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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------------- ------------------
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
------------------- ------------------------
None None
Securities registered pursuant to Section 12(g) of the Act.
COMMON SHARES, NO PAR VALUE
SHAREHOLDER RIGHTS PLAN
---------------------------
(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. [ ]
At January 31, 2000, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $18,534,572, and the number of Common
Shares outstanding of the Registrant was 21,960,394.
Documents Incorporated in Reference: None
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FORM 10-K
TABLE OF CONTENTS
<TABLE>
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PAGE
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PART I
Item 1. Business...................................................................................... 3
Item 2. Properties.................................................................................... 14
Item 3. Legal Proceedings............................................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders........................................... 15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................... 16
Item 6. Selected Financial Data....................................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 17
Item 8. Financial Statements and Supplementary Data................................................... 23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 53
PART III
Item 10. Directors and Executive Officers of the Registrant........................................... 54
Item 11. Executive Compensation....................................................................... 57
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 60
Item 13. Certain Relationships and Related Transactions............................................... 61
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................. 63
</TABLE>
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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 provider of industrial outsourcing which includes
specialty fabrication and environmental services to principally three industry
groups in the United States and Canada: (i) energy, (ii) pulp and paper and
(iii) power generation. The Company also provides construction management
services to a select group of commercial owners and developers. The Company
offers its customers outsourcing solutions for an extensive array of support
services such as equipment and facility repair, maintenance, refurbishment,
retrofit and expansion. The Company's specialty fabrication services include the
construction of decks, well jackets and modules for offshore oil and gas
platforms, the fabrication of piping, pressure vessels, boiler tube bundles, and
other equipment used in process industries, as well as the erection of
structural steel support systems. The Company also manufactures, sells, installs
and operates SAREX(R) oil filtration and separation systems worldwide. Its
environmental services include diversified waste recycling and other material
handling processes.
The Company has strategically positioned itself as a consolidator of
outsourcing services, which can be performed by the Company with greater
efficiency, safety and cost-effectiveness. By outsourcing support services, the
Company's customers can focus on their core manufacturing processes, reduce
operating costs, improve safety and conserve human and capital resources.
American Eco's business has benefited 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, outsource providers which have broad
geographic coverage. These trends had driven American Eco's acquisition strategy
to consolidate regionally fragmented service providers in the United States and
Canada. American Eco has realized significant growth through acquiring companies
which provide services to several industries in different geographical regions.
The Company's strategy is to focus on its operating subsidiary's profitability
and future growth.
American Eco believes it has achieved a competitively advantaged position
in the industrial outsourcing services, environmental services, and construction
management services markets it serves by consistently providing high-quality,
cost-effective services on a safe and timely basis. The Company's key
competitive strengths include: (i) long-standing customer relationships, (ii) an
outstanding safety and quality record, (iii) a broad offering of value-added
services and capabilities, (iv) the ability to provide its services in the
United States and Canada and (v) an experienced management team in the field and
at the corporate level. However, the Company is dependent upon the business
cycles of the industry groups to which it provides the outsourcing services.
During 1999, the Company recorded certain asset impairment, litigation, and
other charges that management believes are not reflective of the Company's core
or on-going business activities and are viewed by management as non-recurring.
The total expense is $29.3 million and the major components are listed as
follows: 1) Write-off of UKstar note receivable $8.0 million; 2) capitalized
lease-hold improvements $0.5 million; 3) inventory write-down $0.5 million; 4)
litigation charges of $13.8 million including charges related to the
Petrodrill/Amethyst contract of $10.9 million, and a reserve placed for
settlement of the U.S. Attorney v. ACI proceeding (see Note 21 to the
Consolidated Financial Statements), 5) failed acquisition costs primarily
related to U.S. Industrial Services, Inc. ("USIS") of $1.0 million, and 6)
severance and miscellaneous other asset impairments of $5.5 million.
During 1998, the Company recorded charges related primarily to certain
investments in Dominion Bridge Corporation ("Dominion Bridge") and certain of
its subsidiaries all of which filed under the Canadian Bankruptcy and Insolvency
Act in August 1998, to an impairment in its investment in USIS, and to severance
costs of $3.2 million relating primarily to changes in senior management
positions both at the corporate offices and at certain subsidiaries. In
addition, management recorded charges of $4.6 million related to certain single
project joint ventures during the fourth quarter which were not anticipated by
management or the joint ventures.
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Effective March 1, 1999, the Company acquired Protective Sealing, Inc.,
d/b/a Tony Crawford Construction ("Tony Crawford Construction"), as a division
of Specialty Management Group, Inc. As of December 1, 1999, the Company acquired
MidAtlantic Recycling Technologies, Inc., a provider of environmental services.
In May 1999, Mr. Matthew D. Hill was promoted to Chief Operating Officer
from Senior Vice President of Operations. As of June 1, 1999, Michael Appling
Jr. became Chief Financial Officer. And in January 2000, Todd Quattlebaum joined
the Company as Vice President of Operations.
In May 1999, the Company and its principal subsidiaries entered into a
Credit Agreement with General Electric Capital Corporation as lender and agent
for additional lenders. The Credit Agreement as amended provides for a
collateralized revolving credit facility (the "Revolver") of up to $30 million
to be used for working capital and other general corporate purposes and is based
upon certain eligible accounts receivable. The Revolver has a two-year term,
subject to two automatic one year extensions at the mutual discretion of the
Company and the lenders. Borrowings under the Revolver accrue interest at a rate
equal to 4% above the commercial paper rate. The revolver is collateralized by
the Company's accounts receivables, inventory, and most of the owned properties
are mortgaged as security.
During fiscal year 1999, the Company strengthened its focus on its core
businesses by deciding to sell its engineering and switchgear businesses.
At January 31, 2000, the Company operated primarily through the following
first and second tier wholly-owned 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"); 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"); Specialty
Management Group, Inc., d/b/a CCG, a Texas corporation ("CCG"), and MidAtlantic
Recycling Technologies, Inc., a Delaware corporation ("MART"). During 1999, the
Company also operated through its 82% owned subsidiary USIS.
BUSINESS STRATEGY
The Company's objectives are to continue to strengthen and broaden its
position as a leading provider of industrial outsourcing services, environmental
services, and construction management services to the energy, pulp and paper,
power generation and retail industries in North America, and thereby, increase
cash flow and profitability. To achieve these objectives, the Company is
pursuing the following business strategies:
Strengthen Competitive Position in Growing Outsourcing Market. Management
believes that participants in the energy, pulp and paper, power generation and
retail industries, in an effort to remain competitive, will continue to increase
their reliance on independent contractors to provide support and outsourcing
services. Management is expanding the Company's capabilities to provide its
customers an outsourcing solution for their support services and industrial
needs. As part of this strategy, the Company announced that it is going to seek
shareholder approval for a change of name to "Global Outsourcing Corporation" as
it is more descriptive of the Company's business.
Cross-Sell Services. The sales staff, operations managers and business
development personnel of each of the Company's subsidiaries are familiar with
the capabilities of all the Company's subsidiaries. The Company trains its
personnel to identify cross-selling opportunities and integrate the breadth of
the Company's services into each bid proposal. This provides the customer a more
comprehensive portfolio of services. The Company's cross-selling initiatives
have resulted in several successful projects which have involved multiple
operating subsidiaries of the Company and the performance of services internally
which were historically performed by third parties.
Maintain Decentralized Operating Structure. While at the corporate level
the Company retains centralized control over certain administrative and finance
functions, its operating subsidiaries maintain a high level of autonomy.
Management believes that the Company's decentralized operating structure is
critical to its success, as many decisions to purchase its services are made by
local customers based on established relationships and a service provider's
ability to respond rapidly to the customer's needs. In addition, the Company has
instituted programs to improve subsidiary reporting procedure and eliminate
functional redundancy.
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Acquire Complementary Service Businesses. The Company evaluates, on an
ongoing basis, potential acquisitions of complementary businesses in an effort
to further strengthen and broaden its outsourcing service offering, and to
expand its customer base and geographic presence. Management believes that the
industrial outsourcing services, environmental services, and construction
management services markets are fragmented markets which are entering a period
of consolidation due to: (i) customer demand for greater breadth and quality of
service, (ii) the need to service multiple customer facilities, thus enabling
the customer to reduce its vendor relationships, and (iii) the increased
importance of established safety and environmental compliance records. These
factors have increased the necessary economies of scale and scope in the support
services and specialty fabrication markets, eroded the competitiveness of
smaller industry participants, and increased the barriers to entry for new
competitors. The Company has only pursued selected acquisitions that complement
its existing business units during this fiscal year.
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 Corporation.
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. Since 1993, the Company has entered its current
lines of business and has grown substantially through acquisitions of other
companies. In fiscal 1997, the Company sold its subsidiaries Eco Environmental
Inc. ("Eco Environmental") and Environmental Evolutions, Inc. ("Environmental
Evolutions") which significantly reduced the Company's involvement in asbestos
remediation services. In fiscal 1999, the Company strengthened its focus on its
core businesses by deciding to sell its engineering and switchgear businesses,
acquiring Tony Crawford Construction as a division of CCG, who provides
nationwide services as a retail finish-outsourcing contractor, and in December
1999, acquiring MART, a provider of environmental services.
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, fabrication, and industrial outsourcing
services to petroleum and petrochemical refineries in the Southwest United
States. Management believes that as a result of the acquisition of the Turner
Group, the Company is well positioned to provide industrial outsourcing services
to the petroleum and petrochemical refining industry. The Turner Group has a
55-year operating history and is located in the 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. At this time, Cambridge is not active.
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 outsourcing,
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 primarily in the eastern and
southeastern regions of the United States. United Eco operates two thermal
desorption treatment units.
Effective July 1, 1996, the Company acquired SRS, which is based in Irvine,
California. SRS manufactures and distributes a proprietary line of SAREX(R) 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 provides
industrial outsourcing services and speciality fabrication services to the pulp
and paper and petroleum and petrochemical refining industries principally in
western Canada and the northwestern United States.
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, which was formed for the
acquisition.
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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 Canton, Ohio.
On September 1, 1997, the Company acquired CCG, a provider of maintenance
and construction management services to commercial and retail clients throughout
Canada and the United States. CCG has developed a proprietary management
information software system.
Effective November 30, 1998, the Company increased its ownership in USIS
from 21% to 82%. The USIS Common Stock is traded on the OTC Bulletin Board. In
November 1998, USIS sold the assets, subject to the related liabilities, of its
subsidiary J.L. Manta, Inc., and in December 1998, USIS sold the assets, subject
to the related liabilities, of its P.W. Stephens Residential Inc. subsidiary.
USIS is engaged in asbestos abatement and waste recycling through its
wholly-owned subsidiary P.W. Stephens Services, Inc. in the Midwest and
Northwest. In May 1998 following USIS' recapitalization, the Company held
certain promissory notes (the "Notes") of USIS consisting of outstanding
principal and interest in the aggregate amount of $18.9 million. The outstanding
amount of the Notes were reduced by $1 million, representing the purchase price
for 1,000,000 shares. The Notes were convertible into shares of USIS Common
Stock at a price equal to 85.0% of the five day weighted average price of such
shares immediately preceding the conversion date. As of July 24, 1998, the
Company sold the Notes to USIS Acquisition, L.L.C. (the "Holder"), an unrelated
entity, for $5.0 million in cash and a collateralized promissory note for $12.9
million payable on January 29, 1999. The Holder converted the Notes into
5,295,858 shares of USIS Common Stock, and collateralized its promissory note to
the Company with a pledge of the 5,295,858 shares. In November 1998, the Holder
advised the Company that the Holder would not be able to pay its note at
maturity, and the Company took ownership of the pledged shares in discharge of
the Holder's note. USIS is seeking strategic business opportunities or
acquisitions to enhance shareholder value.
Effective March 1, 1999, the Company purchased Tony Crawford Construction,
as a division of CCG, which provides nationwide services as a retail
finish-outsourcing contractor.
Effective December 1, 1999, the Company acquired all of the outstanding
shares of MART located in Vineland, New Jersey. MART is a fixed-based facility
that recycles refinery affuents, manufactured gas plant wastes, and other
process waste streams. In November 1997, the Company sold its 50% interest in
MART to George E. Phillips Holdings, Ltd. for cash and a note receivable
collateralized by 50% of the issued and outstanding shares of common stock of
MART. The acquisition was facilitated by calling the unpaid balance of the note
to obtain the 50% interest from George E. Phillips Holdings and the purchase of
the other 50% interest for cash and notes from an unrelated third party.
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OVERVIEW OF BUSINESS AND GEOGRAPHICAL SEGMENTS
The Company has pursued a strategy of becoming a consolidator of
outsourcing services to the energy, pulp & paper, power generations, and
construction management service industries in the United States and Canada.
Within this general line of business, the Company provides industrial
outsourcing, environmental, and construction management services.
The following table provides information with respect to the Company's
principal business segments.
<TABLE>
<CAPTION>
INDUSTRIAL CONSTRUCTION
OUTSOURCING ENVIRONMENTAL MANAGEMENT
SERVICES(1) SERVICES(2) SERVICES(3)
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(IN THOUSANDS)
<S> <C> <C> <C>
FISCAL 1999
Revenue .......................... $ 171,619 $ 33,322 $ 53,136
Operating loss ................... (23,831) (2,689) (4,990)
Depreciation and amortization .... 4,558 657 607
Capital expenditures ............. 2,515 700 123
FISCAL 1998
Revenue .......................... $ 233,193 $ 14,115 $ 29,181
Operating loss ................... (24,119) (78) (2,416)
Depreciation and amortization .... 3,565 569 590
Capital expenditures ............. 10,066 1,456 272
FISCAL 1997
Revenue .......................... $ 144,904 $ 38,757 $ 10,496
Operating earnings ............... 11,732 7,114 256
Depreciation and amortization .... 3,664 964 410
Capital expenditures ............. 1,677 1,408 49
</TABLE>
(1) Specialty fabrication has been consolidated under the industrial
outsourcing services sector. Revenues of Chempower were recognized
commencing March 1, 1997.
(2) The sale of Eco Environmental and Environmental Evolutions on August 31,
1997 significantly reduced the operating results of the environmental
services segment in 1998. Beginning December 1, 1998, the consolidation of
USIS financials increased the activity of the environmental services
segment during fiscal 1999. The following USIS subsidiaries were included
for the time period indicated during fiscal 1999: P.W. Stephens
Residential, Inc. - three months; Atnam, Inc. - two months; and P.W.
Stephens Services, Inc. - twelve months.
(3) Revenues from CCG were recognized commencing September 1, 1997 and revenues
from Tony Crawford Construction were recognized commencing March 1, 1999.
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The following table provides information with respect to the geographic
segmentation of the Company's business.
<TABLE>
<CAPTION>
CANADA UNITED STATES
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(In thousands)
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FISCAL 1999
Revenue ................................. $ 79,930 $ 178,147
Operating loss .......................... (10,095) (21,415)
Depreciation and amortization ........... 880 4,942
Capital expenditures during the year .... 2,356 982
FISCAL 1998
Revenue ................................. $ 123,056 $ 153,433
Operating loss .......................... (6,123) (20,490)
Depreciation and amortization ........... 480 4,244
Capital expenditures during the year .... 9,160 2,634
FISCAL 1997
Revenue ................................. $ 50,835 $ 143,322
Operating earnings ...................... 6,503 12,599
Depreciation and amortization ........... 1,223 3,815
Capital expenditures during the year .... 332 2,802
</TABLE>
PRINCIPAL INDUSTRIES SERVED BY THE COMPANY
ENERGY
The Company provides industrial outsourcing services including
specialty fabrication to the energy industry, with particular focus on (i)
petroleum refineries, (ii) petrochemical and chemical facilities and (iii) the
offshore oil and gas industry in North America.
Petroleum Refineries. The typical petroleum refinery in North America
is an aging facility that must process crude oil 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 believes that any increase in U.S. refining
capacity is likely to require the refurbishment or expansion of existing
facilities due to the prohibitively high cost to construct new facilities. The
Company believes that plant managers increasingly hire independent contractors
to maintain the operability of refineries and have generally reduced their
internal maintenance personnel.
Petroleum refiners repair and replace 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 current
safety and environmental regulations. Refinery maintenance projects vary in
scope from routine repairs to major capital improvements and turnarounds which
require the shutdown of certain operating units or the entire refinery. In
addition to routine maintenance, refiners periodically undertake capital
improvement projects to refurbish their facilities. Such projects can require
from six months to three years to complete depending upon the type, utilization
rate, and operating requirements of the particular refinery.
In the Company's operating region along the U.S. Gulf Coast, there is
an aggregate of approximately 6.8 million barrels of crude oil distillation
capacity, which accounts for approximately 42% of total U.S. crude oil
distillation capacity.
Petrochemical/Chemical. The petrochemical and chemical industries are
capital-intensive and heavily regulated. Continuous capital spending is
necessitated by the large plant sizes and economies of scale required to process
end-products efficiently, as well as the complex technology and sophisticated
safety and environmental equipment utilized in these facilities. High capital
costs represent significant barriers to entry in this industry, so any entry
into the industry or increase in capacity is likely to result from the expansion
or refurbishment of existing facilities due to the prohibitively high cost
associated with building a "grass-roots" facility. As such, when
petrochemical/chemical processors undertake significant facility modification
programs, they also typically expand the rated capacity of their facilities.
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Canadian Offshore Oil and Gas. Recent offshore oil and gas activity in
eastern Canada has concentrated on the development of the Hibernia and Terra
Nova fields, and Sable Island. The Company fabricated nine utility shaft modules
for the Hibernia field and delivered production well jackets to Sable Island.
The alliance which is developing Sable Island has committed that it will perform
the majority of the fabrication work for the project in the Province of Nova
Scotia. The Company operates the only facilities in Nova Scotia capable of
fabricating the production of well jackets, decks and certain other components
of these offshore platforms. Management believes that Sable Island will generate
significant fabrication and maintenance revenues for the Company over the next
three years.
PULP AND PAPER
The pulp and paper industry experienced severe pricing pressure from
the fall of 1995 through the spring of 1997 due principally to overbuilt
customer inventories caused by substantial price hikes during the period from
mid-1994 to the fall of 1995. As a result of this pricing pressure, many plant
managers deferred maintenance and canceled capital expenditure projects. The
American Forest & Paper Association's annual capacity survey projects capacity
growth is expected to increase 1.1% in 2000, 0.7% in 2001, and 0.4% in 2002; but
suggests pulp and paper producers are taking a more conservative view toward
pulp and paper demand growth. In November 1997, the U.S. Environmental
Protection Agency (the "EPA") issued the Cluster Rule which is an integration of
the Federal Clean Air and Clean Water Acts. The Cluster Rule imposes stricter
environmental regulations on the pulp and paper industry through the reduction
of pollutants generated by using elemental chlorine free bleaching technologies
which rely on chlorine dioxide rather than pure chlorine.
POWER GENERATION
As the Federal Energy Regulatory Commission has begun 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 electric
utility industry in the United States has become increasingly competitive.
Utilities are attempting to reduce their operating costs in order to produce
power at competitive market rates, and are accomplishing this, in part, by
deferring repairs and refurbishing their existing power stations. In the near
term, such deferred maintenance may reduce the amount of available outside
contract business. However, in the longer term, utility companies may make
necessary repairs in a manner similar to the evolution of outsourcing in the
petroleum refining industry.
INDUSTRIAL OUTSOURCING SERVICES
The Company provides industrial outsourcing services which includes
specialty fabrication 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 and MM Industra. The industrial
outsourcing service business segment generated approximately 66.5% of the
Company's revenues during fiscal 1999.
Turnarounds. Turnaround services include the maintenance of crude
distillation units, catalytic reformer units, delayed coker units, alkylation
units, platformers, fluid catalytic cracking units and butamer units as part of
a single project. These services also include the maintenance and modification
of heat exchangers, heaters, vessels and piping.
Offshore Oil and Gas Structures. The Company operates two facilities in
Nova Scotia, Canada capable of fabricating platform topsides up to 1,800 tons,
production well jackets and piles up to 3,000 tons, subsea templates,
accommodation modules, BOP carriers and separation modules for use in the harsh
offshore environments of eastern Canada and the North Sea. In addition, the
Company's facilities have historically engaged in the refit, maintenance,
upgrade and modification of drilling rigs and other offshore structures utilized
by oil and gas companies and drilling contractors. The acquisition of the Pictou
facility provides an additional facility in Nova Scotia which, historically, has
conducted shipbuilding, ship repair and conversion, and industrial fabrication.
Industrial Fabrication. The Company owns and operates approximately
900,000 square feet of facilities in North America where it fabricates piping,
power boiler assemblies, pressure vessels, reactors, drums, towers,
precipitators, heater coils and other equipment used in process industries. The
Company also performs emergency fabrication as necessary. In many instances,
facilities are operated 24-hours a day to assist a turnaround project.
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Planning and Project Management. The Company has developed the planning
capabilities, operational skills and field supervision techniques necessary to
manage all aspects of turnaround projects and other facility maintenance
services. During the management of a turnaround project, the Company is
responsible for cost control procedures, resource planning and scheduling,
safety control, hazardous material handling, personnel hiring and training,
equipment and tools procurement, field inspections, and overall project
coordination. Certain specialized types of welding are often provided directly
by the Company. Typically a portion of a turnaround project is performed by
subcontractors under the supervision of the Company. The Company also develops
suggested maintenance programs that incorporate its project experience.
