in the accounting or tax
practices followed by CCG.
(11) Any acquisition, transfer, assignment, sale or
other disposition of any of the assets shown in
CCG Financial Statements other than in the
ordinary course of business.
(12) Any institution or settlement of any litigation,
action or proceeding before any court or
governmental body by or against CCG.
(13) The creation of any debts and/or liabilities
whatsoever (whether accrued, absolute, contingent
or otherwise) other than in the ordinary course of
business.
(v) Taxes. Except as reserved for in CCG Financial
-----
Statements:
(1) All returns, including reports of every kind with
respect to Taxes, which are due to have been filed
by CCG in accordance with applicable law, have
been duly filed by the dates prescribed by law and
are complete and accurate.
(2) All Taxes, deposits or other payments for which
CCG may have any liability arising prior to
Closing have been paid in full or accrued as
liabilities for Taxes on the books of CCG.
(3) All installments for Taxes which CCG may be
required to make have been made on a timely basis.
(4) The amount so paid on or before the Reference Date
together with any amounts accrued as liabilities
for Taxes (whether accrued as currently payable or
deferred taxes) on the books and in CCG Financial
Statements will be adequate to satisfy all
liabilities for Taxes of CCG in any jurisdiction
in respect of the periods covered.
(5) There are not now any extensions of time in effect
with respect to the dates on which any returns,
including elections, reports of Taxes were or are
due to be filed by CCG and there are no
outstanding requests therefor.
(6) All assessments or reassessments of Taxes asserted
as a result of any examination of any return or
report of Taxes have been paid by CCG, have been
accrued on the books of CCG and in CCG Financial
Statements or finally settled and no issue has
been raised in any such examination which, by
application of the same or similar principles,
reasonably could be expected to result in a
proposed deficiency for any other period not so
examined.
(7) No payments are or will be required to be made by
CCG pursuant to any tax indemnity, allocation or
sharing agreement and all such agreements will be
terminated with respect to CCG as of the Reference
Date;
(8) No claims, proposals, assessments or reassessments
for any Taxes are being asserted or, to the Best
Knowledge of the Shareholder, proposed or
threatened and, to the Best Knowledge of the
Shareholder, no audit or investigation of any
return or report of Taxes is currently under way,
pending or threatened.
(9) There are no outstanding waivers or agreements by
CCG for the extension of time for the assessment
or reassessment of any Taxes or deficiency thereof
nor are there any requests for rulings,
outstanding subpoenas or requests for information,
notice of proposed reassessment of any property
owned or leased by CCG or any other matter pending
between CCG and any taxing authority.
(10) There are no liens for Taxes upon CCG shares or
upon any property or assets of CCG except liens
for current Taxes not yet due.
(11) To the Best Knowledge of the Shareholder there are
no facts which exist or have existed which would
constitute grounds for the assessment of any Taxes
of CCG with respect to the periods which have not
been audited by the Internal Revenue Service or
other taxing authorities.
(12) CCG has withheld from each payment made to its
officers, directors and employees and former
officers, directors and employees, the amount of
all Taxes and other deductions required to be
withheld therefrom and has paid the same to the
proper tax and other receiving officers within the
time required under applicable legislation.
(13) Adequate provision, including provision in the
deferred tax account has been made for all
deferred and accrued Tax liabilities with respect
to operations of CCG for the period ending on the
Reference Date.
(w) Assets. CCG has good and marketable title to all of its
------
assets as reflected on CCG Financial Statements, free
and clear of all Encumbrances save and except for those
assets sold, assigned, transferred or disposed of in
the ordinary course of business and save and except for
the encumbrances identified in Schedule 4.1(x), hereto.
(x) Schedules. The Schedules hereto contain full, complete
---------
and accurate lists and descriptions of the following as
at the Reference Date:
(1) Schedule 4.1(y)(1): All real property owned of
record or beneficially of CCG.
(2) Schedule 4.1(y)(2): All items of tangible
personal property (other than raw material,
purchased parts, work in process, finished goods
and other items of inventory), if any, not
reflected on any other Schedule hereto having a
book value of $1,000 or more and owned of record
or beneficially by CCG, including without
limitation, automobiles, trucks and other
vehicles.
(3) Schedule 4.1(y)(3): All purchase commitments of
CCG where the amount remaining unpaid is in excess
of $5,000 and all sales commitments where the
total value of the commitment which is presently
unpaid exceeds $10,000 of CCG.
(4) Schedule 4.1(y)(4): Each lease (including all
amendments thereto) where the total amount
remaining to be paid thereunder exceeds $5,000.00
under which CCG is a lessee of any personal
property and each real property lease. All
rentals due under all such leases have been paid
up to and including the Reference Date and there
are no defaults by CCG under the terms of such
leases and no event has occurred which, upon the
passage of time or the giving of notice or both
would result in an event of default by CCG or
would prevent CCG from exercising and obtaining
the benefits of any rights or options contained
therein. CCG has all right, title and interest of
the lessee under the terms of each such lease free
and clear of any Encumbrances and all such leases
are valid and in full force and effect. The
Transaction does not constitute a default by the
Shareholder or CCG under any such leases and the
consent of the lessors under such leases is not
required with respect to this Transaction.
(5) Schedule 4.1(y)(5): All Intellectual Property
that is directly or indirectly owned, licensed,
used, required for use or controlled in whole or
in part by CCG and the Shareholder and all
material licenses and other agreements allowing
CCG and the Shareholder to use the Intellectual
Property of other Persons. None of the
Intellectual Property of CCG and the Shareholder
infringes the Intellectual Property of any other
Person and to the Best Knowledge of the
Shareholder, no activity of any other Person
infringes upon any of the Intellectual Property of
CCG or the Shareholder to the extent that any
such infringement in either case could have a
Material Adverse Effect on CCG or the Shareholder.
To the Best Knowledge of the Shareholder, CCG has
been and is now conducting business in a manner
which has not been and is not now in violation of
any Intellectual Property of any other Person and
does not require a material license to operate
such business as currently conducted except as
disclosed on Schedule 4.1(o). The Intellectual
Property of CCG is sufficient for the conduct of
business of CCG as currently conducted.
(6) Schedule 4.1(y)(6): The name and address of each
bank, trust company or other financial institution
in which CCG has an account and the names of all
Persons authorized to draw thereon as well as all
powers of attorney granted by CCG.
(7) Schedule 4.1(y)(7): All insurance policies now in
full force and effect (specifying the insurer, the
amount of coverage, type of insurance, the amount
of deductible if any, the policy number, expiry
date and any pending claims thereunder) maintained
by CCG on its assets including without limitation,
business interruption, personal and product
liability coverage and by CCG on the lives of its
directors and officers, together with true copies
thereof. The proceeds of such policies are fully
payable to CCG. All premiums in connection with
such policies are fully paid. Such insurance is
in amounts deemed by the Shareholder to be
sufficient for all policy periods prior to the
Reference Date with respect to the assets,
properties, business, operations, products and
services owned or conducted by CCG. There are no
claims, actions, suits or proceedings arising out
of or based upon any of such insurance policies
and to the Best Knowledge of the Shareholder, no
basis for any such claim, action, suit or
proceeding exists. CCG is not in default with
respect to any provisions contained in any such
insurance policy which would adversely affect its
rights to make any claim under any such insurance
policy.
(8) Schedule 4.1(y)(8): All major clients of CCG
(being those clients of CCG accounting for more
than 5% of revenues for the financial year ended
on December 31st. There has been no termination
or cancellation of the business relationship of
CCG with any major client or group of major
clients.
(9) Schedule 4.1(y)(9): All suppliers or vendors of
products or services to CCG aggregating more than
$5,000 during the period ending on the Reference
Date, the address of each such supplier or vendor
and the amount sold to CCG during such period.
(10) Schedule 4.1(y)(10):
(a) All written contracts or arrangements for the
employment of any officer, employee, agent or
consultant of CCG.
(b) A complete list of all permanent and
full-time employees of CCG, their salaries
and wage rates, their positions and their
length of service and particulars of any
Contracts, arrangements or understandings,
written or oral, with them.
(c) All bonus, deferred compensation, severance
or termination pay, insurance, medical,
dental, drug, profit sharing, pension,
retirement, stock option, stock purchase,
hospitalization insurance or other material
plans or arrangements providing employee
benefits to any current or former director,
officer, employee or consultant of CCG and
all relevant vacation policies.