Fluid Catalytic Cracking Turnarounds. Fluid Catalytic Cracking Units
("FCCU") require a high level of maintenance due to extreme temperatures, in
excess of 1000(Degree)F inside the FCCU. The high temperature degrades the
refractory lining and stainless steel components inside the FCCU. Refractory
lining is heat resistant material designed to insulate the inner shell of the
FCCU. The main components of a FCCU are the reactor, the regenerator and the
flue gas exhaust system. The majority of FCCU maintenance during a turnaround
project is on this equipment. Major maintenance work is typically performed to
increase the efficiency of, and reduce the air pollution from, the FCCU.
Dismantling and Demolition. Dismantling and demolition services are
provided when a customer 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. This includes an estimate of the number of
personnel and type of equipment necessary to complete the project. Personnel
then examine and, if necessary, drain refinery pipelines or remove asbestos or
other hazardous materials. Dismantled equipment is typically cut into scrap and
sold in the scrap market. The Company salvages certain equipment for resale by
the customer.
ASME Code Stamp. Most of the Company's subsidiaries are qualified to
perform welding services on equipment that contain American Society of
Mechanical Engineer ("ASME") stamps. State agencies and insurance companies
typically require that ASME-certified welders perform services on ASME-coded
equipment.
Instrumentation and Electrical. These services include lighting, power
and instrumentation wiring for electrical systems up to 5,000 volts, and the
installation, termination, troubleshooting and commissioning of transformers and
associated control and monitoring equipment. The Company 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.
Bus Ducts and Sheet Metal. The Company's manufacturing services include
the fabrication of bus ducts for utilities, chemical and other industrial and
commercial customers. Chempower also manufacturers custom sheet metal products
which include metal casings for use in the telecommunications, gaming and
electronics industries.
Structural Steel Outsourcing Systems. The Company fabricates and
erects, according to customer specifications, structural steel support systems
such as pipe racks.
ENVIRONMENTAL SERVICES
The Company provides environmental and waste services through United
Eco, MART, USIS, 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
services business segment generated approximately 12.9% of the Company's
revenues during fiscal 1999. In fiscal 1997, the Company sold Eco Environmental
and Environmental Evolutions effective as of August 31, 1997 as part of the
Company's strategic plan to reduce its focus on asbestos remediation services.
Site Remediation. Site remediation includes the on-site clean-up and
treatment of hazardous and non-hazardous organic and inorganic contaminants.
Waste services include removal, encapsulation, stabilization, treatment and
disposal services. The Company employs bioremediation, vapor extraction, thermal
desorption and other techniques to degrade hazardous and non-hazardous
contaminates in soil, sludges, slurries, and liquids contaminated with
hydrocarbons, creosote, pentachlorophenol, pentachloroethylene, PCB's, digester
sulfides, phenols, benzene, toluene, chlorinate aliphatic solvents and raw
sewage. The Company has developed and licenses certain technologies that it uses
in its site remediation business.
Oil Separation and Removal Systems. SRS manufactures, sells, installs
and operates the SAREX(R) 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 customers in the United States, France, South Africa, Venezuela, and
Singapore. Over 30,000 SAREX(R) oil separation and removal systems have been
installed in oil tankers and petroleum refineries around the world.
10
<PAGE> 11
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 cancelled in the near term as a result of deregulation, if any.
CONSTRUCTION MANAGEMENT SERVICES
The Company provides construction management services to a national
network of retailers with solid development and growth histories. The
capabilities include tenant improvement, renovations, additions and design build
services. With the growing emphasis on renovations and additions to existing
properties, the Company's clients, which are various national retail chains as
well as regional and local developers, have shifted their focus to
rehabilitation. These clients have embarked on programs to modernize existing
facilities to remain competitive and aesthetically pleasing to its customers.
The Company's focus is on fast track projects that require attention to detail
and comprehensive scheduling methods, along with onsite professional project
management. The construction management services segment generated approximately
20.6% of the Company's revenues during fiscal 1999.
MARKETING
The Company obtains its contracts either through a competitive bidding
process or on a negotiated basis with long-standing customers. The Company
typically prepares bids for its services on a project basis. Fee arrangements
for services are typically bid either on a field-price or a detailed time and
material billing schedule. Bids are generally awarded based on price,
scheduling, performance, quality and safety. A substantial portion of the
Company's maintenance service is recurring in nature.
The sales staff, operations managers and business development personnel
of each of the Company's subsidiaries are familiar with the capabilities of all
the Company's subsidiaries. The Company trains its personnel to identify
cross-selling opportunities and integrate the breadth of the Company's services
into each bid proposal. This provides the customer a more comprehensive
portfolio of services. The Company's cross-selling initiatives have resulted in
several successful projects which have involved multiple operating subsidiaries
of the Company and the performance of services internally which were
historically performed by third parties. The Company is attempting to cross-sell
its services so that it may win larger, single-source turnkey projects. In
fiscal 1997, the Company obtained a contract to fabricate and erect a 850-ton
bulk material ship loader in Port Moody, British Columbia. MM Industra
fabricated the "bridge" and other components of the ship loader, while Industra
Service completed the final assembly, erection, testing and commissioning of the
ship loader. In January 1998, SRS assigned all of its fabrication of SAREX(R)
units to MM Industra in Halifax. Proposals have been submitted for projects
employing one or more of the Company's subsidiaries. The Company has also
entered into strategic alliances with key technology suppliers in an effort to
position itself for larger contracts.
The Company also enters into partnering arrangements and strategic
alliance with its customers, whereby the Company participates in the
pre-planning stages of projects. This early involvement by the Company enhances
its knowledge of the customers' needs.
The Company, through its SRS subsidiary, has entered in three strategic
alliances with established companies in Venezuela, France, and South Africa.
These alliances have enhanced the Company's ability to grow its other
outsourcing businesses internationally by providing the Company an international
presence.
COMPETITION
The market for industrial outsourcing services, including specialty
fabrication, is highly competitive with numerous companies of various sizes,
geographic presence and capabilities participating. Management believes that the
typical provider of industrial outsourcing services in North America is a small-
to medium-sized company that serves customers in one region, and offers a
limited range of services. The Company competes with numerous small, independent
contractors in the environmental and construction management sectors which,
collectively, have a significant overall share of the market for these services.
Certain of the Company's competitors have greater financial resources or offer
specialized technologies or services not provided by the Company. Management
believes that none of the Company's competitors match the Company's geographic
diversity and breadth of services. The principal competitive factors for
industrial outsourcing services are price, quality, scope of services offered,
and safety.
11
<PAGE> 12
RESEARCH AND DEVELOPMENT
The Company does not have a research and development program. However,
when required for specific applications the Company obtains technology licenses
or partnering agreements.
CUSTOMERS
During fiscal 1999, the Company generated approximately 66.5% of its
revenues from industrial customers in general and 31.9% of its revenues from
customers in the petroleum and petrochemical refining business in particular.
Grenadier Properties, Bantrel Inc. (agent for Suncor), Huntsman Chemical, Sable
Offshore Energy, and Aalborg Industries together accounted for approximately
25.0% of the Company's total revenues in fiscal 1999, compared to 40.2% of
revenues from its top five customers in fiscal 1998. Grenadier Properties
accounted for approximately 7.0% of the Company's fiscal 1999 revenues, and
Bantrel Inc. (agent for Suncor) accounted for approximately 6.9% of the
Company's fiscal 1999 revenues. No other customer accounted for more than 5% of
the Company's revenues in fiscal 1999. Management believes that the Company's
continued efforts to expand and diversify its customer base should reduce the
Company's dependence on certain key customers.
BACKLOG
At November 30, 1999, the Company's backlog was approximately $280.0
million, compared to approximately $275.0 million of backlog for such contract
work at November 30, 1998. 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.
Contracts included in backlog may have provisions which permit cancellation or
delay in their performance by the customer and there can be no assurance that
any work orders included in backlog will not be modified, canceled or delayed.
EMPLOYEES
At January 31, 2000, the Company employed approximately 255 full-time
employees and 1,571 hourly workers. Total employment levels ranged from
approximately 1,407 to 2,840 workers per week during fiscal 1999. The Company's
experience has been that hourly-rate employees are generally available over an
extended period of time in the quantity, and at the skill levels necessary for
its projects. Some of the employees are covered by union contracts expiring at
various dates. 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 subsidiaries.
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
jurisdictions in which they operate.
The Company's United States 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. There are similar federal and provincial rules governing the
Company's Canadian operations. Violations of these rules can result in fines and
suspension of licenses. To the best of management's knowledge, the Company and
all of its operating subsidiaries are in material compliance with OSHA and
Canadian regulations.
12
<PAGE> 13
The Company's safety and training efforts are conducted primarily at
the subsidiary level. 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 operating 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.
The Company has arranged for a surety line to post performance and
payment bonds on contracts should a customer request that the Company post such
bonds as a condition to the granting of a contract to the Company.
13
<PAGE> 14
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
principal administrative offices of the Company are maintained in Toronto,
Canada and Houston, Texas. The Company owns 13 facilities and leases an
additional 14 facilities in the United States and Canada. 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.
<TABLE>
<CAPTION>
APPROXIMATE
PRIMARY SQUARE FEET
BUSINESS UNIT AND SITE LOCATION OWNERSHIP USE (1) OF FLOOR SPACE
------------------------------- --------- ------- --------------
<S> <C> <C> <C>
AMERICAN ECO
Toronto, Ontario............................ Leased Adm. 3,000
Houston, Texas.............................. Leased Adm. 14,000
CCG
Dallas, Texas............................... Leased Adm. 12,292
Dallas, Texas............................... Leased Adm./Whse 7,000
Rockwall, Texas............................. Leased Adm. 1,000
CHEMPOWER
Canton, Ohio................................ Owned Adm./Mfg. 205,000
Cincinnati, Ohio............................ Owned Adm./Const. 25,000(4)
Las Vegas, Nevada........................... Leased Adm./Fab. 47,000
Washington, Pennsylvania.................... Owned Adm./Const./Fab. 112,000(2)
Waverly, Tennessee.......................... Owned Adm./Const./Mfg. 95,000
Winfield, West Virginia..................... Owned Adm./Const. 90,000
INDUSTRA SERVICE
Edmonton, Alberta........................... Leased Adm./Const./Fabr. 50,000
New Westminster, British Columbia........... Owned Adm./Const./Mfg./Fabr. 74,000
Portland, Oregon............................ Leased Adm./Const./Eng. 22,000
Gresham, Oregon............................. Leased Adm. 18,049
LAKE CHARLES GROUP
Lake Charles, Louisiana..................... Owned Adm./Const./Fabr. 10,000
MART
Vineland, New Jersey........................ Leased Adm./Therm. 17,550
MM INDUSTRA
Dartmouth, Nova Scotia...................... Owned Adm./Fab. 60,000
Dartmouth, Nova Scotia...................... Owned Fab./Const. 110,000
Pictou, Nova Scotia......................... Owned Fab./Const. 85,000
SRS
Irvine, California.......................... Leased Adm./Mfg./Eng. 24,000
TURNER GROUP
Bridge City, Texas.......................... Owned Adm./Fabr. 2,700
Port Arthur, Texas.......................... Owned Adm./Const./Fab. 61,400(3)
Lufkin, Texas............................... Leased Adm. 1,600
UNITED ECO
Highpoint, North Carolina................... Owned Adm./Const./Remed. 7,500
Apex, North Carolina........................ Leased Adm. 5,000(4)
Blacksburg, Virginia........................ Leased Lab. 5,000(4)
</TABLE>
- ----------------
(1) Adm. = Administration; Const. = Construction warehouse; Mfg. =
Manufacturing facility; Fabr. = Fabrication facility; Ther. = Thermal
facility; Eng. = Engineering facility; Remed. = Remediation facility; Lab.
= Laboratory; Whse. = Warehouse.
(2) Amount includes approximately 30,000 square feet of floor space leased to
unaffiliated tenants.
(3) This facility is situated on 9.1 acres and contains 29,500 square feet of
office and warehouse space and 31,900 square feet of covered fabrication
area. The facility also consists of 22.7 acres of raw land.
(4) This facility is 100% subleased to a third party.
Most of the owned properties are mortgaged as security for the
Company's line of credit.
14
<PAGE> 15
ITEM 3. LEGAL PROCEEDINGS
The United States Attorney for the Middle District of Louisiana (the
"US Attorney") advised Advanced Coil Industries ("ACI") a division of Chempower,
a subsidiary of the Company acquired in March 1997, that ACI and several others
are the subject of a Federal criminal grand jury investigation in connection
with possible improper markings on coated steel used on highway construction
projects in Louisiana. The alleged improper markings occurred in 1994 and 1995,
prior to the Company's acquisition of Chempower. The U.S. Attorney and ACI have
agreed that in the event criminal charges are filed, no criminal charges will be
filed against ACI until on or after March 5, 2000. The U.S. Attorney has also
advised ACI that a civil suit has been filed under seal in Baton Rouge,
Louisiana in which ACI is one of several names or potential defendants alleged
to have violated the Federal False Claims Act. As the civil suit was filed under
seal and is unavailable for ACI's review, the Company has not had the
opportunity to review the factual basis of the alleged claim nor the method by
which damages might be calculated. In May 1999, the Company received a report
from the U.S. Attorney setting forth its determination of the possible civil
damages by all parties, including ACI. The Company is reviewing the report with
respect to the methodology and the extent of involvement of ACI. However, if a
potential action by the U.S. Attorney and/or under the civil action against ACI
is successful, it could be material to the financial position of the Company.
The Company and its operating subsidiaries are currently involved in
various other 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 except as disclosed above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of shareholders during
the last quarter of fiscal 1999 through the solicitation of proxies or
otherwise.
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<PAGE> 16
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 ECGO,
respectively. On May 6, 1999, the Company announced a symbol change from ECGOF
to ECGO. As of January 31, 2000, there were 726 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, 1999
<TABLE>
<CAPTION>
NASDAQ TORONTO STOCK
NATIONAL MARKET EXCHANGE
(US$) (CDN$)
HIGH LOW
ASK BID HIGH LOW
------ ----- ------ ------
<S> <C> <C> <C> <C>
Fiscal year ended November 30, 1999
First quarter........................ $ 2.66 $1.28 $ 4.05 $ 2.00
Second quarter....................... 2.50 1.34 3.60 2.01
Third quarter........................ 2.19 1.16 3.14 1.80
Fourth quarter....................... 1.38 .69 2.00 1.00
Fiscal year ended November 30, 1998
First quarter........................ $12.25 $8.69 $17.75 $12.25
Second quarter....................... 11.25 6.75 16.00 10.00
Third quarter........................ 8.00 2.44 11.40 4.00
Fourth quarter....................... 3.19 1.81 4.90 2.90
</TABLE>
The Company is subject to covenants in its Indenture and General
Electric Credit Corporation line of credit 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
During the fourth quarter of fiscal 1999, the Company did not effect
any private placements of its Common Shares.
ITEM 6. SELECTED FINANCIAL DATA
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. 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 30, 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 statement of operations for the year ended November 30, 1999
included nine months of operations for Tony Crawford Construction, and the
following USIS subsidiaries were included for the time period indicated: P.W.
Stephens Residential, Inc. - three months; Atnam, Inc. - two months; and P.W.
Stephens Services, Inc. - twelve months.
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<PAGE> 17
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. All amounts have been reclassified for
discontinued operations as more fully described in Note 18 to the Consolidated
Financial Statements.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NOVEMBER 30
1999 1998 1997 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue .......................................... $ 258,077 $ 276,489 $ 194,157 $ 119,529 $ 46,684
Operating earnings (loss) ........................ (31,510) (26,613) 19,102 9,480 3,773
Interest expense ................................. 11,387 9,166 4,770 1,747 713
Earnings (loss) from continuing operations ....... (42,007) (28,482) 16,317 7,954 3,060
Earnings (loss) from discontinued operations ..... (4,264) (1,697) 1,118 -- --
Net earnings (loss) .............................. (46,271) (30,179) 17,435 8,763 2,852
Net earnings (loss) per share, basic ............. $ (2.12) $ (1.44) $ 1.08 $ 0.81 $ 0.40
Weighted average shares outstanding .............. 21,787 20,965 16,218 10,846 7,217
BALANCE SHEET DATA:
Working capital .................................. $ 36,130 $ 80,440 $ 59,907 $ 3,280 $ 6,639
Total assets ..................................... 236,924 250,383 211,786 104,484 31,061
Current debt ..................................... 18,792 630 8,081 22,107 4,497
Long-term debt ................................... 121,006 120,689 51,722 6,720 2,100
Shareholders' equity ............................. 45,924 90,238 107,099 55,043 18,736
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
American Eco through its subsidiaries is a leading provider of
industrial outsourcing which includes specialty fabrication and environmental
services to principally three industry groups in the United States and Canada:
(i) energy, (ii) pulp and paper and (iii) power generation. The Company also
provides construction management services to a select group of commercial owners
and developers. The Company offers its customers outsourcing solutions for an
extensive array of support services such as equipment and facility repair,
maintenance, refurbishment, retrofit and expansion. The Company's specialty
fabrication services include the construction of decks, well jackets and modules
for offshore oil and gas platforms, the fabrication of piping, pressure vessels,
boiler tube bundles, and other equipment used in process industries, as well as
the erection of structural steel support systems. The Company also manufactures,
sells, installs and operates SAREX(R) oil filtration and separation systems
worldwide. Its environmental services include diversified waste recycling and
other material handling processes.
The trend toward greater customer emphasis on outsourcing dictates that
support services companies provide an increasing breadth of services. This
market trend is the primary tenet of the Company's acquisition strategy, and has
precipitated consolidation in the industrial outsourcing markets in North
America.
A substantial portion of the Company's work is recurring in nature,
either through long-term contracts or long-standing customer relationships. At
November 30, 1999, the Company had project backlog of approximately $280
million, substantially all of which it expects to realize within the next twelve
months.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's revenues from its industrial, environmental and
construction management 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.
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<PAGE> 18
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 known. Losses on contracts are
charged to income in the period in which such losses are first determined. The
percentage-of-completion method of accounting can result in the recognition of
either costs and estimated earnings in excess of billings or billings in excess
of costs and estimated earnings 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 1999 to fiscal 1998
Revenues
The Company's revenues decreased 6.7% to $258.1 million in fiscal 1999
from $276.5 million in fiscal 1998 partly as a result of the recognition of
revenues from a joint venture project with MIL Davie Industries, Ltd. and a
one-time project involving the construction of a major pipeline project in
Ontario, Canada with Steen in 1998. Total revenues relating to these projects
were $56.0 million. This is partially offset by the consolidation of USIS and
the acquisition of Tony Crawford Construction.
During fiscal 1999, the Company generated approximately 66.5% of its
revenues from industrial outsourcing services, 20.6% of its revenues from the
construction management services, and 12.9% from its environmental services. The
Company has provided its services to the energy, pulp and paper, power
generation, and retail industries in North America. Approximately 1% of the
Company's revenues has been generated from international opportunities.
Grenadier Properties, Bantrel Inc. (agent for Suncor), Huntsman
Chemical, Sable Offshore Energy, and Aalborg Industries together accounted for
approximately 25.0% of the Company's total revenues in fiscal 1999, compared to
40.2% of revenues from its top five customers in fiscal 1998. Grenadier
Properties accounted for approximately 7.0% of the Company's fiscal 1999
revenues, and Bantrel Inc. (agent for Suncor) accounted for approximately 6.9%
of the Company's fiscal 1999 revenues. No other customer accounted for more than
5% of the Company's revenues in fiscal 1999. Management believes that the
Company's continued efforts to expand and diversify its customer base should
reduce the Company's dependence on certain key customers.
The Company's industrial outsourcing segment generated $171.6 million
or 66.5% of the Company's total revenues in fiscal 1999 compared to $233.2
million or 84.3% of the Company's total revenues in fiscal 1998. This decrease
is primarily attributable to the $56.0 million from joint venture projects
discussed above. Management anticipates that the industrial outsourcing business
will continue to grow and provide consistent recurring revenue for the Company.
The revenues generated from the Company's construction management group
increased to $53.1 million or 20.6% of the Company's total revenues in fiscal
1999 compared to $29.2 million or 10.6% of the Company's total revenues in
fiscal 1998. CCG experienced a $21 million increase in revenues from the
acquisition of Tony Crawford Construction.
The revenues generated from the Company's environmental services
segment increased by 136% to $33.3 million in fiscal 1999 from $14.1 million in
fiscal 1998, which reflects the consolidation of $22.9 million of USIS in 1999.