(y) Certain Contracts and Commitments. Schedule 4.1(aa) sets
---------------------------------
forth a list and description of all contracts, leases
and licenses of CCG (the "CCG Contracts") not included
on any other Schedule. The enforceability of CCG
Contracts will not be affected in any manner by the
execution and delivery of this Agreement or the
consummation of the Transaction. CCG is not in default
and there does not exist any event that, with notice or
lapse of time or both, would constitute an event of
default by CCG under any of CCG Contracts. The
Shareholder has no knowledge of any breach or default
by any other party to CCG Contracts. The Shareholder
will deliver a true and complete copy of each SMG
Contract to the Buyer as soon as practical after the
Closing Date.
(z) No Other Contracts. For greater certainty and without
------------------
limitation, except as set forth in Schedule 4.1(aa) or
otherwise herein, CCG is not a party to or bound by any
Contract which in any way has or could have a Material
Adverse Effect on CCG. The Contracts set forth in the
Schedules hereto are not subject to renegotiation or
cancellation resulting from the Transaction. Except as
described in the Schedules, CCG is not a party to or
bound by:
(1) Any Contract for the purchase of materials,
supplies, equipment or services which involves the
payment of $5,000 or more.
(2) Any Contract for the sale, license or provision of
any assets or services which involve the receipt
of $5,000 or more.
(3) Any trust indenture, mortgage, promissory note,
loan agreement, guarantee or other Contract for
the borrowing of money or a leasing transaction of
the type required to be capitalized in accordance
with generally accepted accounting principles.
(4) Any Contract for charitable contributions in
excess of $5,000 in the aggregate.
(5) Any Contract relating to a distributorship, sales
representative or sales agency agreement.
(6) Any Contract which involves the sharing of
profits, a joint venture, partnership, joint
development or bidding arrangement or any material
advertising contracts.
(7) Any Contract not made in the ordinary course of
business.
(8) Any Contract restricting in any manner the conduct
of CCG or the ownership or use of the assets
thereof.
(9) Any material warranties relating to products
distributed or services provided by CCG.
(10) Any Contract involving the payment or receipt of
$15,000.00 or more in any 12 month period.
(11) Any Contract required to be disclosed on a
Schedule to this Agreement that is not so
disclosed.
(aa) Default of Contracts. CCG has performed all of the
--------------------
obligations required to be performed by it to the
extent performance is due and is entitled to all
benefits under and is not in default or alleged to be
in default in respect of, any Contract to which it is a
party or by which it is bound. No event, condition or
occurrence exists that, after notice or lapse of time
or both, would constitute a default under any of such
Contracts. CCG has the capacity, including the
necessary personnel, equipment and supplies, to
materially perform all its obligations under all such
Contracts.
(ab) Compliance with Laws. CCG has conducted and is now
--------------------
conducting business in compliance with all statutes,
regulations, by-laws, orders, covenants, restrictions
or plans of all federal, state or municipal
authorities, agencies or boards applicable to such
business. CCG is not in default under any such
statutes, regulations, by-laws, orders, covenants,
restrictions or plans applicable to it. Neither CCG
nor any of its directors, officers, agents, employees
or other Persons acting on behalf of CCG have, directly
or indirectly, used any corporate funds of CCG for
unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, made
any unlawful payments on behalf of CCG to foreign or
domestic government officials or employees or to
foreign or domestic political parties or campaigns from
corporate funds, knowingly made any false or fictitious
entry on the books or records of CCG or made any bribe,
rebate, payoff, influence payment, kickback or other
unlawful payment on behalf of CCG.
(ac) Leased Premises. The occupation and use to which the
---------------
leased premises of CCG have been put by CCG is not in
breach of any applicable statute, by-law, regulation,
covenant or restriction applicable to the leased
premises. The zoning by-laws applicable to the leased
premises of CCG permit the operation of business and
the intended use to be made of the leased premises by
CCG. There are no outstanding work orders against the
leased premises of CCG or any part thereof nor are
there any matters under discussion between CCG and any
governmental or municipal authority which may give rise
to work orders.
(ad) Environmental Matters. To the Best Knowledge of the
---------------------
Shareholder, the buildings and premises at which CCG
carries on business does not contain any material
quantities of noxious substances including without
limitation, urea formaldehyde foam insulation, aluminum
wiring, asbestos, materials containing asbestos,
polychlorinated byphenyls or substances containing
polychlorinated byphenyls or radon at levels deemed
unacceptable by any health, labor or environmental
authority or any federal, state or municipal
government. The operations of CCG in all material
respects complies with all applicable environmental
statutes, regulations and decrees, whether federal,
state or municipal. CCG has not received any notices
to the effect that the business carried on by CCG is
not in compliance with the requirements of applicable
environmental statutes, regulations or decrees or is
subject to any remedial control or action or any
investigation or evaluation as to whether any remedial
action is required to respond to a release or
threatened release of any contaminant into the
environment or into any facility or structure which
forms part of or is adjacent to the leased premises at
which the business is carried on.
(ae) Employee Plans and Arrangements. All of the contracts,
-------------------------------
plans and arrangements referred to in Schedule
4.1(y)(10) are in good standing and CCG has made all
payments required to be made by it in connection
therewith. All employee plans requiring funding on the
part of CCG are fully funded. CCG does not have any
employees receiving or claiming long term disability
benefits or workers' compensation benefits. No notice
has been received by CCG of any complaints filed by any
employees claiming that CCG has violated any
applicable employee or human rights or similar
legislation in any other jurisdiction in which CCG
carries on business or of any complaints or proceedings
of any kind involving CCG or any employees of CCG
before any labor relations board. There are no
outstanding orders or charges against any CCG under any
applicable heath and safety legislation in the
jurisdictions in which CCG carries on business. All
levies, assessments and penalties made against CCG
pursuant to any applicable workers' compensation
legislation in any jurisdictions in which any of CCG
carries on business have been paid by CCG and CCG has
been reassessed under any such legislation during the
past 3 years. CCG has not made any agreements with any
labor union or employee association or made commitments
to or conducted negotiations with any labor union or
employee association with respect to any future
agreements and none of the Shareholder is aware of any
current attempts to organize or establish any labor
union or employee association relating to CCG. CCG has
not entered into any agreement or made any arrangements
with any employees an consultants which would have the
effect of depriving CCG of the continued services of
any such employees and consultants following the
Closing.
(af) Omissions and Misrepresentations. None of the foregoing
--------------------------------
covenants, representations and warranties knowingly
contains any untrue statement of material fact or
knowingly omits to state any material fact necessary to
make any such covenant, warranty or representation not
misleading to a prospective purchaser of CCG Shares and
the Assets seeking full information as to CCG.
5. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES
-----------------------------------------------------
5.1 Survival. No investigations made by or on behalf of any Party
--------
at any time shall have the effect of waiving, diminishing the
scope of or otherwise affecting any covenant, representation or
warranty made by any Party. No waiver by any Party of any
condition, in whole or in part, shall operate as a waiver of any
other condition. The covenants, representations and warranties
contained in Articles 3 and 4 respectively or in any certificate
or other document delivered in connection with the Closing shall
survive the making of this Agreement and the Closing until the
expiration of the statute of limitations (herein referred to as
the "Survival Period"); provided, however, that if a claim for a
breach of any such covenant, representation or warranty is
brought prior to the expiration of the Survival Period such
covenant, representation or warranty shall, for the purposes of
such claim, survive the Survival Period until such claim is
finally resolved and all obligations with respect thereto have
been fully satisfied.
6. INDEMNITY
---------
6.1 Indemnity by Buyer. Buyer agrees to indemnify and save
------------------
harmless the Shareholder from all Losses actually incurred by the
Shareholder as a result of any breach by Buyer or any inaccuracy
of any covenant, representation or warranty contained in this
Agreement.
6.2 Indemnity by the Shareholder. The Shareholder agrees to
----------------------------
indemnify and save harmless Buyer from all Losses actually
incurred by Buyer as a result of:
(a) Any breach by the Shareholder or any inaccuracy of any
covenant, representation or warranty contained in this
Agreement.
(b) All debts and liabilities whatsoever (whether accrued,
absolute, contingent or otherwise) of CCG as at the
Reference Date which are not disclosed on, provided for
or included in the balance sheets forming part of CCG
Financial Statements or which did not arise in the
ordinary course of business since the date of CCG
Financial Statements up to the Time of Closing.
(c) Any assessment or reassessment of Taxes, interest
and/or penalties for any period up to the Reference
Date for which no adequate reserve has been provided
and disclosed in CCG Financial Statements.
6.3 Notice of Claims
----------------
(a) In the event that a Party (the "Indemnified Party")
shall become aware of any Loss in respect of which
another Party (the "Indemnifying Party") agreed to
indemnify the Indemnified Party pursuant to this
Agreement (the "Indemnification Claim"), the
Indemnified Party shall promptly give written notice
thereof to the Indemnifying Party. Such notice shall
specify whether the Indemnification Claim arises as a
result of a claim by a Person against the Indemnified
Party (a "Third Party Claim") or whether the Loss does
not so arise (a "Direct Claim") and shall also specify
with reasonable particularity (to the extent that the
information is available) the factual basis for the
Indemnification Claim and the amount of the Loss if
known.