18
<PAGE> 19
Operating Expenses
The Company's total operating expenses decreased approximately 4.5% to
$289.6 million in fiscal 1999 from $303.1 million in fiscal 1998 partly as a
result of the operations of the joint ventures in 1998. Expressed as a
percentage of total revenues, operating expenses were approximately 112.2% in
fiscal 1999 compared to 109.6% in fiscal 1998. Direct costs increased to 87.2%
in fiscal 1999 compared to 85.4% in fiscal 1998 primarily due to an execution
problem associated with a contract entered into in 1999 and a tighter overall
business environment. Selling, general and administrative expenses decreased to
$29.5 million in fiscal 1999 compared to $34.7 million in fiscal 1998 due to the
Steen and Davie contracts in 1998 and management's cost cutting efforts in 1999.
As a percentage of total revenues, selling, general and administrative expenses
decreased to 11.4% in fiscal 1999 compared to 12.6% in fiscal 1998. In 1998,
operating expense also includes the $1.6 million expense incurred to purchase
the 49% interest in the Steen Pipeline joint venture not originally owned by the
Company and $4.5 million in fees paid related to the Steen pipeline joint
venture, which have been categorized as operating expenses associated with the
Steen pipeline project due to its treatment as a one-time project, rather than a
going concern. In 1998, SG&A was negatively impacted by certain costs associated
with the Company's management changes. SG&A also includes an aggregate of $0.4
million in signing bonuses paid to Mr. Fradella and Mr. Posner in 1998, who are
no longer employed by the Company. The Company is intent on reducing overhead
costs at all levels. An aggressive plan was implemented in late 1998 to reduce
company wide SG&A and will continue through 2000.
The Company's interest expense on long term debt increased in fiscal
1999 to $11.4 million from $9.2 million and as a percentage of total revenue,
interest expense increased to 4.4% compared to 3.3% in fiscal 1998. During
fiscal 1999, the Company entered into a $30 million revolving credit facility
with General Electric Capital Corporation. At November 30, 1999, the Company's
debt to equity ratio was .75:1 and its current ratio was 1.5:1. Management will
seek to control future operating expenses, but there can be no assurance that
the Company's cost control policies will be as effective.
Provision for Income Tax
In fiscal 1999 the Company had a loss from continuing operations before
provision for recovery of income taxes of $42.9 million. A recovery of income
taxes of $0.9 million reduced the Company's net loss from continuing operations
to $42.0 million.
Discontinued Operations
During the second quarter of fiscal year 1999, management adopted plans
to discontinue the switchgear operations of Chempower and the engineering
business of Industra. The switchgear business was sold on June 1, 1999, and the
Company expects to divest the remaining engineering business during 2000. The
loss from these discontinued operations for 1999 and 1998 was $4,264 and $1,697,
respectively, net of $2,211 and $911 income tax benefit, respectively.
Net Earnings (Loss)
The Company incurred a net loss of $46.3 million or $2.12 per share in
fiscal 1999 compared to a loss of $30.2 million or $1.44 per share in fiscal
1998. A tax recovery of $0.9 million in fiscal 1999 compares to a tax recovery
of $8.8 million in fiscal 1998.
Fiscal 1998 Compared to Fiscal 1997
Revenues
The Company's revenues grew 42.3% to $276.5 million in fiscal 1998 from
$194.2 million in fiscal 1997 partly as a result of the recognition of revenues
from a joint venture project with MIL Davie Industries, Ltd. and a one-time
project involving the construction of a major pipeline project in Ontario,
Canada with Steen. Total revenues relating to these projects was $56.0 million.
Most operating units generated internal growth in fiscal 1998. MM Industra
experienced a 381% increase in revenues over fiscal 1997 primarily due to the
inclusion of revenue from the previously mentioned contracts and joint venture
in Canada, Industra Service generated a 25.7% increase in revenue from expansion
of its Edmonton, Alberta, Canada unit, Chempower generated a 37.6% increase in
revenue over fiscal 1997 as fiscal 1998 was the first full reporting year since
its acquisition by the Company, and The Turner Group generated a 14.1% increase
in revenue from existing operations. CCG generated a 210% increase in revenue,
however, its fiscal 1997 revenues were recognized only from September 1, 1997 to
November 30, 1997. Two operating divisions, SRS and United Eco Systems, each
showed a decline in revenue in fiscal 1998 of approximately 50%. The decline
relates primarily to work performed by these divisions in fiscal 1997 for MART.
19
<PAGE> 20
During fiscal 1998, the Company generated approximately 84.3% of its
revenues from industrial support services, 10.6% of its revenues from the
construction management services, and 5.1% from its environmental remediation
services. The Company has provided its services to the energy, pulp and paper,
power generation, and retail industries in North America. Approximately 1% of
the Company's revenues have been generated from international opportunities.
Huntsman Chemical, TransCanada Pipeline, Petrodrill, Oramet and
Kilbourne Engineering together accounted for approximately 40.2% of the
Company's total revenues in fiscal 1998 compared to the Company's top six
customers in fiscal 1997 which accounted for approximately 31.3% of revenues for
such year. TransCanada Pipeline accounted for approximately 16% of the Company's
revenues in fiscal 1998 under a joint venture with Steen, a subsidiary of
Dominion Bridge, which contract has been completed and is non-recurring,
Huntsman Chemical accounted for approximately 8.3% of the fiscal 1998 revenues
and Petrodrill accounted for approximately 5.4% of such revenues under a
contract which has been terminated (see "Item 1. Business - Other Business
Ventures"). None of the other above-listed customers represented more than 5% of
the Company's fiscal 1998 revenues. The Company is expanding and diversifying
its customer base in an attempt to reduce the Company's dependence in the future
on certain key customers.
The Company's industrial support segment generated $233.2 million or
84.3% of the Company's total revenues in fiscal 1998 compared to $144.9 million
or 74.6% of the Company's total revenues in fiscal 1997.
The revenues generated from the Company's construction management group
increased to $29.1 million or 10.6% of the Company's total revenues in fiscal
1998 compared to 5.4% in fiscal 1997. Revenue is generated primarily from the
CCG unit based in Dallas, Texas which was acquired as of September 1, 1997.
Accordingly, revenues from fiscal 1997 are included only for the fourth fiscal
quarter of such year.
The revenues generated from the Company's environmental services
segment decreased by 63.6% to $14.1 million in fiscal 1998 from $38.8 million in
fiscal 1997, which decrease reflects the sale of Eco Environmental and
Environmental Evolutions on August 31, 1997.
Operating Expenses
The Company's total operating expenses increased approximately 73.1% to
$303.1 million in fiscal 1998 from $175.1 million in fiscal 1997 partly as a
result of adding the operations of the joint ventures to MM Industra's revenues
and including Chempower and CCG for the full year of fiscal 1998. Expressed as a
percentage of total revenues, operating expenses were approximately 109.6% in
fiscal 1998 compared to 90.2% in fiscal 1997. Direct costs increased to 85.4% in
fiscal 1998 compared to 74.4% in fiscal 1997 as a direct result of joint venture
activity. Selling, general and administrative expenses increased to $34.7
million in fiscal 1998 compared to $25.6 million in fiscal 1997. As a percentage
of total revenues, selling, general and administrative expenses decreased to
12.6% in fiscal 1998 from 13.2% in fiscal 1997. Operating expense also includes
the $1.6 million expense incurred to purchase the 49% interest in the Steen
Pipeline joint venture not originally owned by the Company and $4.5 million in
fees paid related to the Steen pipeline joint venture, which have been
categorized as operating expenses associated with the Steen pipeline project due
to its treatment as a one-time project, rather than a going concern. SG&A was
negatively impacted by certain costs associated with the Company's management
changes and $3.0 million in non-cash accounts receivable and other charges taken
in the fourth quarter of fiscal 1998. SG&A also includes an aggregate of $0.4
million in signing bonuses paid to Mr. Fradella and Mr. Posner, who are no
longer employed by the Company. The Company is intent on reducing overhead costs
at all levels. An aggressive plan was implemented in late 1998 to reduce
corporate SG&A by at least $2.5 million in fiscal 1999.
The Company's interest expense on long term debt increased in fiscal
1998 to $9.2 million from $4.8 million and as a percentage of total revenue,
interest expense increased to 3.3% compared to 2.5% in fiscal 1997. During
fiscal 1998, the Company issued $120 million principal amounts of 9-5/8% Senior
Notes and repaid approximately $71.3 million of outstanding indebtedness. At
November 30, 1998, the Company's debt to equity ratio was .57:1 and its current
ratio was 3.1:1. Management will seek to control future operating expenses, but
there can be no assurance that the Company's cost control policies will be as
effective.
Provision for Income Tax.
In fiscal 1998 the Company has a loss before provision for recovery of
income taxes and discontinued operations of $37.3 million. A recovery of income
taxes of $8.8 million reduced the Company's net loss before discontinued
operations to $28.5 million. The recovery includes approximately $2.4 million of
net operating loss carryback.
20
<PAGE> 21
Discontinued Operations
During the second quarter of fiscal year 1999, management adopted plans
to discontinue the switchgear operations of Chempower and the engineering
business of Industra. The switchgear business was sold on June 1, 1999, and the
Company expects to divest the engineering business during 2000, although no
assurances can be made that a sale will be consummated. The earnings (loss) from
these discontinued operations for 1998 and 1997 was ($1,697) and $1,118,
respectively, net of ($911) and $576 income tax provision (benefit),
respectively.
Net Earnings (Loss)
The Company incurred a net loss of $30.2 million or $1.44 per share in
fiscal 1998 compared to a profit of $17.4 million or $1.08 per share in fiscal
1997. A tax recovery of $8.8 million in fiscal 1998 compares to a tax provision
of $1.3 million in tax expense in fiscal 1997.
Liquidity and Capital Resources
The Company's cash decreased from $21.8 million on November 30, 1998 to
$5.5 million at November 30, 1999. This decrease is the result of the payment of
$3,000 related to the Petrodrill/Amethyst settlement, and the funding of
operations.
During fiscal year 1999, the Company utilized net cash in operating
activities of $40.3 million compared to $3.8 million for fiscal 1998. In fiscal
1999, the Company had a net loss of $46.3 million which includes the writedown
of investments and non-recurring charges of $29.3 million. In fiscal 1998, the
Company had a net loss of $30.2 million which includes asset impairment,
litigation, and other costs of $27.1 million.
The Company's investing activities provided $13.0 million compared to
$23.3 million utilized in fiscal 1998. Net cash provided by investing activities
during the current fiscal year consisted primarily of proceeds from sale of
assets and acquisitions of businesses and collections of notes receivables,
partially offset by capital expenditures and increased investments.
The Company's financing activities in fiscal 1999 provided $9.6 million
of net cash compared to $48.6 million in fiscal 1998. The increase in 1998 was
primarily due to the May 1998 issuance of $120 million of Senior Notes. As
permitted by the Indenture under which the Senior Notes were issued, the Company
obtained a line of credit facility of approximately $30 million collateralized
by the Company's accounts receivable. The credit facility is used to finance the
Company's working capital needs.
The Company's cash requirements consist of working capital needs,
obligations under its leasing and promissory notes and capital expenditures. The
Company believes that its current cash position, the expected cash flow from
operations, the sales of certain non-operating assets, and the anticipated
availability of its line of credit should be sufficient throughout the next 12
months to finance its working capital needs, planned capital expenditures, and
debt service requirements.
The sales of non-operating assets include $5.0 million of proposed
property sales, receipt of monies owed related to the Amethyst contracts and
other contracts of $4.2 million and the monetization of at least a portion of
the Company's $9.0 million investment in USIS. Although, no assurances can be
given as to the receipt of these monies, management is confident these assets
will be turned to cash in the near future.
The accounts receivable at November 30, 1999 were $62.2 million
compared to $50.8 million at November 30, 1998 after deducting allowances of
$4.5 million and $2.4 million for doubtful accounts at fiscal 1999 and 1998,
respectively. A portion of this increase related to the consolidation of USIS
and the acquisition of Tony Crawford Construction. The current portion of notes
receivable decreased to $4.3 million at November 30, 1999 from $5.1 million at
November 30, 1998. Inventory decreased to $16.7 million at November 30, 1999
from $23.1 million at November 30, 1998.
In May 1999, the Company and its principal subsidiaries entered into a
Credit Agreement with General Electric Capital Corporation as lender and agent
for additional lenders. The Credit Agreement as amended provides for a
collateralized Revolver of up to $30 million to be used for working capital and
other general corporate purposes and is based upon certain eligible accounts
receivable. The outstanding balance on the Revolver is $18.0 million with an
unused commitment of $12.0 million and availability of $7.5 million.
21
<PAGE> 22
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. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance and underlying assumptions and other statements which are other than
statements of historical facts. Forward looking statements involve risks and
uncertainties which could cause actual results or outcomes to differ materially.
The Company's expectations and beliefs are expressed in good faith and are
believed by the Company to have a reasonable basis but there can be no assurance
that management's expectations, beliefs or projections will be achieved or
accomplished. In addition to other factors and matters discussed elsewhere
herein, the following are important factors that, in the view of the Company,
could cause actual results to differ materially from those discussed in the
forward-looking statements: the availability of debt or equity capital to fund
the Company's working capital needs and capital requirements, the ability of the
Company to manage its operations effectively, the reduction in outsourcing by
the industrial groups serviced by the Company, the collection and realization of
its investments and notes receivable, the economic conditions that could affect
demand for the Company's services, the adverse outcome of litigations and
proceedings, the ability of the Company to liquidate non-operating assets, the
ability of the Company to complete projects profitably and the severe weather
conditions that could delay projects.
Impact of the Year 2000 Issue
The Company believes that its vendors and customers are in compliance
with the Year 2000 Issue and has not had any material problems.
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 was
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 that have been done to
existing software and conversions to new software, the Year 2000 Issue has been
mitigated.
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 utilized both internal and external resources to reprogram,
or replace, and test the software for Year 2000 modifications. The Company has
completed the Year 2000 project. The total cost of the Year 2000 project and was
funded through operating cash flows of the Company.
22
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMERICAN ECO CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
23
<PAGE> 24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Directors of
American Eco Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and changes in
financial position present fairly, in all material respects, the financial
position of American Eco Corporation and its subsidiaries at November 30, 1999
and 1998, and the results of their operations and their changes in financial
position for each of the three years in the period ended November 30, 1999 in
conformity with accounting principles generally accepted in Canada. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 1 to the Consolidated Financial Statements, the Company
changed its method of accounting for income taxes in 1998.
PricewaterhouseCoopers LLP
Miami, Florida
March 6, 2000
24
<PAGE> 25
AMERICAN ECO CORPORATION
CONSOLIDATED BALANCE SHEET
(United States Dollars in thousands)
<TABLE>
<CAPTION>
At November 30
----------------------------
ASSETS 1999 1998
------ ---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 5,480 $ 21,821
Accounts receivable, trade, less allowance for doubtful accounts of
$4,528 in 1999 and $2,378 in 1998 62,185 50,793
Current portion of notes receivable 4,266 5,080
Costs and estimated earnings in excess of billings 8,600 11,202
Inventory 16,694 23,080
Refundable income taxes 1,188 2,419
Prepaid expenses and other current assets 5,012 4,427
---------- ----------
TOTAL CURRENT ASSETS 103,425 118,822
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 56,877 54,835
---------- ----------
OTHER ASSETS
Goodwill, net of accumulated amortization of $3,900 in 1999 and $2,781
in 1998 32,690 30,767
Deferred income taxes 17,879 9,464
Notes receivable 16,969 17,504
Investments 4,519 13,855
Other assets 4,565 5,136
---------- ----------
TOTAL OTHER ASSETS 76,622 76,726
---------- ----------
TOTAL ASSETS $ 236,924 $ 250,383
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 39,424 $ 32,584
Line of credit 18,003 --
Current portion of long-term debt 789 630
Income tax payable 638 1,334
Billings in excess of costs and estimated earnings 8,441 3,834
---------- ----------
TOTAL CURRENT LIABILITIES 67,295 38,382
---------- ----------
LONG-TERM LIABILITIES
Senior notes 117,300 118,000
Long-term debt 3,706 2,689
Other liabilities 2,699 1,074
---------- ----------
TOTAL LONG-TERM LIABILITIES 123,705 121,763
---------- ----------
TOTAL LIABILITIES 191,000 160,145
---------- ----------
SHAREHOLDERS' EQUITY
Share capital 90,450 89,854
Contributed surplus 2,845 2,845
Cumulative foreign exchange (1,109) (2,470)
Retained earnings (accumulated deficit) (46,262) 9
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 45,924 90,238
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 236,924 $ 250,383
========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
25
<PAGE> 26
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE YEARS ENDED NOVEMBER 30, 1999
(United States Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE $ 258,077 $ 276,489 $ 194,157
---------- ---------- ----------
COSTS AND EXPENSES
Direct costs of revenue 224,942 236,152 144,383
Selling, general and administrative expenses 29,511 34,747 25,634
Asset impairment, litigation, and other 29,312 27,479 --
Depreciation and amortization 5,822 4,724 5,038
---------- ---------- ----------
Total operating costs 289,587 303,102 175,055
---------- ---------- ----------
OPERATING EARNINGS (LOSS) (31,510) (26,613) 19,102
OTHER INCOME (EXPENSE)
Interest expense, net (11,387) (9,166) (4,770)
Other, net -- (1,498) 3,239
---------- ---------- ----------
Total other income (expense) (11,387) (10,664) (1,531)
---------- ---------- ----------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (42,897) (37,277) 17,571
INCOME TAX PROVISION (BENEFIT) (890) (8,795) 1,254
---------- ---------- ----------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (42,007) (28,482) 16,317
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAX PROVISION (BENEFIT) OF ($2,211),
($911), AND $576 (4,264) (1,697) 1,118
---------- ---------- ----------
NET EARNINGS (LOSS) $ (46,271) $ (30,179) $ 17,435
========== ========== ==========
EARNINGS (LOSS) PER COMMON SHARE
BASIC EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) from continuing operations $ (1.93) $ (1.36) $ 1.01
Earnings (loss) from discontinued operations (0.19) (0.08) 0.07
---------- ---------- ----------
Net earnings (loss) per common share $ (2.12) $ (1.44) $ 1.08
========== ========== ==========
ADJUSTED BASIC EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) from continuing operations $ (1.93) $ (1.36) $ 0.97
Earnings (loss) from discontinued operations (0.19) (0.08) 0.06
---------- ---------- ----------
Net earnings (loss) per common share $ (2.12) $ (1.44) $ 1.03
========== ========== ==========
FULLY DILUTED EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) from continuing operations: $ (1.93) $ (1.36) $ 0.80
Earnings (loss) from discontinued operations (0.19) (0.08) 0.10
---------- ---------- ----------
Net earnings (loss) per common share $ (2.12) $ (1.44) $ 0.90
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTING EARNINGS
(LOSS) PER COMMON SHARE
Basic 21,787 20,965 16,218
========== ========== ==========
Adjusted basic 21,787 20,965 17,668
========== ========== ==========
Fully diluted 21,787 20,965 21,810
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
26
<PAGE> 27
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED NOVEMBER 30, 1999
(United States Dollars in thousands)
<TABLE>
<CAPTION>
Shares Capital Share Cumulative
----------------------------- Capital Contributed Foreign
Shares Amount Subscribed Surplus Currency
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, November 30, 1996 14,217,436 $ 39,411 $ 34 $ 2,845 $ --
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 (1,511)
Subscriptions collected 20,000 34 (34)
Net earnings
---------- ----------- ----------- ----------- -----------
Balance, November 30, 1997 19,629,080 75,577 -- 2,845 (1,511)
Issued for prior acquisitions 138,856 1,526
Issued for asset acquisitions 1,122,142 9,220
Issued for cash 320,933 1,470
Issued for services 157,500 700
Issued for warrants 241,667 1,450
Share issue cost (89)
Cumulative foreign exchange (959)
Net loss
---------- ----------- ----------- ----------- -----------
Balance, November 30, 1998 21,610,178 89,854 -- 2,845 (2,470)
Issued for acquisitions 250,214 500
Issued for services 100,000 96
Cumulative foreign exchange 1,361
Net loss
---------- ----------- ----------- ----------- -----------
Balance, November 30, 1999 21,960,392 $ 90,450 $ -- $ 2,845 $ (1,109)
========== =========== =========== =========== ===========
<CAPTION>
Retained
Earnings Total
(Accumulated Shareholders'
Deficit) Equity
----------- -------------
<S> <C> <C>
Balance, November 30, 1996 $ 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 foreign exchange (1,511)
Subscriptions collected --
Net earnings 17,435 17,435
----------- -----------
Balance, November 30, 1997 30,188 107,099
Issued for prior acquisitions 1,526
Issued for asset acquisitions 9,220
Issued for cash 1,470
Issued for services 700
Issued for warrants 1,450
Share issue cost (89)
Cumulative foreign exchange (959)
Net loss (30,179) (30,179)
----------- -----------
Balance, November 30, 1998 9 90,238
Issued for acquisitions 500
Issued for services 96
Cumulative foreign exchange 1,361
Net loss (46,271) (46,271)
----------- -----------
Balance, November 30, 1999 $ (46,262) $ 45,924
=========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
27
<PAGE> 28
AMERICAN ECO CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE THREE YEARS ENDED NOVEMBER 30, 1999
(United States Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (46,271) $ (30,179) $ 17,435
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Asset impairment, litigation, and other 29,312 27,140 --
Loss on early extinguishment of debt -- 2,400 --
Gain on repurchase of senior notes (280) (570) --
Gain on sale of assets and subsidiaries -- -- (2,682)
Depreciation and amortization 5,822 4,916 5,382
Change in deferred income taxes (4,524) (7,287) 1,829
Noncash income, net -- -- 325
Change in accounts receivable (6,170) (444) (15,932)
Change in refundable income taxes 1,231 (2,419) --
Change in notes receivable -- 3,549 (14,000)
Change in costs and estimated earnings in excess of
billings 998 1,943 (7,824)
Change in inventory 1,376 (5,001) 106
Change in other assets and liabilities (5,230) (2,523) 1,424
Change in accounts payable (17,940) 4,185 (4,523)
Change in billings in excess of costs and estimated
earnings 1,381 484 (458)
---------- ---------- ----------
Net cash used in operating activities (40,295) (3,806) (18,918)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (disbursements for) notes receivable 13,384 4,955 (1,098)
Capital expenditures (3,338) (11,794) (3,134)
Proceeds from sale of assets 3,282 -- 3,448
Acquisition of business, net of cash received 3,169 -- (10,493)
Increase in minority interest 339 -- --
Increase in investments (3,800) (16,450) (1,277)
---------- ---------- ----------
Net cash provided by (used in) investing activities 13,036 (23,289) (12,554)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior notes -- 116,139 --
Proceeds from line of credit 18,003 -- --
Proceeds from notes payable -- 5,700 33,500
Proceeds from long-term debt 164 498 58,500
Principal payments on notes payable -- (14,604) (53,196)
Principal payments on long-term debt (8,190) (59,068) (7,607)
Proceeds from sales/leaseback -- -- 4,000
Repurchase of senior notes (420) (1,430) --
Debt issuance costs -- -- (1,917)
Stock issuance costs -- (89) (2,479)
Issuance of common stock -- 1,470 1,613
---------- ---------- ----------
Net cash provided by financing activities 9,557 48,616 32,414
---------- ---------- ----------
EFFECT OF FOREIGN EXCHANGE FLUCTUATIONS ON CASH 1,361 (959) --
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH (16,341) 20,562 942
CASH AT BEGINNING OF YEAR 21,821 1,259 317
---------- ---------- ----------
CASH AT END OF YEAR $ 5,480 $ 21,821 $ 1,259
========== ========== ==========
Supplemental Disclosures of Cash Flow Information
Cash paid during the years for:
Interest $ 12,362 $ 9,548 $ 4,718
Income taxes $ 1,285 $ 1,810 $ 281
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
28
<PAGE> 29
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
American Eco Corporation and its subsidiaries ("the Company" or "AEC") provide
industrial outsourcing services, environmental, and construction management
services to the energy, pulp and paper, power generation, and retail 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 19.