(b) If through the fault of the Indemnified Party the
Indemnifying Party does not receive notice of any
Indemnification Claim in time to contest effectively
the determination of any liability susceptible of being
contested, the Indemnifying Party shall be entitled to
set off against the amount claimed by the Indemnified
Party the amount of any Losses incurred by the
Indemnifying Party resulting from the Indemnified
Party's failure to give such notice on a timely basis.
6.4 Investigation of Claims. With respect to any Direct Claim,
-----------------------
following receipt of notice from the Indemnified Party of the
Indemnification Claim, the Indemnifying Party shall have 60 days
to make such investigation of the Indemnification Claim as is
considered necessary or desirable. For the purpose of such
investigation, the Indemnified Party shall make available to the
Indemnifying Party the information relied upon by the Indemnified
Party to substantiate the Indemnification Claim, together with
all such other information as the Indemnifying Party may
reasonably request. If all Parties agree at or prior to the
expiration of such 60 day period (or any mutually agreed upon
extension thereof) to the validity and amount of such
Indemnification Claim, the Indemnifying Party shall immediately
pay to the Indemnified Party the full agreed upon amount of the
Indemnification Claim, failing which the matter shall be
determined by a court of competent jurisdiction.
6.5 Supplemental Rights. The rights and benefits provided in this
-------------------
Article are supplemental to and are without prejudice to any
other rights, actions or causes of action which may arise
pursuant to any other section of this Agreement or pursuant to
applicable law.
7. PRE-CLOSING COVENANTS
---------------------
7.1 Operations Before Closing. For greater certainty and without
-------------------------
limitation, without the prior written consent of Buyer during the
period commencing on the Reference Date and terminating at the
close of business on the Closing Date, the Shareholder; (i) shall
not make nor shall the Shareholder permit to be made any material
change in the way of CCG is being operated; and (ii) shall comply
with all laws in connection with the business of CCG.
8. CONDITIONS PRECEDENT TO THE SHAREHOLDER'S OBLIGATIONS AT
--------------------------------------------------------
CLOSING
-------
8.1 Conditions Precedent. All obligations of the Shareholder to
--------------------
sell CCG Shares and the Assets at Closing under this Agreement
are subject to the fulfillment (or waiver in writing by the
Shareholder) prior to or at the Closing of each of the following
conditions:
(a) Covenants, Representations and Warranties. The
-----------------------------------------
covenants, representations and warranties made by Buyer
in or under this Agreement shall be true in all
material respects on and as of the Closing Date and the
Shareholder shall have received from Buyer a
certificate signed as of the Closing Date to such
effect.
(b) Actions, Etc. All actions, proceedings, instruments and
------------
documents required to carry out the Transaction
including without limitation the issue of the Buyer
Shares as contemplated in this Agreement and all other
related legal matters shall have been approved by the
Shareholder and the Shareholder shall have been
furnished with such certified copies of actions and
proceedings and other such instruments and documents as
the Shareholder shall have requested.
(c) Approvals. Buyer shall have received all requisite
---------
regulatory approvals and board of director approvals in
connection with the Transaction.
(d) Compliance with Covenants. Buyer shall have complied
-------------------------
with all covenants and agreements herein agreed to be
performed or caused to be performed by Buyer.
(e) Approvals and Consents. At or before Closing there shall
----------------------
have been obtained from all appropriate federal, state,
provincial, municipal or other governmental or
administrative bodies all such approvals and consents,
if any, in form and on terms satisfactory to the
Shareholder as may be required in order to permit the
issue of the Buyer Shares as provided in this
Agreement.
(f) Corporate Authorizations. Buyer shall have delivered to
------------------------
the Shareholder evidence satisfactory to the
Shareholder that all necessary corporate authorizations
by Buyer authorizing and approving the Transaction have
been obtained. The Buyer Shares shall have been duly
authorized, created and validly issued as fully paid
and non-assessable shares free and clear of all
Encumbrances and shall be listed and posted for trading
on the TSE and Nasdaq, subject only to routine filings
and subject to the matters contained in this Agreement.