The accompanying Consolidated Financial Statements include the Company and its
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.
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.
Depreciation and amortization are provided over the estimated useful lives of
the respective assets using the straight-line method based on their estimated
useful lives.
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. The Company regularly 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 - Effective November 1, 1998, the Company changed its method of
accounting for income taxes to CICA 3465, "Income Taxes." Under CICA 3465,
deferred future income taxes are provided on an asset and liability method
whereby deferred future income tax assets are recognized for deductible
temporary differences and operating loss or tax credit carryforwards, and
deferred income tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the amounts of
assets and liabilities recorded for income tax and financial reporting purposes.
Deferred future income tax assets are recognized only to the extent that
management determines that it is more likely than not that the deferred future
income tax asset will be realized.
Previously, income taxes were provided on a tax allocation basis whereby the
provision was based on accounting income and deferred income taxes resulted from
temporary differences which arose between accounting income and taxable income.
Other Assets - Included in other assets is approximately $4,000 and $4,500 in
1999 and 1998, respectively, of debt issuance costs which are being amortized
over the term of the debt (10 years).
Per Share Data - Basic earnings (loss) per share has been calculated on the
basis of net earnings for the year divided by the weighted average number of
common shares outstanding during the period. Adjusted basic earnings (loss) per
share has been calculated assuming the actual debt conversion 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 (loss) per share
additionally assumes all options and warrants have been exercised at the later
of the beginning of the fiscal period or the option issue date. For fiscal year
1999, 3,153 options and 2,899 warrants have been excluded as their impact would
have been anti-dilutive.
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.
29
<PAGE> 30
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
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. SIGNIFICANT 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 $15,900 promissory note paid in August 1997. Based upon a total
of approximately 7,600 Chempower shares outstanding, the total acquisition cost
was approximately $50,000, including acquisition costs of approximately $3,000.
The acquisition was partially funded by a placement by the Company of $15,000,
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 provided 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 $4,500, of which $500 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 $12,000.
Effective September 1, 1997, the Company acquired all of the outstanding common
stock of Specialty Management Group Inc. d/b/a/ CCG ("CCG"), in exchange for 265
shares of Company common stock with a fair market value of approximately $2,600.
The aggregate purchase price and expenses associated with the acquisition exceed
the fair value of net assets acquired by approximately $3,600.
3. IMPAIRMENT, LITIGATION AND OTHER CHARGES
During 1999, the Company recorded certain asset impairment, litigation, and
other charges that management believes are not reflective of the Company's core
or on-going business activities and are viewed by management as non-recurring.
The total expense is $29,312 and the major components are listed as follows: 1)
Write-off of UKstar (Canada) Inc. ("UKstar") note receivable $8,029; 2)
capitalized lease-hold improvements $473; 3) inventory write-down $500; 4)
litigation charges of $13,798 including charges related to the
Petrodrill/Amethyst contract of $10,927, and a reserve placed for settlement of
the U.S. Attorney v. ACI proceeding (see Note 21), 5) failed acquisition costs
primarily related to U.S. Industrial Services, Inc. ("USIS") of $1,018, and 6)
severance and miscellaneous other asset impairments of $5,494.
During 1998, the Company recorded charges related primarily to certain
investments in Dominion Bridge Corporation ("Dominion Bridge") and certain of
its subsidiaries all of which filed under the Canadian Bankruptcy and Insolvency
Act in August 1998 (see Note 5), an impairment in its investment in USIS (see
Note 6), and severance costs of $3,200 relating primarily to changes in certain
senior management positions both at the corporate offices and at certain
subsidiaries.
30
<PAGE> 31
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
4. NOTES RECEIVABLE
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
George E. Phillips Holdings, Ltd., $2,800 due and paid in January 1998,
quarterly payments of $446 from February 1998 through August 2002, with final
payments 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 24. $11,034 $11,034
Kenny Industrial Services, L.L.C., due at various dates through November 2002,
interest at 5%, collateralized by assets sold. 5,000 --
American Temporary Sanitation, Inc., $1,330 note presented net of unrecognized
gain of $776, interest at prime rate +2.5%, due in quarterly installments of
$72, collateralized by assets sold. 554 --
UKstar, $9,300 note presented net of unrecognized interest income of $1,300, due
September 2000, with quarterly interest installments of $227 interest at 9.75%,
collateralized by 2,000 common shares of ETI and a $3,000 performance bond. This
note was written off in fiscal 1999 and the Company is pursuing all
rights and remedies against this collateral. -- 8,029
Receivables from joint ventures. See Note 7. 2,740 3,002
Notes receivable from officers and directors. See Note 15.
1,049 1,213
Miscellaneous notes receivable 1,285 742
------- -------
21,662 24,020
Less reserve for notes receivable (427) (1,436)
------- -------
Total notes receivable 21,235 22,584
Current portion 4,266 5,080
------- -------
Long-term portion $16,969 $17,504
======= =======
</TABLE>
5. DOMINION BRIDGE CORPORATION
On February 20, 1998, the Company and Dominion Bridge entered into a non-binding
Letter of Intent which provided for (a) the purchase of $5,000 of Dominion
Bridge common stock and warrants to purchase Dominion Bridge common stock by the
Company, (b) a working capital loan facility of up to $25,000 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 $5,000
dollars of Dominion Bridge stock was consummated on February 20, 1998, the
President and Chief Executive Officer of the Company also became a member of the
Board of Directors of Dominion Bridge. On March 23, 1998, the Company announced
that it had withdrawn the Letter of Intent and terminated negotiations for any
further transactions. The Company subsequently entered into two projects with
Davie Industries and Steen Pipeline, subsidiaries of Dominion Bridge, to perform
certain contract work in Canada. The Company subsequently acquired Dominion
Bridge's interest in the Steen Pipeline transaction for an additional $1,600.
Dominion Bridge filed under the Canadian Bankruptcy and Insolvency Act. During
the fourth quarter of fiscal 1998, the Company, after reviewing its prospects
for recovery of its investments in Dominion Bridge, determined that it was
probable that a recovery of its investment would not occur. As a result, during
the fourth quarter, the Company recorded a charge of approximately $13,800. This
amount includes primarily the Company's initial $5,000 investments in Dominion
Bridge, costs associated with the Company's investment in Dominion Bridge and
amounts advanced to Dominion Bridge during 1998, primarily relating to the two
joint projects with Davie Industries and Steen Pipeline.
31
<PAGE> 32
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
6. U. S. INDUSTRIAL SERVICES, INC.
During June 1996, the Company purchased 4,600 shares of USIS common stock for
$2,800. On November 7, 1996, the Company acquired an additional 200 shares of
USIS common stock through the issuance of 25 shares of its common stock, and on
November 20, 1996, the Company purchased 4,000 shares of USIS in exchange for
$70 and 300 shares of the Company's common stock. At November 30, 1996, the
Company's total investment in USIS was approximately $5,200 and represented 36%
of USIS's total common stock. Additionally during 1996, the Company entered into
a Stock Purchase Agreement with USIS whereby the Company had an option to
purchase 10,000 shares of USIS for $1,000. This option was subject to USIS
stockholders increasing the authorized number of common shares. The Company
accounted for its investment in USIS pursuant to the equity method of accounting
commencing January 1, 1997. These shares were converted to 880 shares when a 1
for 10 reverse split was consummated in June 1998.
In February 1996, the Company agreed to loan money to USIS pursuant to a line of
credit agreement with a maximum borrowing of $5,200. 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 $15,000 and extend the maturity to February 18, 1998. On September 30,
1997, the Company increased the maximum borrowing amount to $20,000. This
renewal included an option for the Company to convert the entire indebtedness
into common shares of USIS 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 USIS'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 USIS was $17,900, which included accrued interest of
$1,040. The Company received interest income of $800 related to the loan
outstanding during 1997.
On November 19, 1997, USIS completed its acquisition of JL Manta, Inc.
("Manta"), an Illinois corporation which provided specialized maintenance
services for clients in the industrial, environmental and low-level nuclear
sectors. Pursuant to the terms of a Stock Purchase Agreement, USIS acquired all
of the issued and outstanding common stock of Manta for consideration of $4,700
in cash and $2,200 in convertible promissory notes of USIS, payable in
installments with a final payment due on November 18, 2000 (the "Stockholder
Notes").
USIS gave effect to a one-for-ten reverse split of its shares in June 1998, and
a reincorporation which was approved by stockholders in May 1998. The Company
held certain promissory notes of USIS consisting of principal and interest in
the aggregate of $18,900. The notes were reduced by $1,000 representing the
purchase price by the Company for 1,000 shares purchased under the February 1996
Stock Purchase Agreement. The Company sold the remaining portion of the notes to
USIS Acquisition, L.L.C. ("UALC"), an unrelated entity, for $5,000 in cash and a
secured promissory note for $12,900 payable on January 29, 1999. UALC converted
the notes into 5,296 shares of USIS common stock and secured its promissory note
to the Company with a pledge of all acquired shares. In November 1998, UALC
advised the Company that UALC would be unable to pay its note at maturity, and
the Company took ownership of the pledged shares in discharge of the note. As a
result of the transaction, the Company's ownership interest increased from 21%
to 82% of the outstanding common stock of USIS at November 30, 1998 and is
included in these Consolidated Financial Statements.
In November 1998, USIS sold the assets of Manta and transferred related
liabilities, including the credit facility, to Kenny Industrial Services,
L.L.C., for $23,000 consisting of a combination of cash and notes. At this time,
the name was changed to Atnam, Inc.
On December 31, 1998, USIS sold the assets of P.W. Stephens Residential Inc. and
transferred its liabilities, to American Temporary Sanitation Inc. for $2,400
consisting of $1,004 in cash and a five year promissory note for $1,396 payable
quarterly through 2004, together with interest at prime rate plus 2.5% per
annum. Recognition of the gain on this sale has been deferred and is presented
as a reduction of the note balance.
Primarily as a result of UALC defaulting on the note payable to the Company and
the fees incurred by USIS in their sale of Manta, the Company recognized an
impairment in fiscal year 1998 in its net investment in USIS of $7,000.
The results of USIS' operations have been consolidated commencing in fiscal year
1999. USIS' fiscal year ends on September 30, which results have been
consolidated as of November 30, 1999.
32
<PAGE> 33
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
7. INVESTMENT IN SEPARATION AND RECOVERY SYSTEMS, INC. JOINT VENTURES
The Company, through its wholly owned subsidiary Separation and Recovery
Systems, Inc. ("SRS"), participate in three 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, 1999, the Company's total investment in these joint ventures was
approximately $2,300 and the Company had receivables from the joint ventures of
approximately $2,700. At November 30, 1998, the Company's total investment in
these joint ventures was approximately $1,200 and the Company had receivables
from the joint ventures of approximately $3,000. During 1999, the Company
recognized $800 of income related to these joint ventures. During 1998, the
Company sold and leased certain equipment to the joint ventures for
approximately $2,300. During 1997, the Company sold and leased certain equipment
to the joint ventures in the amount of approximately $5,000. The Company
deferred profit on transactions with the joint ventures to the extent of its
ownership interests in the amounts of approximately $300 and $1,600 in 1998 and
1997, respectively.
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, 1999 and 1998.
8. INVENTORY
<TABLE>
<CAPTION>
The components of inventory are as follows: 1999 1998
------- -------
<S> <C> <C>
Raw material $ 4,024 $ 8,388
Consumable supplies 3,127 4,207
Finished goods 9,543 10,485
------- -------
Total Inventory $16,694 $23,080
======= =======
</TABLE>
9. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Property, plant and equipment consists of the following: 1999 1998
------- -------
<S> <C> <C>
Land $ 9,896 $11,223
Buildings 22,749 20,831
Fabrication, machinery, mobile and other equipment 29,502 27,693
Furniture and fixtures 5,466 2,634
Buildings and equipment under capital leases 3,226 4,448
Leasehold improvements 2,347 1,451
------- -------
73,186 68,280
Accumulated depreciation and amortization 16,309 13,445
------- -------
$56,877 $54,835
======= =======
</TABLE>
Depreciation expense for the years ended November 30, 1999, 1998, and 1997 was
$4,679, $3,673, and $4,467, respectively.
10. LINE OF CREDIT
In May 1999, the Company and its principal subsidiaries entered into a Credit
Agreement with General Electric Capital Corporation as lender and agent for
additional lenders. The Credit Agreement as amended provides for a
collateralized revolving credit facility (the "Revolver") of up to $30,000 to be
used for working capital and other general corporate purposes and is based upon
certain eligible accounts receivable. The Revolver has a two-year term, subject
to two automatic one year extensions at the mutual discretion of the Company and
the lenders. Borrowings under the Revolver accrue interest at a rate equal to 4%
above the commercial paper rate, (9.3% at November 30, 1999). Interest is
payable monthly. The revolver is collateralized by the Company's accounts
receivables and inventory, and most of the owned properties are mortgaged as
security. The total availability based on eligible collateral was $7,500 at
November 30, 1999. The Company was in violation of its tangible net book value
covenant at November 30, 1999 which has since been amended and the Company is
currently in compliance with all debt covenants.
33
<PAGE> 34
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
11. LONG-TERM DEBT INCLUDING CAPITAL LEASES 1999 1998
------- -------
<S> <C> <C>
Capital lease obligation to Sunnybank Property Ltd., payable $22 monthly with
an implicit rate of 11.44% with final payments due October 31, 2018 $ 2,029 $ 2,061
Notes payable, other 2,466 1,258
------- -------
4,495 3,319
Current portion 789 630
------- -------
Long-term portion $ 3,706 $ 2,689
======= =======
</TABLE>
The aggregate principal payments on long-term debt during the years subsequent
to November 30, 1999 are: 2000 - $789; 2001 - $793; 2002 - $610; 2003 - $293;
2004 - $131; thereafter $1,879.
12. SENIOR NOTES
In May 1998, the Company issued $120,000 of 9 5/8% Senior Notes that mature May
15, 2008. Interest on the Notes is payable semi-annually in arrears on May 15
and November 15 of each year. The Notes are redeemable at the option of the
Company in whole or in part, at any time on or after May 15, 2003, at specified
redemption prices.
The net proceeds from the issuance of the Notes were $116,100. The Company used
proceeds of $71,200 to repay credit facilities, other outstanding indebtedness
and accrued interest associated with such indebtedness.
As a result of the refinancing, the Company recorded a $2,400 charge for the
early extinguishment of debt, primarily related to the prepaid financing costs
of the bank debt. The Company also recorded an asset of $4,500 related to
prepaid financing costs associated with the Notes. This asset is being amortized
over the ten year term of the Notes.
In September 1998, the Company repurchased $2,000 of Senior Notes on the open
market at a discounted price of $1,400. The transaction resulted in a gain of
$600 on the early extinguishment of debt. In June 1999, the Company repurchased
$700 of Senior Notes on the open market at a discounted price of $420. The
transaction resulted in a gain of $280 on the early extinguishment of debt.
13. LEASE AGREEMENTS
The Company leases equipment and office and warehouse space under operating
leases that expire at various times through September 2003. Future minimum
payments, by year and in the aggregate, under these operating leases, consisted
of the following at November 30:
<TABLE>
<S> <C>
2000 $1,403
2001 1,072
2002 486
2003 28
2004 --
------
Total minimum lease payment $2,989
======
</TABLE>
Rent expense for the years ended November 30, 1999, 1998, and 1997 amounted to
$1,198, $1,522, and $634, 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 $1,200, which is being amortized over the
sixty-month life of the lease.
34
<PAGE> 35
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
14. COSTS AND ESTIMATED EARNINGS ON JOBS IN PROGRESS
Costs, estimated earnings and billings are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Costs incurred on uncompleted jobs $ 336,418 $ 126,323
Estimated earnings 41,476 13,993
--------- ---------
377,894 140,316
Billings to date 377,735 132,948
--------- ---------
$ 159 $ 7,368
========= =========
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess of billings $ 8,600 $ 11,202
Billings in excess of costs and estimated earnings (8,441) (3,834)
--------- ---------
$ 159 $ 7,368
========= =========
</TABLE>
15. RELATED PARTY TRANSACTIONS
Pursuant to an agreement among the Company, Windrush Corporation ("Windrush"),
and J.C. Pennie, dated May 1, 1999, Windrush received a fee of $20 per month in
consideration for executive services for administration, strategic and marketing
planning provided to the Company and is eligible for annual profit participation
based upon levels of the Company's earnings per share. This agreement expires on
May 1, 2004, and has a five-year renewable term and is subject to a five year
payment upon a change in control. J.C. Pennie, the Chairman of the Board of
Directors of the Company, is President of Windrush. Windrush also received a
one-time payment of $145 for consulting services related to unsuccessful
acquisitions. The previous agreement paid Windrush a monthly fee of $10 from
November 1998 to May 1999.
As of August 31, 1997, the Company sold its subsidiaries Eco Environmental, Inc.
("Eco Environmental") and Environmental Evolutions to Eurostar Interests Ltd.
("Eurostar") for an aggregate purchase price of $11,000 payable in a one-year
promissory note (the "Eco Note"), which was to be collateralized by all of the
capital stock of Eurostar. Eurostar assigned its interest in Eco Environmental
and Environmental Evolutions to UKstar, which in turn transferred its interest
in Eco Environmental and Environmental Evolutions to Eco Technologies
International Inc. ("ETI"), a Canadian company. UKstar owns 85.5% of ETI.
Windrush owns 1.6% of ETI. Mr. Pennie also served as the Secretary of UKstar and
as the Chairman of ETI, and Barry Cracower, a director of the Company, also
served as a director of ETI until they resigned on March 30, 1999. In February
1998, UKstar paid $603 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. In October 1998, UKstar
paid $3,000 on the Eco Note, and is to repay the remaining $9,314 on September
30, 2000 with quarterly interest installments of $227, which obligations are
collateralized by 2,000 shares of ETI Common Stock and a $3,000 performance
bond. The Company has made a claim on the $3,000 bond and has placed Ukstar
under demand for payment. The Company has written off the entire note balance,
but will continue to pursue all rights and remedies to collect all amounts owed.
In July 1998, Industra Service entered into a 15-year lease for an office, shop
and warehouse in Edmonton, Alberta from Sunnybank Property Ltd., a company in
which Honorable Donald R. Getty, a director of the Company, is President and has
a 25% interest. The annual lease payments are $320. Management believes the
lease terms are at commercially reasonable rates.
In June 1999, the Company entered into an agreement with Honorable Donald R.
Getty, a director of the Company, to provide consultant services to help the
Company identify upcoming projects and introduce it to prospective clients. The
agreement expires in 12 months and the fee is $5 per month.
In August 1998, the Board of Directors authorized the Company to loan up to $100
to each Director for the purpose of using the proceeds to purchase the Company's
Common Shares in the open market. These loans are to be repaid in three years,
bear interest at the rate of 9-5/8% per annum, and are unsecured. Messrs.
Fradella, a former Director and officer, Getty and Pennie each took a loan for
$100 and Mr. Cracower took a loan for $50. As of November 30, 1999, the
following Director loans were outstanding: Mr. Fradella - $112, Mr. Getty -
$112, Mr. Pennie - $84 and Mr. Cracower - $20.
35
<PAGE> 36
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
15. RELATED PARTY TRANSACTIONS - CONTINUED
During fiscal 1997, the Company loaned $84 to Michael E. McGinnis, a director
and executive officer of the Company, for the purpose of purchasing Common
Shares of the Company in the open market. The loan increased his indebtedness to
the Company to $630. The loan was to mature on May 7, 1998, and the maturity was
extended to May 31, 2001, bearing interest at the rate of 10.0% per annum. The
outstanding balance of the loan, including interest, as of November 30, 1999 was
$725.
In May 1997, the Company loaned $305 at 8.5% interest per annum to David L.
Norris, former executive officer, for the purchase of a home in connection with
his relocation to the Company's headquarters in Houston, Texas. The loan was to
mature in May 1998 and was extended to February 1, 2003, and is unsecured. The
outstanding balance of the loan, including interest, as of November 30, 1999 was
$326.
In September 1998, the Company loaned $100 to Besim Halef, an executive officer,
repayable over three years, together with interest at the rate of 6% per annum.
The outstanding balance of the loan, including interest, as of November 30, 1999
was $107.
16. 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 45.31%, as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Basic rate applied to pre-tax income $(21,761) $(18,072) $ 8,542
Reduction due to income taxes in other jurisdictions 1,998 4,624 (5,316)
Increase in valuation allowance 17,663 5,648 --
Other -- 183 (247)
Reduction of income taxes due to application of loss carryforwards -- -- (2,507)
-------- -------- --------
Effective Canadian tax expense $ (2,100) $ (7,617) $ 472
======== ======== ========
</TABLE>
The Company has Canadian non-capital income tax losses available to be carried
forward in the amount of $57,139 expiring through 2006. The Company also has
capital losses available to be carried forward indefinitely in the amount of
$5,000.
UNITED STATES
The components of the provision for (recovery of) income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Federal $ 1,069 $ (996) $ 3,547
State 141 (182) 314
Reduction of income taxes due to application of loss carryforwards -- -- (1,701)
Benefits from previously unrecorded tax items -- -- (1,529)
Other -- -- 151
------- ------- -------
$ 1,210 $(1,178) $ 782
======= ======= =======
</TABLE>
The Company has income tax losses generated by its subsidiaries in the United
States available to be carried forward in the amount of $8,529 expiring through
2018.
<TABLE>
<S> <C> <C> <C>
Total tax expense (benefit) consisting of
Current $ 1,423 $(2,419) $ --
Deferred (2,313) (6,376) 1,254
------- ------- -------
$ (890) $(8,795) $ 1,254
======= ======= =======
</TABLE>
36
<PAGE> 37
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
16. INCOME TAXES - CONTINUED
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.
The significant components of the net deferred tax assets (liabilities) are as
follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Depreciation and amortization $ (5,657) $(11,360)
Allowance for bad debts 1,166 2,542
Accrued liabilities 7,980 4,642
Net operating loss carryforward 65,668 16,200
Investments 10,668 7,466
Other 26 (290)
Deferred income (1,503) (330)
Valuation allowance (60,469) (9,406)
-------- --------
$ 17,879 $ 9,464
======== ========
</TABLE>
During 1998, the Company adopted the provisions of CICA Section 3465, "Income
Taxes." CICA 3465. The Company has elected not to restate prior years and the
impact on the current year is not material. Had the Company restated prior
years, the prior year tax provision would have increased by approximately $1,000
as certain net operating loss carryforwards which were utilized in 1997 would
have been credit to goodwill and not to the income tax provision. Additionally,
goodwill amortization would have been reduced for each of the remaining years of
its useful life. The annual impact is not material to the Company's results of
operations.
17. 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, 1999, the Company had 2,899 outstanding share warrants, which
call for the issuance of one common share upon presentation of the warrant at
issue prices ranging from $2.00 to $9.56. These warrants expire at various times
through September, 2002.
STOCK OPTIONS
In May 1999, the Stockholders amended the Company's 1995 Stock Option Plan (the
"Plan"). Under the Plan, the Company is authorized to issue 4,342 options to
purchase shares.
37
<PAGE> 38
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
17. SHARE CAPITAL - CONTINUED
Information with regard to stock options is as follows:
<TABLE>
<CAPTION>
SHARES OPTION PRICE RANGE
<S> <C> <C>
Outstanding, November 30, 1996 553 $1.76-$9.76
Granted 994 $6.67-$7.72
Cancelled (144) $1.76-$7.09
Exercised (267) $1.79-$7.72
-----
Outstanding, November 30, 1997 1,136 $1.79-$9.76
Granted 716 $6.36-$10.76
Cancelled (213) $3.20-$6.00
Exercised (113) $1.66-$3.20
-----
Outstanding, November 30, 1998 1,526 $1.73-$11.20
Granted 2,022 $1.19-$1.90
Cancelled (395) $1.49-$11.20
Exercised --
-----
Outstanding, November 30, 1999 3,153 $1.19-$7.46
=====
Options current exercisable 976 $1.19-$7.46
=====
</TABLE>
The weighted average fair value of options granted during 1999, 1998, and 1997
were $0.85, $3.59, and $6.42 per share, respectively.
The weighted average exercise price and remaining term as of November 30, 1999
are $3.64 and 3.46 years, respectively.
18. DISCONTINUED OPERATIONS
During the second quarter of fiscal year 1999, management adopted plans to
discontinue the switchgear operations of Chempower and the engineering business
of Industra.
The assets of Chempower's switchgear operations have been liquidated as of
November 30, 1999. Assets of Industra's engineering business will be liquidated
when the business is sold. The net assets of Industra's engineering business are
included in the November 30, 1999 consolidated balance sheet and are summarized
as follows:
<TABLE>
<S> <C>
Accounts receivable, net $2,393
Other assets 109
------
Total assets 2,502
------
Accounts payable 605
Other liabilities 5,606
------
Total liabilities 6,211
------
Net liabilities of discontinued operations $3,709
======
</TABLE>
38
<PAGE> 39
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
18. DISCONTINUED OPERATIONS - CONTINUED
Summary operating results for the years ended November 30, 1999, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues $ 13,219 $ 23,300 $ 26,321
Operating earnings (loss) (6,205) (2,268) 1,870
Interest expense 270 340 176
Earnings (loss) before income taxes (6,475) (2,608) 1,694
Income tax provision (benefit) (2,211) (911) 576
Net earnings (loss) from discontinued operations (4,264) (1,697) 1,118
</TABLE>
Operating losses during the phase out period have been included in the loss from
discontinued operations in the accompanying financial statements. Interest
expense has been allocated based on intercompany debt balances.
19. 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 1998, the Company issued $120,000 in Senior Notes (see Note 12) and used
certain of the proceeds to retire existing indebtedness. As a result, the
Company recorded a charge of $2,400 relating to the early extinguishment of
debt. Under U.S. Basis, such amount would have been presented as an
extraordinary item, net of tax. Additionally, the Company repurchased $700 and
$2,000 face amount of Senior Notes for approximately $420 and $1,430, resulting
in a gain of $420 and $570 in 1999 and 1998, respectively. Under U.S. Basis,
this gain would also be presented as an extraordinary item.
During 1997, the Company sold $18,000 aggregate principal amount of convertible
debentures (the "Debentures"). In connection with these Debentures, the Company
issued approximately 1,700 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 $11,800 was charged to equity. Had the U.S. Basis been
followed, the intrinsic value of the conversion feature of approximately $3,500
would have been charged to interest expense immediately as the Debentures
contained a beneficial conversion feature on the date of issuance.
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 1998 income
tax provision would have been adjusted by approximately $1,000.
Switchgear and engineering businesses would not be presented as discontinued
operations under U.S. Basis. See Note 19 for additional amounts which would be
included as continuing operations under U.S. Basis.
39
<PAGE> 40
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
19. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES AND PRACTICES - CONTINUED
The following is a comparison of net income under Canadian Basis to net income
under U.S. Basis.
<TABLE>
<CAPTION>
1999 1998
--------------------------------- ---------------------------------
Canadian Basis U.S. Basis Canadian Basis U.S. Basis
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Pre-tax loss $(42,897) $(49,652) $(37,277) $(38,055)
Income tax benefit (890) (3,207) (8,795) (9,011)
-------- -------- -------- --------
Loss before from continuing operations (42,007) (46,445) (28,482) (29,044)
Loss from discontinued operations, net (4,264) -- (1,697) --
Gain (loss) from early extinguishment of debt -- 174 -- (1,135)
-------- -------- -------- --------
Net loss $(46,271) $(46,271) $(30,179) $(30,179)
======== ======== ======== ========
Net loss per share from continuing
operations - basic $ (1.93) $ (2.13) $ (1.36) $ (1.39)
Loss from discontinued operations (0.19) -- (0.08) --
Gain (loss) from early extinguishment of debt -- 0.01 -- (0.05)
-------- -------- -------- --------
Net loss $ (2.12) $ (2.12) $ (1.44) $ (1.44)
======== ======== ======== ========
</TABLE>
Under U.S. Basis, primary and fully diluted earnings per share is calculated
using the treasury stock method. The calculation of earnings per share for 1997
under U.S. Basis is as follows:
<TABLE>
<S> <C>
Net earnings $11,386
Net earnings per share - Primary $ 0.66
Net earnings per share - Fully diluted $ 0.65
Weighted average number of shares
Primary 17,143
Fully Diluted 18,784
</TABLE>
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 based 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 earnings (loss) 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:
<TABLE>
<CAPTION>
Assumptions 1999 1998 1997
------------ --------- ------------
<S> <C> <C> <C>
Risk-free interest rates 5.1% - 5.86% 5.5% 6.37%-6.63%
Expected life of stock options (years) 5 5 5
Expected volatility of common stock 65% 55% 55%
Expected annual dividends of stock options 0 0 0
Net earnings (loss) - as reported (46,271) (30,179) $17,435
Net earnings (loss) - pro forma (47,191) (31,100) $17,191
Basic earnings (loss) per share - as reported $ (2.12) $ (1.44) $ 1.08
Basic earnings (loss) per share - pro forma $ (2.17) $ (1.48) $ 1.06
</TABLE>
The pro forma effects on net earnings and earnings per common share for fiscal
1999, 1998 and 1997 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.
40
<PAGE> 41
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
20. RETIREMENT PLANS
The Company has a profit-sharing plan (defined contribution) retirement plan
covering employees in the United States, except employees who are members of a
union who bargained separately for retirement benefits. Employees are eligible
upon attaining the age twenty-one (21) and completing six months 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 its collective bargaining agreements with various unions,
contributes to the unions' retirement plans. For the years ended November 30,
1999, 1998, and 1997, an expense of $4,100, $2,700, and $2,700, respectively,
was incurred for these retirement plans.
21. LITIGATION
The United States Attorney for the Middle District of Louisiana (the "US
Attorney") advised Advanced Coil Industries ("ACI") a division of Chempower,
Inc., a subsidiary of the Company acquired in March 1997, that ACI and several
others are the subject of a Federal criminal grand jury investigation in
connection with possible improper markings on coated steel which had occurred in
1994 and 1995 prior to the Company's acquisition of Chempower. The U.S. Attorney
and ACI have agreed that in the event criminal charges are filed, no criminal
charges will be filed against ACI until on or after March 5, 2000. The U.S.
Attorney has also advised ACI that a civil suit has been filed under seal in
Baton Rouge, Louisiana in which ACI is one of several names or potential
defendants alleged to have violated the Federal False Claims Act. As the civil
suit was filed under seal and is unavailable for ACI's review, the Company has
not had the opportunity to review the factual basis of the alleged claim nor the
method by which damages might be calculated. The Company recently received a
report from the U.S. Attorney setting forth its determination of the possible
civil damages by all parties, including ACI. The Company is reviewing the report
with respect to the methodology and the extent of involvement of ACI. However,
if a potential action by the U.S. Attorney and/or under the civil action against
ACI is successful, it could be material to the financial position of the
Company.
At November 30, 1999, there were various claims and disputes incidental to the
business. The Company believes that the disposition of all such claims and
disputes, individually or in the aggregate, should not have a material adverse
affect upon the Company's financial position, results of operations or cash
flows, except as disclosed above.
22. FINANCIAL STATEMENTS
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, 1999, and 1998, the Company had notes receivable balances of
$21,235 and $22,584, respectively, with various entities or persons as described
in Note 4. 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 based and their diverse industries and geographic areas.
41
<PAGE> 42
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
22. FINANCIAL STATEMENTS - CONTINUED
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. The fair value of the Senior Notes was approximately $58,650 at
November 30, 1999.
23. SEGMENTS OF THE BUSINESS
The Company operates in Canada and the United States in three primary industry
segments: (1) Industrial Outsourcing Services which involves the repair,
maintenance and modification of boilers, pressure vessels and tubing used in
industrial facilities and includes specialty fabrication services involving
high-quality custom steel and alloy products, (2) Environmental Services which
include the clean-up and treatment of hazardous and non-hazardous organic and
inorganic contaminants utilizing a number of technologies, and (3) Construction
Management Services which involves tenant improvement, renovation, addition and
design services to a national network of retailers. 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:
<TABLE>
<CAPTION>
Industrial Construction
Outsourcing Environmental Management Total
Services Services Services Consolidated
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
1999
Revenue $ 171,619 $ 33,322 $ 53,136 $ 258,077
Operating loss (23,831) (2,689) (4,990) (31,510)
Depreciation and amortization 4,558 657 607 5,822
Capital expenditures during the year 2,515 700 123 3,338
Identifiable assets 133,194 51,162 52,568 236,924
1998
Revenue $ 233,193 $ 14,115 $ 29,181 $ 276,489
Operating loss (24,119) (78) (2,416) (26,613)
Depreciation and amortization 3,565 569 590 4,724
Capital expenditures during the year 10,066 1,456 272 11,794
Identifiable assets 197,898 26,864 25,621 250,383
1997
Revenue $ 144,904 $ 38,757 $ 10,496 $ 194,157
Operating earnings 11,732 7,114 256 19,102
Depreciation and amortization 3,664 964 410 5,038
Capital expenditures during the year 1,677 1,408 49 3,134
Identifiable assets 155,072 40,487 16,227 211,786
</TABLE>
42
<PAGE> 43
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
23. SEGMENTS OF THE BUSINESS - CONTINUED
The following table provides information with respect to the geographic
segmentation of the Company's business.
<TABLE>
<CAPTION>
Total
Canada United States Consolidated
--------- ------------- ------------
<S> <C> <C> <C>
1999
Revenue $ 79,930 $ 178,147 $ 258,077
Operating loss (10,095) (21,415) (31,510)
Depreciation and amortization 880 4,942 5,822
Capital expenditures during the year 2,356 982 3,338
Identifiable assets 146,038 90,886 236,924
1998
Revenue $ 123,056 $ 153,433 $ 276,489
Operating loss (6,123) (20,490) (26,613)
Depreciation and amortization 480 4,244 4,724
Capital expenditures during the year 9,160 2,634 11,794
Identifiable assets 172,504 77,879 250,383
1997
Revenue $ 50,835 $ 143,322 $ 194,157
Operating earnings 6,503 12,599 19,102
Depreciation and amortization 1,223 3,815 5,038
Capital expenditures during the year 332 2,802 3,134
Identifiable assets 122,472 89,314 211,786
</TABLE>
24. SIGNIFICANT TRANSACTIONS AND SUBSEQUENT EVENTS
In November 1997, the Company sold its 50% ownership in MART to a third party
for cash and notes aggregating $14,000, payable quarterly over five years with
interest at 10% per annum. During fiscal 1997, two of the Company's subsidiaries
(SRS and United Eco Systems, Inc. ("United Eco")) sold equipment and provided
services to MART. SRS sold to MART equipment for $4,000 and United Eco provided
construction, maintenance and operation services for approximately $6,600. MART
is a state of the art thermal treatment facility which treat soils, sediments
and other materials contaminated with hazardous and non-hazardous chemicals.
Effective December 1, 1999, the Company acquired all of the outstanding shares
of MART.
The 1997 Consolidated Statement of Operations includes revenue and direct costs
of $24,600 and $14,400, respectively, resulting from these transactions.
43
<PAGE> 44
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
25. GUARANTOR FINANCIAL STATEMENT INFORMATION
Set forth below are condensed Consolidating Financial Statements of the Company
(Parent), the Guarantor Subsidiaries, Non Guarantor Subsidiaries (USIS), and the
Company on a consolidated basis.