(g) No Orders. No order of any court or administrative
---------
agency shall be in effect which restrains or prohibits
the Transaction and no suit, action, inquiry,
investigation or proceeding in which it will be or it
is sought to restrain, prohibit or change the terms of
or obtain damages or other relief in connection with
the Transaction and which in the reasonable judgment of
the Shareholder makes it inadvisable to proceed with
the consummation of the Transaction shall have been
made, instituted or threatened by any Person.
(h) Employment Agreement. - C. N. Jones shall have entered
--------------------
into an employment agreement with American Eco in the
form set out in Schedule 8.1(h).
In case any of the foregoing conditions cannot be fulfilled at or
before the Time of Closing to the reasonable satisfaction of the
Shareholder, the Shareholder may rescind this Agreement by notice
to Buyer and in such event all of the Parties shall be released
from all obligations hereunder. Provided however that any such
conditions may be waived in whole or in part by the Shareholder
without prejudice to the Shareholder's rights of rescission in
the event of the non-fulfillment of any other condition or
conditions, any such waiver to be binding on the Shareholder only
if the same is in writing.
9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS AT CLOSING
------------------------------------------------------
9.1 Conditions Precedent. All obligations of Buyer to purchase
--------------------
CCG Shares pursuant to this Agreement are subject to the
fulfillment (or waiver in writing by Buyer) prior to or at the
Closing of each of the following conditions:
(a) Actions, Etc. All actions, proceedings, instruments and
------------
documents required to carry out the Transaction
including without limitation, the transfer of CCG
Shares and all other related legal matters shall have
been approved by Buyer and Buyer shall have been
furnished with such certified copies of actions and
proceedings and other such instruments and documents as
Buyer shall have requested.
(b) Covenants, Representations and Warranties. The
-----------------------------------------
covenants, representations and warranties made by the
Shareholder in or under this Agreement shall be true in
all material respects on and as of the Closing Date and
Buyer shall have received from the Shareholder a
certificate signed as of the Closing Date and to such
effect.
(c) Approvals. Buyer shall have received all requisite
---------
regulatory approval and board of director approvals in
connection with the Transaction.
(d) Resignations. All of the directors and officers of CCG
------------
shall have resigned as directors and officers of CCG in
favor of nominees of the Buyer and the resigning
directors and officers of CCG shall have delivered
releases to CCG and the Buyer in form and substance
reasonably satisfactory to the Buyer.
(e) Compliance with Covenants. The Shareholder shall have
-------------------------
complied with all covenants and agreements herein
agreed to be performed or caused to be performed by the
Shareholder.
(f) Approvals and Consents. At or before Closing there shall
----------------------
have been obtained from all appropriate federal, state,
municipal or other governmental or administrative
bodies all such approvals and consents, if any, in form
and on terms reasonably satisfactory to Buyer as may be
required in order to transfer CCG Shares at Closing as
herein provided.
(g) Permits and Licenses. Buyer shall have been furnished
--------------------
with evidence that CCG holds all valid permits and
licenses as may be requisite for carrying on business.
(h) Corporate Authorizations. The Shareholder shall have
------------------------
delivered to Buyer evidence satisfactory to Buyer that
all necessary corporate authorizations by the
Shareholder and CCG authorizing and approving the
Transaction have been obtained.
(i) No Orders. No order of any court or administrative
---------
agency shall be in effect which restrains or prohibits
the Transaction and no suit, action, inquiry,
investigation or proceeding in which it will be or it
is sought to restrain, prohibit or change the terms of
or obtain damages or other relief in connection with
the Transaction and which in the judgment of Buyer
makes it inadvisable to proceed with the consummation
of the Transaction shall have been made, instituted or
threatened by any Person.
(j) Employment Agreement. C. N. Jones shall have entered into
--------------------
an employment agreement with American Eco in the form
set out in Schedule 8.1(h).
In case any of the foregoing conditions cannot be fulfilled
at or before the Time of Closing to the satisfaction of Buyer,
Buyer may rescind this Agreement by notice to the Shareholder and
in such event the Parties shall be released from all obligations
hereunder. Provided however that any such conditions may be
waived in whole or in part by Buyer without prejudice to Buyer's
rights of rescission in the event of the non-fulfillment of any
other condition or conditions, any such waiver to be binding on
Buyer only if the same is in writing.
10. MISCELLANEOUS
-------------
10.1 Tender. Any tender of documents or money hereunder may be
------
made upon the Parties or upon their respective solicitors as set
forth herein.