CONSOLIDATING BALANCE SHEET
AT NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Non-
ASSETS Guarantor
------ Company Guarantor Subsidiaries
(Parent) Subsidiaries (USIS) Eliminations Consolidated
-------- ------------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash .................................................. $ (31) $ 5,231 $ 280 $ -- $ 5,480
Accounts receivable ................................... 3,163 57,451 1,571 -- 62,185
Current portion of notes receivable ................... -- 2,777 1,489 -- 4,266
Amounts receivable from subsidiaries .................. 85,389 (85,389) -- -- --
Costs and estimated earnings in excess of billings .... -- 8,279 321 -- 8,600
Inventory ............................................. -- 16,694 -- -- 16,694
Refundable income taxes ............................... 1,188 -- -- -- 1,188
Prepaid expenses and other current assets ............. 1,368 3,395 249 -- 5,012
--------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS ............................ 91,077 8,438 3,910 -- 103,425
--------- --------- --------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET ........................ 1,263 53,814 1,800 -- 56,877
--------- --------- --------- --------- ---------
OTHER ASSETS
Goodwill .............................................. -- 32,030 660 -- 32,690
Deferred income taxes ................................. 13,846 613 3,420 -- 17,879
Notes receivable ...................................... 11,982 410 4,577 -- 16,969
Investments ........................................... 53,442 3,152 -- (52,075) 4,519
Other assets .......................................... 4,036 520 9 -- 4,565
--------- --------- --------- --------- ---------
TOTAL OTHER ASSETS .............................. 83,306 36,725 8,666 (52,075) 76,622
--------- --------- --------- --------- ---------
TOTAL ASSETS .................................... $ 175,646 $ 98,977 $ 14,376 $ (52,075) $ 236,924
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities .............. $ 4,641 $ 32,107 $ 2,676 $ -- $ 39,424
Line of credit ........................................ -- 18,003 -- -- 18,003
Current portion of long-term debt ..................... 6 308 475 -- 789
Income tax payable .................................... (82) 720 -- -- 638
Billings in excess of costs and estimated earnings .... -- 8,195 246 -- 8,441
--------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES ....................... 4,565 59,333 3,397 -- 67,295
--------- --------- --------- --------- ---------
LONG TERM LIABILITIES
Senior notes .......................................... 117,300 -- -- -- 117,300
Long-term debt ........................................ 13 2,625 1,068 -- 3,706
Other liabilities ..................................... -- 915 (371) 2,155 2,699
--------- --------- --------- --------- ---------
TOTAL LONG-TERM LIABILITIES ..................... 117,313 3,540 697 2,155 123,705
--------- --------- --------- --------- ---------
TOTAL LIABILITIES ............................... 121,878 62,873 4,094 2,155 191,000
--------- --------- --------- --------- ---------
SHAREHOLDERS' EQUITY
Share capital ......................................... 90,450 21 88 (109) 90,450
Contributed surplus ................................... 2,845 42,237 22,684 (64,921) 2,845
Cumulative foreign exchange ........................... (3,432) 2,323 -- -- (1,109)
Retained earnings (accumulated deficit) ............... (36,095) (8,477) (12,490) 10,800 (46,262)
--------- --------- --------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY ...................... 53,768 36,104 10,282 (54,230) 45,924
--------- --------- --------- --------- ---------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ........ $ 175,646 $ 98,977 $ 14,376 $ (52,075) $ 236,924
========= ========= ========= ========= =========
</TABLE>
44
<PAGE> 45
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
25. GUARANTOR FINANCIAL STATEMENT INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Non-
Guarantor
Company Guarantor Subsidiaries
(Parent) Subsidiaries (USIS) Eliminations Consolidated
-------- ------------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUE ................................................. $ -- $ 235,117 $ 22,960 $ -- $ 258,077
--------- --------- --------- --------- ---------
COST AND EXPENSES
Direct costs of revenue ............................. -- 206,411 18,531 -- 224,942
Selling, general and administrative expenses ........ 3,794 20,901 4,816 -- 29,511
Asset impairment, litigation, and other ............. 18,121 10,878 313 -- 29,312
Depreciation and amortization ....................... 150 5,635 37 -- 5,822
--------- --------- --------- --------- ---------
Total operating costs ............................... 22,065 243,825 23,697 -- 289,587
--------- --------- --------- --------- ---------
OPERATING LOSS .......................................... (22,065) (8,708) (737) -- (31,510)
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense, net ............................... (11,746) 213 146 -- (11,387)
Other, net .......................................... -- -- -- -- --
--------- --------- --------- --------- ---------
Total other income (expense) ........................ (11,746) 213 146 -- (11,387)
--------- --------- --------- --------- ---------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ..... (33,811) (8,495) (591) -- (42,897)
INCOME TAX PROVISION (BENEFIT) .......................... (1,988) -- 1,098 -- (890)
--------- --------- --------- --------- ---------
LOSS FROM CONTINUING OPERATIONS ......................... (31,823) (8,495) (1,689) -- (42,007)
LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME
TAX BENEFIT OF $2,211 ................................... -- (4,264) -- -- (4,264)
--------- --------- --------- --------- ---------
NET LOSS ................................................ $ (31,823) $ (12,759) $ (1,689) $ -- $ (46,271)
========= ========= ========= ========= =========
</TABLE>
45
<PAGE> 46
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
25. GUARANTOR FINANCIAL STATEMENT INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Non-
Guarantor
Company Guarantor Subsidiaries
(Parent) Subsidiaries (USIS) Eliminations Consolidated
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................................... $(31,823) $(12,759) $ (1,689) $ -- $(46,271)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Asset impairment, litigation, and other ................ 18,121 10,878 313 -- 29,312
Gain on repurchase of senior notes ..................... (280) -- -- -- (280)
Depreciation and amortization .......................... 150 5,709 (37) -- 5,822
Change in deferred income taxes ........................ (5,977) 582 871 -- (4,524)
Change in refundable income taxes ...................... 1,231 -- -- -- 1,231
Change in accounts receivable .......................... (2,396) (3,390) (384) -- (6,170)
Change in costs and estimated earnings in excess
of billings ........................................ -- 1,246 (248) -- 998
Change in inventory .................................... -- 1,376 -- -- 1,376
Change in other assets and liabilities ................. (1,498) (1,078) (2,654) -- (5,230)
Change in accounts payable ............................. (6,604) (3,205) (8,131) -- (17,940)
Change in billings in excess of costs and estimated
earnings ........................................... -- 519 862 -- 1,381
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities .............. (29,076) (122) (11,097) -- (40,295)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (disbursements for) notes receivable ........... (886) 388 13,882 -- 13,384
Capital expenditures ......................................... (173) (2,854) (311) -- (3,338)
Acquisition of business, net of cash received ................ -- 821 2,348 -- 3,169
Proceeds from sale of assets ................................. -- -- 3,282 -- 3,282
Increase in goodwill ......................................... -- (89) 89 -- --
Increase in minority interest ................................ -- 339 -- -- 339
Increase in investments ...................................... (1,227) (2,273) (300) -- (3,800)
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities .............. (2,286) (3,668) 18,990 -- 13,036
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit ................................. -- 18,003 -- -- 18,003
Proceeds from long-term debt ................................. -- -- 164 -- 164
Disbursements/receipts on intercompany debt .................. 19,705 (19,705) -- -- --
Principal payments on long-term debt ......................... (96) (317) (7,777) -- (8,190)
Repurchase of senior notes ................................... (420) -- -- -- (420)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities .............. 19,189 (2,019) (7,613) -- 9,557
-------- -------- -------- -------- --------
EFFECT OF FOREIGN EXCHANGE FLUCTUATIONS ON CASH .................. 859 502 -- -- 1,361
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH ................................. (11,314) (5,307) 280 -- (16,341)
CASH AT BEGINNING OF YEAR ........................................ 11,283 10,538 -- -- 21,821
-------- -------- -------- -------- --------
CASH AT END OF YEAR .............................................. $ (31) $ 5,231 $ 280 $ -- $ 5,480
======== ======== ======== ======== ========
Supplemental disclosure of noncash investing & financing activities
Acquisition of subsidiaries through issuance of stock ............ 500 -- -- -- 500
Acquisition of assets through issuance of stock .................. -- -- -- -- --
Notes receivable issued for sale of assets ....................... -- -- 24,396 -- 24,396
Acquisition of equipment for long term debt ...................... -- -- 1,529 -- 1,529
</TABLE>
46
<PAGE> 47
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
25. GUARANTOR FINANCIAL STATEMENT INFORMATION (CONTINUED)
CONSOLIDATING BALANCE SHEET
AT NOVEMBER 30, 1998
<TABLE>
<CAPTION>
ASSETS Company Guarantor
------ (Parent) Subsidiaries Eliminations Consolidated
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash .................................................. $ 11,283 $ 10,538 $ -- $ 21,821
Accounts receivable ................................... 767 50,026 -- 50,793
Current portion of notes receivable ................... 1,916 3,164 -- 5,080
Amounts receivable from subsidiaries .................. 105,093 (105,093) -- --
Costs and estimated earnings in excess of billings .... -- 11,202 -- 11,202
Inventory ............................................. -- 23,080 -- 23,080
Refundable income taxes ............................... 2,419 -- -- 2,419
Prepaid expenses and other current assets ............. 1,003 3,424 -- 4,427
--------- --------- --------- ---------
TOTAL CURRENT ASSETS ............................ 122,481 (3,659) -- 118,822
--------- --------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET ........................ 881 53,954 -- 54,835
--------- --------- --------- ---------
OTHER ASSETS
Goodwill .............................................. -- 30,767 -- 30,767
Deferred income taxes ................................. 8,142 1,322 -- 9,464
Notes receivable ...................................... 17,244 260 -- 17,504
Investments ........................................... 54,635 1,450 (42,230) 13,855
Other assets .......................................... 4,493 643 -- 5,136
--------- --------- --------- ---------
TOTAL OTHER ASSETS .............................. 84,514 34,442 (42,230) 76,726
--------- --------- --------- ---------
TOTAL ASSETS .................................... $ 207,876 $ 84,737 $ (42,230) $ 250,383
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities .............. $ 5,482 $ 27,102 $ -- $ 32,584
Notes payable ......................................... -- -- -- --
Current portion of long-term debt ..................... -- 630 -- 630
Income tax payable .................................... 191 1,143 -- 1,334
Billings in excess of costs and estimated earnings .... -- 3,834 -- 3,834
--------- --------- --------- ---------
TOTAL CURRENT LIABILITIES ....................... 5,673 32,709 -- 38,382
--------- --------- --------- ---------
LONG TERM LIABILITIES
Senior notes .......................................... 118,000 -- -- 118,000
Long-term debt ........................................ 70 2,619 -- 2,689
Other liabilities ..................................... -- 1,074 -- 1,074
--------- --------- --------- ---------
TOTAL LONG-TERM LIABILITIES ..................... 118,070 3,693 -- 121,763
--------- --------- --------- ---------
TOTAL LIABILITIES ............................... 123,743 36,402 -- 160,145
--------- --------- --------- ---------
SHAREHOLDERS' EQUITY
Share capital ......................................... 89,854 19 (19) 89,854
Contributed surplus ................................... 2,845 42,211 (42,211) 2,845
Cumulative foreign exchange ........................... (4,291) 1,821 -- (2,470)
Retained earnings (accumulated deficit) ............... (4,275) 4,284 -- 9
--------- --------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY ...................... 84,133 48,335 (42,230) 90,238
--------- --------- --------- ---------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ........ $ 207,876 $ 84,737 $ (42,230) $ 250,383
========= ========= ========= =========
</TABLE>
47
<PAGE> 48
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
25. GUARANTOR FINANCIAL STATEMENT INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Company Guarantor
(Parent) Subsidiaries Eliminations Consolidated
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE ................................................. $ -- $276,489 $ -- $ 276,489
--------- --------- --------- ---------
COST AND EXPENSES
Direct costs of revenue ............................. -- 236,152 -- 236,152
Selling, general and administrative expenses ........ 4,107 30,640 -- 34,747
Asset impairment, litigation, and other ............. 19,199 8,280 -- 27,479
Depreciation and amortization ....................... 119 4,605 -- 4,724
--------- --------- --------- ---------
Total operating costs ............................... 23,425 279,677 -- 303,102
--------- --------- --------- ---------
OPERATING LOSS ......................................... (23,425) (3,188) -- (26,613)
--------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense, net ............................... 127 (9,293) -- (9,166)
Other, net .......................................... (1,498) -- -- (1,498)
--------- --------- --------- ---------
Total other income (expense) ........................ (1,371) (9,293) -- (10,664)
--------- --------- --------- ---------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ..... (24,796) (12,481) -- (37,277)
INCOME TAX BENEFIT ...................................... (8,795) -- -- (8,795)
--------- --------- --------- ---------
LOSS FROM CONTINUING OPERATIONS ......................... (16,001) (12,481) -- (28,482)
LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME
TAX BENEFIT OF $911 ..................................... -- (1,697) -- (1,697)
--------- --------- --------- ---------
NET LOSS ................................................ $ (16,001) $ (14,178) $ -- $ (30,179)
========= ========= ========= =========
</TABLE>
48
<PAGE> 49
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
25. GUARANTOR FINANCIAL STATEMENT INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Company Guarantor
(Parent) Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................... $ (15,090) $ (15,089) $ -- $ (30,179)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Asset impairment, litigation, and other .................. 28,629 (1,489) -- 27,140
Loss on early extinguishment of debt ..................... 2,400 -- -- 2,400
Gain on repurchase of senior notes ....................... (570) -- -- (570)
Depreciation and amortization ............................ 119 4,797 -- 4,916
Change in deferred income taxes .......................... (6,334) (953) -- (7,287)
Change in refundable income taxes ........................ (2,419) -- -- (2,419)
Change in accounts receivable ............................ 603 (1,047) -- (444)
Change in costs and estimated earnings in excess of
billings ............................................... -- 1,943 -- 1,943
Change in inventory ...................................... -- (5,001) -- (5,001)
Change in other assets and liabilities ................... (1,881) (642) -- (2,523)
Change in notes receivable ............................... 3,549 -- -- 3,549
Change in accounts payable ............................... 4,466 (281) -- 4,185
Change in billings in excess of costs and estimated
earnings ............................................... -- 484 -- 484
--------- --------- --------- ---------
Net cash provided by (used in) operating activities ............... 13,472 (17,278) -- (3,806)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds (disbursements for) notes receivable ................ 6,230 (1,275) -- 4,955
Capital expenditures ......................................... (162) (11,632) -- (11,794)
Increase in investments ...................................... (18,898) 2,448 -- (16,450)
--------- --------- --------- ---------
Net cash used in investing activities ............................. (12,830) (10,459) -- (23,289)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior notes ................................... 116,139 -- -- 116,139
Proceeds from notes payable .................................. 5,700 -- -- 5,700
Proceeds from long-term debt ................................. 30 468 -- 498
Disbursements/receipts on intercompany debt .................. (35,720) 21,116 -- (14,604)
Principal payments on notes payable .......................... (14,200) (44,868) -- (59,068)
Principal payments on long-term debt ......................... (58,515) 58,515 -- --
Repurchase of senior notes ................................... (1,430) -- -- (1,430)
Debt issuance costs .......................................... -- -- -- --
Stock issuance costs ......................................... (89) -- -- (89)
Issuance of common stock ..................................... 1,470 -- -- 1,470
--------- --------- --------- ---------
Net cash provided by financing activities ......................... 13,385 35,231 -- 48,616
--------- --------- --------- ---------
EFFECT OF FOREIGN EXCHANGE FLUCTUATIONS ON CASH ................... (2,890) 1,931 -- (959)
--------- --------- --------- ---------
NET INCREASE IN CASH .............................................. 11,137 9,425 -- 20,562
CASH AT BEGINNING OF YEAR ......................................... 146 1,113 -- 1,259
--------- --------- --------- ---------
CASH AT END OF YEAR ............................................... $ 11,283 $ 10,538 $ -- $ 21,821
========= ========= ========= =========
Supplemental disclosure of noncash investing and financing
activities
Acquisition of subsidiaries through issuance of stock ............. 1,526 -- -- 1,526
Acquisition of assets through issuance of stock ................... 8,910 -- -- 8,910
</TABLE>
49
<PAGE> 50
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
25. GUARANTOR FINANCIAL STATEMENT INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Company Guarantor
(Parent) Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE ........................................... $ 20,952 $ 173,205 $ -- $ 194,157
--------- --------- --------- ---------
COST AND EXPENSES
Direct costs of revenue ....................... 9,858 134,525 -- 144,383
Selling, general and administrative expenses... 1,989 23,645 -- 25,634
Asset impairment, litigation, and other ....... -- -- -- --
Depreciation and amortization ................. 484 4,554 -- 5,038
--------- --------- --------- ---------
Total operating costs ......................... 12,331 162,724 -- 175,055
--------- --------- --------- ---------
OPERATING EARNINGS ................................ 8,621 10,481 -- 19,102
--------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense, net ......................... (2,053) (2,717) -- (4,770)
Other, net .................................... 3,004 235 -- 3,239
--------- --------- --------- ---------
Total other income (expense) .................. 951 (2,482) -- (1,531)
--------- --------- --------- ---------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES ............................................. 9,572 7,999 -- 17,571
INCOME TAX PROVISION .............................. 1,254 -- -- 1,254
--------- --------- --------- ---------
EARNINGS FROM CONTINUING OPERATIONS ............... 8,318 7,999 -- 16,317
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF
INCOME TAX PROVISION OF $576 ...................... -- 1,118 -- 1,118
--------- --------- --------- ---------
NET EARNINGS ...................................... $ 8,318 $ 9,117 $ -- $ 17,435
========= ========= ========= =========
</TABLE>
50
<PAGE> 51
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
25. GUARANTOR FINANCIAL STATEMENT INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Company Guarantor
(Parent) Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ......................................................... $ 7,472 $ 9,963 $ -- $ 17,435
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Gain on sale of assets and subsidiaries .................... (2,459) (223) -- (2,682)
Depreciation and amortization .............................. 484 4,898 -- 5,382
Change in deferred income taxes ............................ 2,092 (263) -- 1,829
Noncash income, net ........................................ 648 (323) -- 325
Change in accounts receivable .............................. (1,032) (14,900) -- (15,932)
Change in notes receivable ................................. (14,000) -- -- (14,000)
Change in costs and estimated earnings in excess
of billings............................................. -- (7,824) -- (7,824)
Change in inventory ........................................ -- 106 -- 106
Change in other assets and liabilities ..................... 2,979 (1,555) -- 1,424
Change in accounts payable ................................. (372) (4,151) -- (4,523)
Change in billings in excess of costs and estimated
earnings ............................................... -- (458) -- (458)
----------- ----------- ----------- -----------
Net cash used in operating activities ............................ (4,188) (14,730) -- (18,918)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (disbursements for) notes receivable ............... (4,661) 3,563 -- (1,098)
Capital expenditures ............................................. (461) (2,673) -- (3,134)
Proceeds from sales of assets .................................... -- 3,448 -- 3,448
Acquisition of business, net of cash acquired .................... (10,481) (12) -- (10,493)
Increase in investments .......................................... (1,277) -- -- (1,277)
----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities .................. (16,880) 4,326 -- (12,554)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable ...................................... 33,500 -- -- 33,500
Proceeds from long-term debt ..................................... 58,500 -- -- 58,500
Principal payments on notes payable .............................. (15,834) (37,362) -- (53,196)
Principal payments on long-term debt ............................. -- (7,607) -- (7,607)
Proceeds from sales/leaseback .................................... -- 4,000 -- 4,000
Disbursements/receipts on intercompany debt ...................... (50,762) 50,762 -- --
Debt issuance costs .............................................. (1,917) -- -- (1,917)
Stock issuance costs ............................................. (2,479) -- -- (2,479)
Issuance of common stock ......................................... 1,613 -- -- 1,613
----------- ----------- ----------- -----------
Net cash provided by financing activities ............................ 22,621 9,793 -- 32,414
----------- ----------- ----------- -----------
EFFECT OF FOREIGN EXCHANGE FLUCTUATIONS ON CASH ...................... (1,401) 1,401 -- --
----------- ----------- ----------- -----------
NET INCREASE IN CASH ................................................. 152 790 -- 942
CASH AT BEGINNING OF YEAR ............................................ (6) 323 -- 317
----------- ----------- ----------- -----------
CASH AT END OF YEAR .................................................. $ 146 $ 1,113 $ -- $ 1,259
=========== =========== =========== ===========
Supplemental disclosure of cash flow information
Cash payments for interest 1,788 2,930 -- 4,718
Cash payments for income taxes -- 281 -- 281
</TABLE>
51
<PAGE> 52
AMERICAN ECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars in thousands, except per share amounts)
25. GUARANTOR FINANCIAL STATEMENT INFORMATION (CONTINUED)
CONSOLIDATING STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED NOVEMBER 30, 1997
Supplemental disclosure of noncash investing and financing activities
<TABLE>
<CAPTION>
Company Guarantor
(Parent) Subsidiaries Elimination Consolidated
-------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Notes receivable issued for sale of subsidiaries 11,000 -- -- 11,000
Notes receivable increase to USIS through stock issuance 7,784 -- -- 7,784
Acquisition of subsidiaries through issuance of stock 5,296 -- -- 5,296
Debentures converted to stock 21,500 -- -- 21,500
Transfer of assets to/from parent and subsidiaries (26) 26 -- --
Acquisition of equipment for notes payable -- 58 -- 58
Transfer of investment from subsidiary to parent 1,000 (1,000) -- --
</TABLE>
52
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
53
<PAGE> 54
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names of the executive officers and directors are set forth below,
together with the positions held by each such person in the Company and their
ages as of January 31, 2000. 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.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
J.C. Pennie(1) 60 Chairman of the Board of Directors
Michael E. McGinnis(1) 50 President, Chief Executive Officer
and Director
Michael Appling Jr. 33 Chief Financial Officer and Vice
President
Matthew D. Hill 30 Chief Operating Officer and Senior
Vice President
Todd Quattlebaum 40 Vice President of Operations
Bruce A. Rich 60 Secretary
Barry Cracower(2) 61 Director
William A. Dimma(2)(3)(4) 71 Director
Honorable Donald R. Getty(3)(4) 66 Director
</TABLE>
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
(4) Member of Corporate Governance Committee
EXECUTIVE OFFICERS
J.C. PENNIE has been a director of the Company since February 1992, the
Chairman of the Board of Directors since December 1998 and was the Vice-Chairman
from October 1993 to December 1998. 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. Since 1974, he has been President of Windrush
Corporation which provides management and financial services to turnaround and
start-up companies. He is also the Chairman of Imark Corporation, a Canadian
public company.
MICHAEL E. MCGINNIS has been the Chief Executive Officer of the Company
since 1993, the President since December 1998 having served as President from
1993 to July 1998, a director since 1994 and was Chairman from May 1997 to
December 1998. He was the President and Chief Executive Officer of Eco
Environmental, a provider of environmental remediation services to industrial
clients, when it was acquired by the Company in 1993. Prior to joining Eco
Environmental, 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 USIS since February 1996, having served as its Chairman of
the Board from June 1996 to October 1997, and its President from March 1996 to
August 1996, and resumed serving as President in November 1999.
MICHAEL APPLING JR. has served as Chief Financial Officer and Vice
President since June 1999. Prior to joining the Company, from September 1997 to
May 1999, Mr. Appling served as Vice President, Finance and Accounting and
Director of Corporate Development for ITEQ, Inc., an industrial service and
manufacturing company. From 1991 to 1997, Mr. Appling worked for the audit
practice of Arthur Andersen LLP most recently as manager where he served several
public companies extensively involved in mergers and acquisitions. Since
November 1999, Mr. Appling has also served as Chief Financial Officer and
Director of USIS.
54
<PAGE> 55
MATTHEW D. HILL has served as Chief Operating Officer since May 1,
1999. He has served as Senior Vice President since December 1998, having served
as Vice President/Director of Operations, Gulf Coast, and President of The
Turner Group from April 1997 to December 1998. 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 the 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.
TODD QUATTLEBAUM has been Vice President of Operations since January 1,
2000. Between 1997 and 1999, Mr. Quattlebaum served as Vice President of
Operations for ITEQ, Inc., an industrial service and manufacturing company.
Prior to 1997, he served Joy Technologies in the capacities of Project Director
including Precontracts, Contract Administration, and Product Development. Prior
to Joy Technologies, Mr. Quattlebaum held manager positions with Asea Brown
Bover (ABB), and Dresser Industries, Inc.
BRUCE A. RICH has been Secretary of the Company since May 1997. He has
been a partner in Thelen 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 performs
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
Corporation, in 1992 during its restructuring. He also is a director of
Algonquin Mercantile Corporation, Imark Corporation, and Katz Enterprises, all
Canadian companies.
WILLIAM A. DIMMA has been a director of the Company since January 1997.
He has sat on 48 corporate Boards and 28 not-for-profit Boards since 1967. From
1975 to 1993, he was, successively, President of Torstar Corporation and Toronto
Star Newspapers Limited, A.E. LePage Limited, and Royal LePage Limited. Mr.