10.2 Notices. All notices, requests, demands or other
-------
communications by the Parties required or permitted to be given
by one Party to another shall be given in writing by personal
delivery, telecopy, registered or certified mail, postage
prepaid, addressed, telecopied or delivered to such other Party
as follows:
(a) if to the Shareholder, to: C. N. Jones
Commercial Construction
Group, Inc.
6350 LBJ Freeway
Suite 269
Dallas, Texas 75240
Fax: 972/385-8817
(b) if to American Eco, to: American Eco Corporation
ATTN: Michael E. McGinnis
11011 Jones Road
Houston, Texas 77070
Fax: 281/774-7001
or at such other address or telecopier number as may be given by
any of them to the others in writing from time to time and such
notices, requests, demands or other communications shall be
deemed to have been received when delivered, if personally
delivered, on the date telecopied (with receipt confirmed) if
telecopied and received at or prior to 5:00 p.m. local time and,
if not, on the next Business Day, and if mailed, on the date
received as certified.
10.3 Further Assurances. The Parties shall sign such other papers,
------------------
cause such meetings to be held, resolutions passed and by-laws
enacted and exercise their vote and influence, do and perform and
cause to be done and performed such further and other acts and
things as may be necessary or desirable in order to give full
effect to this Agreement and every part hereof.
10.4 Laws. This Agreement shall be governed by the laws of Texas
----
and the Parties hereby irrevocably attorn to the Courts of Harris
County, Texas.
10.5 Expenses. All out-of-pocket expenses (including legal and
--------
accounting expenses) incurred in connection with the Transaction
shall be borne by the respective Parties.
10.6 Time of the Essence. Time shall be of the essence of this
-------------------
Agreement and of every part hereof and no extension nor variation
of this Agreement shall operate as a waiver of this provision.
10.7 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the Parties with respect to all of the matters
herein. This Agreement supersedes any and all agreements,
understandings and representations made between the Parties prior
to the date hereof. This Agreement shall not be amended except
by a memorandum in writing signed by all of the Parties and any
amendment hereof shall be null and void and shall not be binding
upon any Party which has not given its consent as aforesaid.
10.8 Assignment. No Party may assign this Agreement or any part
----------
hereof without the prior written consent of the other Parties
which consent may be unreasonably withheld. Subject to the
foregoing, this Agreement shall enure to the benefit of and be
binding upon the Parties and their respective successors and
permitted assigns, but no other Person.
10.9 Invalidity. In the event that any of the covenants,
----------
representations and warranties or any portion of them contained
in this Agreement are unenforceable or are declared invalid for
any reason whatsoever, such unenforceability or invalidity shall
not affect the enforceability or validity of the remaining terms
or portions thereof contained in this Agreement and such
unenforceable or invalid, covenant, representation and warranty
or covenant or portion thereof shall be severable from the
remainder of this Agreement.
10.10 Counterpart. This Agreement may be executed in several
-----------
counterparts, each of which so executed shall be deemed to be an
original and such counterparts when taken together shall
constitute one and the same original agreement which shall be
binding on the Parties hereto.
10.11 Special Condition. The parties acknowledge that as of the
-----------------
Closing Date, all of the schedules and exhibits referred to in
this Agreement have not been prepared or approved by the parties.
In the event that the parties have not approved all of the
schedules and exhibits within sixty (60) days after the Closing
Date, either party may elect to rescind this Agreement, by
notifying the other party in writing, in which event all
consideration paid or delivered by either party shall be promptly
returned and the parties cooperate with each other in unwinding
the transaction.
* * * * *
<PAGE>
IN WITNESS WHEREOF the Parties have duly executed this
Agreement, in multiple counterparts, as of the date and year
first above written.
AMERICAN ECO CORPORATION
By: /s/ Michael E. McGinnis
---------------------------
Name: Michael E. McGinnis
-------------------------
Title: President/CEO
------------------------
Date: September 1, 1997
JONES PARTNERS, LTD.
By: /s/ C.N. Jones
--------------------------
Name: C.N. Jones
------------------------
Title: General Partner
-----------------------
Date: September 1, 1997
EXHIBIT 16
[Karlins, Fuller, Arnold & Klodosky P.C. Letterhead]
March 16, 1998
American Eco Corporation
11011 Jones Road
Houston, Texas 77070
Gentlemen:
We have read the statements made by American Eco Corporation (the
"Company") in its Annual Report on Form 10-K for the year ended
November 30, 1997, concerning the resignation of this firm as
independent accountants of the Company effective May 7, 1997, and
we concur with such statements.
Sincerely,
Karlins, Fuller, Arnold & Klodosky, P.C.
/s/ Michael Karlins
_____________________
Michael Karlins, CPA
EXHIBIT 21
AMERICAN ECO CORPORATION
SUBSIDIARIES(1)
------------------------
JURISDICTION OF
NAME INCORPORATION
-------------------------------------- ---------------
The Turner Group Delaware
C.A. Turner Construction Company Delaware
C.A. Turner Maintenance Inc. Texas
Action Contract Services Inc. Delaware
H.E. Co. Services, Inc. Texas
MM Industra, Limited Nova Scotia
Industra Service Corporation British Columbia
Industra Thermal Service Corporation British Columbia,
Alberta
Industra Engineers & Consultants, British Columbia
Inc.
NUS, Inc. (Holding Company USA) Washington
Industra Thermal Service Corp. Washington
Industra Service Corp. Washington
Industra, Inc. Washington
Separation and Recovery Systems Inc. Nevada
United Eco Systems, Inc. Delaware
ENSCI Environmental, Inc. Delaware
Lake Charles Construction Company Louisiana
Cambridge Construction Service Corp. Nevada
Chempower, Inc. Ohio
Global Power Company Ohio
Brookfield Corporation Ohio
Southwick Corporation Ohio
Controlled Power Limited Partnership Illinois
Specialty Management Group, Inc., Texas
d//b/a/ CCG
_______________
(1) Inactive subsidiaries are not included
EXHIBIT 24
DIRECTORS AND OFFICERS OF AMERICAN ECO CORPORATION
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned directors and officers of American Eco
Corporation, an Ontario Canada corporation (the "Company"), do
hereby make, constitute and appoint Michael E. McGinnis and David
L. Norris, and each of them with full power of substitution and
resubstitution, as attorneys or attorney of the undersigned, to
execute and file, under the Securities Exchange Act of 1934, as
amended, the Company's Annual Report on Form 10-K, for the year
ended November 30, 1997 and all amendments or exhibits thereto,
and any or all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such Annual
Report, with full power and authority to do and perform any and
all acts and things whatsoever necessary, appropriate or
desirable to be done in the premises, or in the name, place and
stead or the said directors and officers, hereby ratifying and
approving the acts of said attorneys and any of them and any
substitute.
This action may be executed in counterpart.
IN WITNESS WHEREOF, the undersigned have subscribed these
presents as of the 13th day of March 1998.
/s/ Michael E. McGinnis /s/ William A. Dimma
------------------------------ --------------------------------
Michael E. McGinnis, William A. Dimma, Director
Chairman of the Board,
President, Chief Executive
Officer and Director
/s/ John C. Pennie /s/ Hon. Donald R. Getty
------------------------------ --------------------------------
John C. Pennie, Hon. Donald R. Getty, Director
Vice Chairman
/s/ David L. Norris /s/ Francis J. Sorg, Jr.
------------------------------ --------------------------------
David L. Norris Francis J. Sorg, Jr., Director
Senior Vice President and Chief
Financial Officer
/s/ Barry Cracower
------------------------------
Barry Cracower, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM AMERICAN ECO CORPORATION'S FORM 10-K
FOR THE YEAR ENDED NOVEMBER 30, 1997, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<CASH> 1,259
<SECURITIES> 0
<RECEIVABLES> 52,474
<ALLOWANCES> (2,078)
<INVENTORY> 18,079
<CURRENT-ASSETS> 108,642
<PP&E> 46,801
<DEPRECIATION> (9,772)
<TOTAL-ASSETS> 215,792
<CURRENT-LIABILITIES> 48,735
<BONDS> 0
0
0
<COMMON> 75,577
<OTHER-SE> 29,522
<TOTAL-LIABILITY-AND-EQUITY> 215,792
<SALES> 220,478
<TOTAL-REVENUES> 220,478
<CGS> 162,882
<TOTAL-COSTS> 162,882
<OTHER-EXPENSES> 33,386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,946
<INCOME-PRETAX> 19,264
<INCOME-TAX> 1,829
<INCOME-CONTINUING> 17,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,435
<EPS-PRIMARY> 1.08
<EPS-DILUTED> .90
</TABLE>