Dimma currently chairs the Boards of Home Capital Group Inc., Perigee Inc.,
Royal LePage Commercial Advisory Board, SwissRe Holdings (Canada) Inc., Swiss Re
Life & Health Canada and Swiss Reinsurance Company Canada. In addition, he is a
director of Minacs Worldwide Group Inc., Magellan Aerospace Corporation, and
Trilon Financial Corporation.
HONORABLE 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 Provincial Government of Alberta between 1971 and 1979. Mr.
Getty currently serves on the boards of directors of Guyanor Resources S.A., a
mining company in French Guyana; and Nationwide Resources, Mera Petroleum, an
oil and gas company, Cen Pro Technologies, an engineering company and Eclipse
Investments, all located in Canada. Mr. Getty is also a director and Vice
Chairman of the Alberta Racing Corporation, which is responsible for all forms
of horse racing in Alberta, Canada.
SIGNIFICANT EMPLOYEES
JOSEPH D. DEFRANCO has served as the Subsidiary 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.
Mr. DeFranco will become a consultant of the Company effective April 1, 2000.
MICHAEL FUGITT has served as the Subsidiary President of C. A. Turner
Construction since April 1998, having held various positions at The Turner Group
since 1989.
BESIM HALEF has been Subsidiary 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 1985 and 1994, most
recently as the Executive Vice President and General Manager of that company
from March 1991 to April 1994.
WILLI HAMM has served as the Subsidiary President of Industra Service
since June 1997, having been a senior executive at Industra Service since 1986.
55
<PAGE> 56
CECIL HODGKINSON has served as the Subsidiary President of Action
Contract Services since March 1997, having been with The Turner Group from 1989
to March 1997 with his last position being Manager of Estimating.
BRIAN HORNE has served as the Subsidiary President of MART since
September 1997. From July 1995 to August 1997, Mr. Horne served as Northeast
Manager of U.S. Operations for the Company's wholly-owned subsidiary SRS. He has
17 years experience in the waste processing industry.
JOHN HOYLE has served as the Subsidiary 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 Subsidiary President of CCG since
September 1997 when CCG was acquired by the Company. Mr. Jones had served as the
President of CCG since 1991.
DAVID KRACHE has served as the Subsidiary President of Chempower since
September 1998. From May 1998 to September 1998, Mr. Krache had been at Dominion
Bridge, and from April 1994 to May 1998, he had been President of National
Service Cleaning Corp., a subsidiary of NSC Corp.
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 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 1999 fiscal year, the Board of Directors met in person or
telephonically eight times, and each director attended at least 88% 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. Based on the Company's records, the Company believes its officers,
directors and 10.0% shareholders are in compliance with Section 16(a) for fiscal
1999.
56
<PAGE> 57
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 1999 whose annual salary plus
other forms of compensation exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION COMPENSATION
-------------------------------------------------------------------------------
NAME SECURITIES
AND OTHER ANNUAL UNDERLYING
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#)
-------- ---- ---------- --------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. C. Pennie 1999 0 0 335,000(4) 140,000 0
Chairman 1998 0 0 303,000(4) 40,000 0
of the Board 1997 0 0 112,885(4) 100,000 0
Michael E. McGinnis 1999 296,923 (1) 0 8,310(2) 210,000 0
President and 1998 300,000 (1) 0 11,676(2) 40,000 0
Chief Executive 1997 279,166 (1) 0 10,885(2) 150,000 0
Officer
Michael Appling Jr. 1999 75,000 0 4,500(2) 50,000 0
Chief Financial Officer
and Vice President(3)
Matthew D. Hill 1999 199,103 (1) 0 11,297(2) 161,000 0
Chief Operating Officer
and Senior Vice
President (3)
</TABLE>
- ---------------------
(1) Includes $2,000, $1,056, and $1,600 of deferred compensation contributed by
the Company to Mr. McGinnis' 401K Plan in fiscal 1999, 1998 and 1997,
respectively, and includes $2,500 of deferred compensation contributed by
the Company to Mr. Hill's 401K Plan in fiscal 1999.
(2) Represents automobile lease payments or allowance paid by the Company.
(3) Became an Executive Officer during Fiscal Year 1999.
(4) Represents fees paid to Windrush Corporation of which by Mr. Pennie is
President, for executive services for the Company's Toronto office.
EMPLOYMENT CONTRACTS
As of May 1, 1999, the Company and Michael E. McGinnis entered into a
new employment agreement for Mr. McGinnis to serve as President and Chief
Executive Officer pursuant to which he 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 $5 million life insurance coverage, up to
five years compensation upon termination by the Company without cause, and upon
change of control subject to certain limitations. The agreement is subject to
two year non-compete or certain conditions. The employment agreement terminates
on May 1, 2004. Mr. McGinnis agreed to a salary reduction of $50,000 as of
January 1, 2000.
57
<PAGE> 58
The Company and Matthew D. Hill have entered into an employment
agreement pursuant to which Mr. Hill receives an annual base salary of $200,000,
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 $2 million life insurance coverage, up to two years
compensation upon termination by the Company without cause, and upon change of
control subject to certain limitations. The agreement is subject to two year
non-compete or certain conditions. The employment agreement terminates on June
1, 2002. Mr. Hill agreed to a salary reduction of $16,000 as of January 1, 2000.
The Company and Michael Appling Jr. have entered into an employment
agreement pursuant to which Mr. Appling receives an annual base salary of
$150,000, 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 $2 million life insurance coverage, up to
one year compensation upon termination by the Company without cause, and up to
two years upon change of control subject to certain limitations. The agreement
is subject to one year non-compete or certain conditions. The employment
agreement terminates on June 1, 2001. Mr. Appling agreed to a salary reduction
of $10,000 as of January 1, 2000.
Many of the Company's senior officers agreed to voluntary salary
reductions as of January 1, 2000.
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$1,000 per Board or committee meeting
attended and all reasonable expenses incurred by the directors in respect of
their duties are reimbursed by the Company. None of the directors of the Company
receives compensation in his capacity as a director pursuant to any other
arrangement or in lieu of any standard arrangement except through the granting
of stock options.
STOCK OPTIONS
The following table provides information with respect to stock options
granted to the Named Executive Officers during fiscal 1999.
STOCK OPTIONS GRANTED
IN FISCAL YEAR ENDED NOVEMBER 30, 1999
<TABLE>
<CAPTION>
MARKET VALUE
% OF TOTAL OF SECURITIES
OPTIONS UNDERLYING
SECURITIES GRANTED TO OPTIONS ON
UNDER EMPLOYEES EXERCISE THE DATE OF
OPTIONS IN FINANCIAL PRICE GRANT EXPIRATION
NAME GRANTED (#) YEAR (CDN$) (CDN$) DATE
- ---- ----------- ---- ------ ------ ----
<S> <C> <C> <C> <C> <C>
J.C. Pennie 140,000 15% 2.20 308,000 4/23/04
Michael E. McGinnis 210,000 23% 2.20 462,000 4/23/04
Michael Appling Jr. 50,000 5% 2.80 140,000 6/1/04
Matthew D. Hill 100,000 17% 2.21 221,000 3/23/04
31,000 2.20 68,200 4/23/04
30,000 1.76 52,800 9/7/04
</TABLE>
58
<PAGE> 59
The following table provides information with respect to stock options
exercised by the Named Executive Officers during the fiscal year ended November
30, 1999 and the balance of stock options remaining after such exercises. All
stock options described below were presently exercisable at November 30, 1999.
AGGREGATED STOCK OPTIONS EXERCISED
IN FISCAL YEAR ENDED NOVEMBER 30, 1999
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY STOCK
UNEXERCISED OPTIONS OPTIONS AT FISCAL
AT FISCAL YEAR-END
YEAR-END (CDN$)(1)
(#)
SECURITIES
ACQUIRED
UPON VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) (US$) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----- ------------- -------------
<S> <C> <C> <C> <C>
J.C. Pennie -- -- 104,000/176,000 0/0
Michael E. McGinnis -- -- 164,000/256,000 0/0
Michael Appling Jr. -- -- 10,000/40,000 0/0
Matthew D. Hill -- -- 47,000/145,000 0/0
</TABLE>
(1) Based on the closing price of the Common Shares on The Toronto Stock
Exchange on November 30, 1999 of CDN$1.21.
59
<PAGE> 60
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of January 31, 2000 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
executive officers and directors of the Company as a group as known by the
Company or as reflected on the records of the transfer agent.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER* BENEFICIAL OWNERSHIP(1)
----------------- ------------------------------
NUMBER PERCENTAGE
------ ----------
<S> <C> <C>
Michael E. McGinnis............................................... 238,840(2) 1.0%
J.C. Pennie....................................................... 146,400(3) 0.6%
Honorable Donald R. Getty......................................... 139,000(4) 0.6%
Barry Cracower ................................................... 118,000(4) 0.5%
William A. Dimma ................................................. 104,000(4) 0.4%
Michael Appling Jr................................................ 10,000(5) --
Matthew D. Hill................................................... 51,700(6) --
Directors and executive
officers as a group (7 persons)................................... 807,940(7) 3.7%
</TABLE>
* Unless otherwise indicated, the address is c/o American Eco Corporation,
154 University Avenue, Toronto, Ontario M5H 3Y9.
(1) Unless otherwise indicated, the Company has been advised that each person
above has sole voting and investment power over the Common Shares indicated
above. The number of shares beneficially owned includes Common Shares which
each beneficial owner has the right to acquire within 60 days of January
31, 2000.
(2) Includes 164,000 Common Shares underlying stock options.
(3) Includes (i) 104,000 Common Shares underlying stock options, (ii) 700
Common Shares owned by his wife and (iii) 41,700 Common Shares owned by a
corporation of which he is President.
(4) Includes 104,000 Common Shares underlying stock options.
(5) Includes 10,000 Common Shares underlying stock options.
(6) Includes 47,000 Common Shares underlying stock options.
(7) Includes Common Shares disclosed in notes (2), (3), (4), (5), and (6)
above.
60
<PAGE> 61
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT OR AFFILIATES OF MANAGEMENT
Pursuant to an agreement among the Company, Windrush Corporation
("Windrush"), and J.C. Pennie, dated May 1, 1999, Windrush received a fee of
$20,000 per month in consideration for executive services for administration,
strategic and marketing planning provided to the Company and is eligible for
annual profit participation based upon levels of the Company's earnings per
share. This agreement expires on May 1, 2004, and has a five-year renewable term
and is subject to a five year payment upon a change in control. Mr. Pennie on
behalf of Windrush has agreed to a fee reduction to $18,000 per month. J.C.
Pennie, the Chairman of the Board of Directors of the Company, is President of
Windrush. Windrush also received a one-time payment of $145,000 for consulting
services related to unsuccessful acquisitions. The previous agreement paid
Windrush a monthly fee of $10,000 from November 1998 to May 1999.
As of August 31, 1997, the Company sold its subsidiaries Eco Environmental and
Environmental Evolutions to Eurostar Interests Ltd. ("Eurostar") for an
aggregate purchase price of $11.0 million payable in a one-year promissory note
(the "Eco Note"), which was to be collateralized by all of the capital stock of
Eurostar. Eurostar assigned its interest in Eco Environmental and Environmental
Evolutions to UKstar (Canada) Inc. ("UKstar"), which in turn transferred its
interest in Eco Environmental and Environmental Evolutions to Eco Technologies
International, Inc. ("ETI"), a Canadian public company. UKstar owns 85.5% of
ETI. Windrush owns 1.6% of ETI. Mr. Pennie also served as the Secretary of
UKstar and as the Chairman of ETI, and Barry Cracower, a director of the
Company, also served as a director of ETI until they resigned on March 30, 1999.
In February 1998, UKstar 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. In
October 1998, UKstar paid $3.0 million on the Eco Note, and is to repay the
remaining $9,313,975 on September 30, 2000 with quarterly interest installments
of $227,028, which obligations are collateralized by 2,000,000 shares of ETI
Common Stock and a $3.0 million performance bond. The Company has made a claim
on the $3.0 million bond and has placed Ukstar under demand for payment. The
Company has written off the entire note balance, but will continue to pursue all
rights and remedies to collect all amounts owed.
In July 1998, Industra Service entered into a 15-year lease for an
office, shop and warehouse in Edmonton, Alberta from Sunnybank Property Ltd., a
company in which Honorable Donald R. Getty, a director of the Company, is
President and has a 25% interest. The annual lease payments are $320,000.
Management believes the lease terms are at commercially reasonable rates.
In June 1999, the Company entered into an agreement with Honorable
Donald R. Getty, a director of the Company, to provide consultant services to
help the Company identify upcoming projects and introduce it to prospective
clients. The agreement expires in 12 months and the fee is $5,000 per month.
INDEBTEDNESS OF MANAGEMENT OR AFFILIATES OF MANAGEMENT
In August 1998, the Board of Directors authorized the Company to loan
up to $100,000 to each Director for the purpose of using the proceeds to
purchase the Company's Common Shares in the open market. These loans are to be
repaid in three years, bear interest at the rate of 9-5/8% per annum, and are
unsecured. Messrs. Fradella, a former Director, Getty and Pennie each took a
loan for $100,000 and Mr. Cracower took a loan for $50,000. As of November 30,
1999, the following Director loans were outstanding: Mr. Fradella - $112,499.32,
Mr. Getty - $112,472.95, Mr. Pennie - $84,448.84 and Mr. Cracower - $20,212.52.
During fiscal 1997, the Company loaned $84,100 to Michael E. McGinnis,
a director and executive officer of the Company, 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 was to mature on May 7, 1998,
and the maturity was extended to May 31, 2001, bearing interest at the rate of
10.0% per annum. The outstanding balance of the loan, including interest, as of
November 30, 1999 was $724,659.14.
In May 1997, the Company loaned $305,000 at 8.5% interest per annum to
David L. Norris, former executive officer, for the purchase of a home in
connection with his relocation to the Company's headquarters in Houston, Texas.
The loan was to mature in May 1998 and was extended to February 1, 2003, and is
unsecured. The outstanding balance of the loan, including interest, as of
November 30, 1999 was $326,017.81.
61
<PAGE> 62
In September 1998, the Company loaned $100,000 to Besim Halef, an
executive officer, repayable over three years, together with interest at the
rate of 6% per annum. The outstanding balance of the loan, including interest,
as of November 30, 1999 was $107,486.30.
62
<PAGE> 63
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, 1999 and 1998
Consolidated Statement of Operations for the years ended November 30,
1999, 1998 and 1997
Consolidated Statement of Shareholders' Equity for the years ended
November 30, 1999, 1998 and 1997
Consolidated Statement of Changes in Financial Position for the years
ended November 30, 1999, 1998 and 1997
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
The Company did not file a report on Form 8-K during the fourth quarter of
fiscal 1999.
(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).
3.3 Rights Agreement, dated as of April 1998, between the Company and The
CIBC Mellon Trust Company (incorporated by reference to Exhibit 4 to
the Company's Form 8-K for an event of April 9, 1998.)
63
<PAGE> 64
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 Indenture, dated as of May 14, 1998, among the Company, the Guarantors
named therein and State Street Bank and Trust Company, as Trustee
(incorporated by reference to Exhibit 4.1 to the Company's Form 4.1 for
an event of May 21, 1998).
4.3 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 Agreement, dated as of May 1, 1999 among the Company, Windrush
Corporation, and J.C. Pennie.
10.2 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).
10.3 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).
10.4.1 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).
10.4.2 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).
10.4.3 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).
10.5 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).
10.6 Acquisition Agreement, dated as of September 1, 1997, between the
Company and Jones Partners, Ltd. (incorporated by reference to Exhibit
10.15 to the Company's Form 10-K for the fiscal year ended November 30,
1997).
10.7 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).
*10.8 Employment Agreement, dated May 1, 1999, between the Company and
Michael E. McGinnis.
*10.9 Employment Agreement, effective as of June 1, 1999, between the Company
and Michael Appling Jr.
*10.10 Employment Agreement, effective as of May 1, 1999, between the Company
and Matthew D. Hill.
10.11.1 Credit Agreement, dated as of May 7, 19999, among the Company, the
other borrowers and General Electric Credit Corporation ("GECC")
(incorporated by reference to Exhibit 10.1.1 to the Company's Form 8-K
for an event of May 7, 1999 (the "May 1999 Form 8-K")).
10.11.2 Revolving Note, dated may 7, 1999, issued by AEC Funding Corp.
(incorporated by reference to Exhibit 10.2.1 to the May 1999 Form 8-K).
10.11.3 Revolving Note, dated May 7, 1999, issued by certain borrowers
(incorporated by reference to Exhibit 10.2.2 to the May 1999 Form 8-K).
10.11.4 Security Agreement, dated as of May 7, 1999, among the Company, certain
US subsidiaries and GECC (incorporated by reference to Exhibit 10.3 to
the May 1999 Form 8-K).
64
<PAGE> 65
10.11.5 Security Agreement, dated as of May 7, 1999, among the Company, certain
Canadian subsidiaries and GECC (incorporated by reference to Exhibit
10.4 to the May 1999 Form 8-K).
10.11.6 Guaranty, dated as of May 7, 1999, among the Company and GECC,
(incorporated by reference to Exhibit 10.5 to the May 1999 Form 8-K).
* 21. Subsidiaries of the Company.
* 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).
65
<PAGE> 66
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 6, 2000 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J.C. Pennie
- -----------------------------------
J.C. Pennie Chairman of the Board of Directors March 6, 2000
/s/ Michael E. McGinnis
- -----------------------------------
Michael E. McGinnis President, Chief Executive Officer and Director March 6, 2000
(Principal Executive Officer)
/s/ Michael Appling Jr.
- -----------------------------------
Michael Appling Jr. Chief Financial Officer and Vice President March 6, 2000
/s/ Barry Cracower
- -----------------------------------
Barry Cracower Director March 6, 2000
/s/ William A. Dimma
- -----------------------------------
William A. Dimma Director March 6, 2000
/s/ Honorable Donald R. Getty
- -----------------------------------
Honorable Donald R. Getty Director March 6, 2000
</TABLE>
66
<PAGE> 67
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Document
- -------------- --------
<S> <C>
*10.1 Agreement, dated as of May 1, 1999, between the Company and Windrush Corporation and J. C.
Pennie.
*10.8 Employment Agreement, dated May 1, 1999, between the Company and Michael E. McGinnis.
*10.9 Employment Agreement, effective as of June 1, 1999, between the Company and Michael Appling
Jr.
*10.10 Employment Agreement, effective as of May 1, 1999, between the Company and Matthew D. Hill.
*21. Subsidiaries of the Company.
*27. Financial Data Schedule.
</TABLE>
*Filed herewith
67
<PAGE> 1
EXHIBIT 10.1
AGREEMENT
This AGREEMENT (the "Agreement") is effective as of May 1, 1999 by and
between American Eco Corporation, an Ontario, Canada corporation whose principal
executive offices are in Houston, Texas (the "Company"), and Windrush
Corporation, an Ontario Company, (the "Consultant") and John Pennie ("Pennie").
R E C I T A L S
WHEREAS Consultant employs John Pennie on a full time basis as its
President;
AND WHEREAS the Consultant has directed its President to serve as
Chairman of the Board of Directors of the Company, and previously, other
management capacities from the date of the initial engagement by the Company of
the Consultant in January of 1992.
AND WHEREAS the Board of Directors of the Company has determined that
it is in the best interests of the Company to retain the Consultant's services
and to reinforce and encourage the continued attention and dedication of members
of the Company's management, and the Consultant 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 the Company, its employees and consultants.
AND WHEREAS both the Company and the Consultant recognize the increased
risk of litigation and other claims being asserted against officers and
directors of companies in today's business environment.
AND WHEREAS the Bylaws of the Company require the Company to indemnify
its directors and officers to the full extent permitted by law.
AND WHEREAS costs, limits in coverage and availability of director's
and officer's 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.
AND WHEREAS in recognition of the Consultant and its President's need
for substantial protection against liability and to enhance and induce the
Consultant's continued service to the Company in an effective manner and the
Consultant's reliance on the Bylaws, and in part to provide the Consultant with
specific contractual assurance that the protection promised by the Bylaws will
be available to the Consultant (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 Engagement of the
Consultant and the indemnification of,
Initials
Page 1 of 19 - May 31, 1999 /s/ DG /s/ MEM
/s/ JCP
<PAGE> 2
and the advancing of expenses to, the Consultant 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 Consultant's
President under the Company's directors' and officers' liability insurance
policies.
AND WHEREAS the Company wishes to assure itself of the services of
the Consultant for the period provided in this Agreement and the Consultant
wishes to serve 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 Consultant hereby agree as
follows:
ARTICLE I
ENGAGEMENT
1.1 Engagement. The Company hereby employs the Consultant and the
Consultant hereby accepts Engagement by the Company upon the terms and
conditions contained in this Agreement.
1.2 Office and Duties.
(a) Position. The Consultant shall direct its President to serve
the Company as Chairman of the Board of Directors, with authority, duties and
responsibilities not less than the Consultant has on the date of this Agreement.
(b) The Consultant agrees that Pennie shall be subject to the
absolute direction and control of the Company at all times with respect to the
manner and method of performance of the function as Chairman.
(c) The Consultant further undertakes to make Pennie available at
such time or times as will enable him to devote substantial time, effort and
ability to the performance of the services herein contracted for by the Company.
(d) Commitment. Throughout the term of this Agreement, the
Consultant and Pennie shall faithfully and diligently further the business and
interests of the Company. Subject to the foregoing, Pennie 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 Pennie's duties
pursuant to this Agreement.
1.3 Term. The term of this Agreement shall commence on May 1, 1999 and
shall end on the fifth yearly anniversary of the date on which the Board of
Directors of the Company
Initials
/s/ DG /s/ MEM
Page 2 of 19 - May 31, 1999
/s/ JPC
<PAGE> 3
notifies the Consultant that the Board of Directors has determined to
discontinue the automatic daily extension of 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 Fee. The Company shall pay the Consultant as compensation
an aggregate fee (the "Base Fee") of Twenty-thousand-dollars in United States
funds (USD$20,000) per month plus applicable taxes 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 any
increases in the Consultant's Base Fee at least annually and in any case it
shall be adjusted annually for inflation, the amount of such adjustment to be
made by reference to the "All" items consumer price index for the City of
Toronto as established from time to time by Statistics Canada.
(b) Additional Compensation & Annual Profit Participation. (i)
Other than transactions that were commenced prior to the date of the within
agreement, the Consultant shall not be eligible to receive from the Company
further additional project fees for acquisitions and financings; and (ii) Each
year during the term, the Consultant shall be eligible to share in an Annual
Profit Participation equal to 5% of the Company's net income, calculated
according to Appendix A" of the within Agreement.
(c) Payment and Reimbursement of Expenses. During the Term, the
Company shall pay or reimburse the Consultant for all reasonable travel and
other expenses incurred by the Consultant in performing their obligations under
this Agreement in accordance with the policies and procedures of the Company for
its senior executive officers, provided that the Consultant properly accounts
therefor in accordance with the regular policies of the Company.
(d) Benefits Not in Lieu of Compensation. No benefit or
perquisite provided to the Consultant shall be deemed to be in lieu of Base Fee,
Additional Compensation, or other compensation.
1.5 Termination.
(a) Cause. The Company may terminate the Consultant's Engagement
for Cause. Termination for Cause shall mean termination because of the
Consultant's (i) willful gross misconduct that causes material economic harm to
the Company unless the Consultant reasonably believed in good faith that such
act or non act was in the best interests of the Company; (ii) final,
nonappealable conviction of a felony, 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 Consultant thereof in writing, specifying
in reasonable detail the basis therefor and stating that it is grounds for
Cause, and unless the Consultant fails to cure such matter within 60 days after
such notice is sent or given under this Agreement to the extent such cure is
possible. The Consultant shall be permitted a response and defense before the
Initials
Page 3 of 19 - May 31, 1999 /s/ DG /s/ MEM
/s/ JCP
<PAGE> 4
Board of Directors within a reasonable time after written notification of any
proposed termination for Cause under item (i) or (iii) of this subsection.
If the Consultant fails to cure such default, the Consultant
shall be entitled to a hearing before the Company's Board of Directors. Such
hearing shall be held within 15 days of notice to the Consultant. If within 5
days following such hearing, the Consultant is furnished written notice by the
Company's Board of Directors confirming that in its judgement exercised in good
faith, grounds for cause on the basis of the original notice exist, the
Consultant shall thereupon be terminated for cause.
(b) Without Cause. During the Term, the Company may terminate the
Consultant's Engagement Without Cause, subject to the provisions of subsection
1.6(c) (Termination Without Cause or for Company Breach). Termination Without
Cause shall mean termination of the Consultant's Engagement by the Company other
than termination for Cause.
(c) Company Breach. The Consultant may terminate its Engagement
hereunder for Company Breach. For purposes of this Agreement, Company Breach
shall mean:
(i) without the express written consent of Consultant, any
material reduction in the authority, duties and
responsibilities that the Consultant or Pennie has on the date
of this Agreement, or the assignment to Pennie 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 Pennie
from or any failure to re-elect Pennie to any of such
positions, except in connection with the termination of
Consultant's Engagement for Cause, or retirement or as a result
of the death of Pennie, or by the Consultant and Pennie other
than for Company Breach or Change in Control;
(ii) a reduction in the Consultant's Base Fee 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 corporate
executive offices to any city or place other than Toronto,
Ontario requiring the Consultant to be based anywhere other
than Toronto, Ontario, Canada, except for required travel on
the Company's business to an extent substantially consistent
with Consultant's present business travel obligations, or, in
the event the Consultant 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 Consultant in
selling the Consultant's principal residence, (b) to pay (or
reimburse the Consultant) for all reasonable moving expenses
incurred by them relating to a change of, in their principal
residence in connection with such relocation and (c) to
indemnify the Consultant against any loss (defined as the
difference between the
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actual sale price of such residence and the higher of (1) their
aggregate investment in such residence or (2) the fair market
value of such residence as determined by a real estate
appraiser designated by the Consultant and reasonably
satisfactory to the Company) realized on the sale of the
Consultant'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 Consultant
and Pennie are participating (or plans providing substantially
similar benefits), the taking of any action by the Company
which would adversely affect the Consultant and Pennie's
participation in or materially reduce their benefits under any
of such plans or deprive them of any material fringe benefit.
(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 4.12 (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
Consultant notifies the Company in writing of the breach and
stating that such breach is grounds for Company Breach, and
unless the Company fails to cure such breach within thirty (30)
days after such notice is sent or given under this Agreement.
(d) Change in Control. The Consultant may forthwith terminate its
Engagement hereunder at any time or times within twelve (12) months of a Change
in Control (defined below):
(i) "Change in Control" shall mean any of the following:
(1) any consolidation, sale, 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
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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 (USA), 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 acquirer is (w) the Consultant,
(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; or
(6) subject to applicable Canadian and/or United States of
America Bankruptcy or Insolvency laws, in a Chapter 11
Bankruptcy proceeding (US Bankruptcy Code) the appointment
of a trustee, receiver, monitor, liquidator or the
conversion of a case involving the Company to a case under
Chapter 7 (US Bankruptcy Code).
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(e) Without Good Reason. During the Term, at any time or times, the
Consultant may terminate its Engagement Without Good Reason effective
immediately. Termination "Without Good Reason" shall mean termination of the
Consultant's Engagement by the Consultant other than termination for Company
Breach or as a result of a Change in Control.
(f) Explanation of Termination of Engagement. 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 Engagement"), which
shall state in reasonable detail the basis for such termination and shall
indicate whether termination is being made for Cause, Without Cause (if the
Company has terminated the Agreement) or for Company Breach, upon a Change in
Control or Without Good Reason (if the Consultant has terminated the Agreement).
(g) 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 Upon Termination.
(a) Survival of Stock Options. Notwithstanding any of the foregoing
relative to Termination the Company agrees that any stock options granted to
either Consultant and/or to Pennie shall remain in force for a period of not
less than twelve (12) months following the date of termination.
(b) Termination for Cause or Without Good Reason. Subject to the
foregoing subsection, if the Company shall terminate the Consultant for Cause or
if the Consultant shall terminate its Engagement 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 Consultant and Pennie are participating.
(c) Termination Without Cause or for Company Breach. If the Company
shall terminate the Consultant's Engagement Without Cause or if the Consultant
shall terminate its Engagement for Company Breach, then the Company shall pay to
the Consultant within 48 hours thereafter, as severance pay in a lump sum
without any deduction or set off on the Date of Termination, the following
amounts:
i) any payment of the Base Fee (at the rate in effect as of the
Date of Termination) and any Annual Profit Participation which
has already become payable, but has not yet been paid, through
to the Date of Termination; and
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ii) In lieu of any further Base Fee and Annual Profit
Participation for the five year period subsequent to the Date
of Termination, an amount equal to the product of (A) the sum
of the Annual Base Fee at the rate in effect as of the Date of
Termination, plus the average Annual Profit Participation paid
to the Consultant during the preceding two (2) years, or such
shorter period for which any Annual Profit Participation has
been paid), multiplied by (B) the number five (5).
If the Consultant terminates its Engagement for Company Breach
based upon a reduction by the Company of the Consultant's Base Fee, then for
purposes of this Section 1.6(c) (Termination Without Cause or for Company
Breach), the Consultant's Base Fee as of the Date of Termination shall be deemed
to be the Consultant's Base Fee immediately prior to the said reduction that the
Consultant claims as grounds for Company Breach.
(d) Termination Upon a Change in Control. If the Consultant
terminates their Engagement after a Change in Control pursuant to Section 1.5(d)
(Change in Control), then the Company shall pay to the Consultant as severance
pay and as liquidated damages (because actual damages are difficult to
ascertain), in a lump sum, in cash on the Date of Termination, an amount equal
to the amounts provided in Section 1.6(c) above. In addition, if the Consultant
is liable for the payment of any excise or GST taxes (the "Basic Excise Tax")
because of Section 4999 of the Internal Revenue Code of 1986 (USA), as amended
(the "Code"), and the Revenue Canada regulations, or any successor or similar
provisions, 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 Consultant an amount (the "Special Reimbursement") which, after
payment by the Consultant (or on the Consultant's behalf) of any federal, state,
provincial, and local taxes applicable thereto, including, without limitation,
any further excise tax under such Section 4999 of the Code, Revenue Canada
regulations, 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(d) shall be made by the Company's
independent auditors acting reasonably.
(e) No Mitigation. The Consultant shall not be required to
mitigate the amount of any payment provided for in this Section 1.6
(Compensation Upon Termination) by seeking other Engagement's or otherwise.
(f) Liquidated Claim. The parties agree that any payments
stipulated hereunder constitute a reasonable estimate of the damages which
would be incurred in the event of termination of the Engagement of the
Consultant and in no event shall such payments be construed as a penalty.
1.7 Death of Consultant's President. If the Consultant's President dies
prior to the expiration of this Agreement, and the Company is unwilling to
accept an alternative employee of the Consultant's to serve in a management
capacity, the obligations under this Agreement
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shall automatically terminate and all compensation to which the Consultant is or
would have been entitled hereunder (including without limitation under Sections
1.4(a) (Base Fee), shall terminate as of the end of the month in which Pennie's
death occurs; provided, however, that (i) the Company shall pay to the
Consultant, within thirty (30) days, an amount equal to twelve (12) times the
monthly Base Fee; (ii) extend the benefits to Pennie's estate pursuant to
Section 4.1 hereof for a period of 12 months following such termination; and
(iii) such reimbursement as may have been due to the Consultant pursuant to
Section 1.4(b) (Additional Compensation) hereof.
1.8 Confidentiality of Settlement. The parties hereto agree that any
payment pursuant to this Article shall remain confidential as between them and
shall not be disclosed by any of them to any person, corporation, group or
organization whatsoever with the exception of each party's legal and financial
advisors and except as may be required by the Toronto Stock Exchange, Nasdaq or
by applicable laws.
ARTICLE 2
NON-COMPETITION AND CONFIDENTIALITY
2.1 Non-Competition.
(a) Description of Proscribed Actions. Throughout the Consultant's
Engagement during the term of this Agreement and, unless the within Agreement is
not mutually renewed at the end of its term, or unless the within Agreement
terminates pursuant to Section 1.5(b) (Without Cause), Section 1.5(c) (Company
Breach), or Section 1.5(d) (Change in Control), for a period of two (2) years
after the termination of the Consultant's Engagement within Canada and the
United States of America, in consideration for the payment by the Company to the
Consultant of the compensation due and/or severance pay due pursuant hereto and
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 Consultant
and Pennie (pursuant to Article 3 (Indemnification) hereof), the Consultant and
Pennie shall not:
(i) directly or indirectly, manage, operate, control or be
employed by, or render services or advice to, any Competing
Business (as defined in Section 2.1(c) below); provided,
however, that the Consultant and Pennie may invest in the
securities of any 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 (USA) and (y) the Consultant and Pennie does not
beneficially own (as defined Rule 13d-3 promulgated under the
Securities Exchange Act of 1934) in excess of twenty-percent
20% of the outstanding capital stock of such enterprise;
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(ii) directly or indirectly, either as principal, agent,
independent contractor, consultant, director, officer,
employee, employer, advisor (whether paid or unpaid), partner
or in any other individual or representative capacity
whatsoever, either for their own benefit or for the benefit of
any other person or entity, solicit, divert or take away any
suppliers, customers or clients of the Company or any of its
Affiliates (as defined in Section 2.1(d) below); or
(b) Nature of Restrictions. The Consultant and Pennie acknowledge
that the business of the Company and its Affiliates is in Canada and the United
States of America 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
Consultant and Pennie acknowledge that the scope and duration of the
restrictions contained herein are reasonable in light of the time that the
Consultant and Pennie have been engaged in the business of the Company and its
Affiliates, the Consultant's and Pennie's reputation in the markets for the
Company's and its Affiliates' businesses and the Consultant and Pennie's
relationship with the suppliers, customers and clients of the Company and its
Affiliates. The Consultant and Pennie further acknowledge that the restrictions
contained herein are not burdensome to the Consultant and Pennie in light of the
consideration paid therefor and the other opportunities that remain open to the
Consultant and Pennie. Moreover, the Consultant and Pennie acknowledge that they
have other means available to them for the pursuit of their livelihood.
(c) Competing Business. "Competing Business" shall mean any
individual, business, firm, company, partnership, joint venture, organization,
or other entity engaged in industrial maintenance services and specialty
fabrication business in the Canadian and United States of America market areas
in which the Company or any of its Affiliates does business at any time during
the Consultant's Engagement with the Company. The Company hereby acknowledges
and agrees that the Consultant's and Pennie's prior responsibilities as Chairman
& CEO of an industrial environmental services company does not conflict with the
definition of a Competing Business.
(d) 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.
(e) Directorships. Notwithstanding the foregoing, Pennie may serve
as a director of other companies in Competing Business's in Canada and/or the
United States of America during the said two (2) year period provided that he
has obtained the prior consent of the Company which consent is not to be and may
not be unreasonably withheld.
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.
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(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.
Confidential Information shall not include information publicly
known (other than as a result of a disclosure by the Consultant and Pennie). The
phrase "publicly known" shall mean readily accessible to the public in a written
publication.
(b) Obligation of The Company. During the Term, the Company shall
provide access to, or furnish to, the Consultant Confidential Information of the
Company necessary to enable the Consultant properly to perform its obligations
under this Agreement.
(c) Non-Disclosure. The Consultant and Pennie acknowledge,
understand and agree that all Confidential Information, whether developed by the
Company or others or whether developed by the Consultant and Pennie 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
any one else who has a need to know, 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 Consultant and Pennie's personal benefit.
Subject to the terms of the preceding sentence, the Consultant and Pennie shall
not use, copy or transfer Confidential Information other than as is necessary in
carrying out their duties under this Agreement.
2.3 Injunctive Relief. Because of the Consultant and Pennie's
experience and reputation in the industries in which the Company operates, and
because of the unique nature of the Confidential Information, the Consultant and
Pennie acknowledge, understand and agree that the Company will suffer immediate
and irreparable harm if the Consultant and Pennie fail to comply with any of
their 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 Consultant and Pennie agree 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.
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ARTICLE 3
INDEMNIFICATION
3.1 Basic Indemnification Arrangement.
(a) Claims Arising from Pennie's Position with the Company. In
addition to any separate agreements between the Consultant, Pennie and the
Company relating to indemnification, the Company will indemnify and hold
harmless both the Consultant and Pennie, 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 Pennie 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) Disputes re: this Agreement. The Company agrees to pay promptly
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Consultant and Pennie may reasonably incur as a result of any action
or lawsuit (regardless of the outcome thereof) by the Company, the Consultant
and Pennie 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 action or lawsuit by the Consultant and Pennie
about the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable United States 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 both Consultant and Pennie's behalf, directors and officers
insurance or any other indemnity policy presently carried on behalf of the
Consultant and Pennie, and further agrees to supplement any such existing policy
to cover all actions taken by the Consultant and Pennie in connection with its
Engagement by the Company.
ARTICLE 4
MISCELLANEOUS
4.1 Stock Options. Pennie shall be eligible to receive grants of stock
options pursuant to the Company's Stock Option Plan, as amended May 20, 1999,
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.
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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 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 Consultant:
Windrush Corporation
154 University Avenue, Suite 206,
Toronto, Ontario, Canada M5H 3Y9
Attn: J.C. Pennie, President
If to Pennie:
18444 Centreville Creek Road
Caledon East, Ontario, Canada L0N 1E0
If to the Company:
American Eco Corporation
11011 Jones Road
Houston, Texas 77070 U.S.A.
Attn: President and CEO
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.
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4.5 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.
4.6 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.
4.7 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.
4.8 Applicable Law and Jurisdiction. This Agreement and all of the
rights and obligations arising herefrom shall be interpreted and applied in
accordance with the laws of the Province of Ontario and the courts of the
Province of Ontario shall have exclusive jurisdiction to determine all disputes,
relating to this Agreement and all of the rights and obligations created hereby.
The parties hereto hereby irrevocably attorn to the jurisdiction of the courts
of the Province of Ontario.
4.9 Injunctive Relief. In the event that the Company breaches any of
the terms of the within agreement the Company acknowledges that the Consultant
shall have in addition to any other remedies available to it either in law or in
equity the right to seek injunctive relief in court as provided for Company in
Section 2.3 (Injunctive Relief) of this Agreement and further Consultant inter
alia has the right to a judicial determination that it should be indemnified by
the Company (as provided for in Section 3 of this Agreement).
4.10 Survival. The covenants and agreements of the parties set forth in
Article 2 (Non-Competition and Confidentiality), Article 3 (Indemnification),
Article 4 (Miscellaneous) and Article 5 (Additional) are of a continuing nature
and shall survive the expiration, termination or cancellation of this Agreement,
regardless of the reason therefor.
4.11 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 Consultant and Pennie to the extent the Consultant and Pennie
have otherwise actually received payment (under any insurance policy, Bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder. In the event the
Consultant and Pennie actually receive payment (under any insurance policy,
Bylaw or otherwise) of any amount with respect to which the Company has already
indemnified or subsequently indemnifies the Consultant and Pennie, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Consultant and
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Pennie, 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.
4.12 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
Consultant and Pennie, 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 Consultant
continues to serve as a consultant to the Company.
4.13 Contribution. If the indemnity contained in this Agreement is
unavailable or insufficient to hold the Consultant and Pennie 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 Consultant and Pennie 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
Consultant and Pennie on the other in the acts, transactions or matters to which
the Claim relates and other equitable considerations.
4.14 This Agreement supersedes and rescinds any prior Engagement
contracts in effect between the Company, the Consultant and Pennie.
4.15 Acknowledgement of Pennie and Consultant. Each of Pennie and
Consultant acknowledges and agrees with the Company that Consultant is an
independent contractor and that nothing herein shall be construed so as to
render either the Consultant or Pennie an employee of the Company and that this
Agreement shall not create a partnership, joint venture, employer/employee,
master/servant or any other similar relationship between the Company, and either
the Consultant or Pennie. The Company acknowledges that Pennie is not an
employee of the Company.
4.16 Representations and Warranties. The Consultant represents and
warrants to the Company and acknowledges that the Company is relying upon such
representations and warranties in entering into this Agreement, as follows:
(a) The Consultant is a corporation duly formed under the laws of
the Province of Ontario; and
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(b) the entering into and performance by the Consultant of this
Agreement have been duly authorized by all necessary corporate action and will
not (a) violate or conflict with any corporate agreement or any other agreement
to which the Consultant is a party or by which it is governed or bound; (b)
constitute a breach of an statute of regulation which would adversely affect the
Consultant, or (c) contravene any judgment, decree or order binding on the
Consultant.
4.17 Further Assurances. The parties hereto shall do, execute,
acknowledge and deliver or cause to be done, executed, acknowledged and
delivered such further acts and documents as shall be reasonably required to
accomplish the intention of this Agreement.
ARTICLE 5
ADDITIONAL
5.1 Wherever any monetary amount is to be determined or specified in
any notice permitted or required to be given under this Agreement, or where any
monetary amount is to be determined for any purpose hereunder, such amount shall
be quoted or stated as the case may be in U.S. dollars.
5.2 The recitals hereof form part of this Agreement, it being
acknowledged that the parties hereto relied upon them in entering into this
Agreement.
5.3 Pennie agrees that he shall carry out his obligations to the
Consultant.
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<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officer thereunto duly authorized, and Consultant and Pennie
have signed this Agreement, all as of the day and year first above written.
AMERICAN ECO CORPORATION
By: /s/ MICHAEL E. MCGINNIS
---------------------------------------
Michael E. McGinnis,
President, CEO & Director
By: /s/ HON. DONALD GETTY
---------------------------------------
Hon. Donald Getty,
Chairman, Compensation Committee
& Director
WINDRUSH CORPORATION
By: /s/ JOHN C. PENNIE
---------------------------------------
John C. Pennie, President
Pennie hereby acknowledges and agrees that:
(1) He is a key member of the Consultant whose services are fundamental to the
arrangements contemplated herein.
(2) He is personally bound by certain of the provisions of the within Agreement.
/s/ [ILLEGIBLE] /s/ JOHN C. PENNIE
- --------------------------- ------------------------------------
Witness: John C. Pennie
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/s/ DG /s/ MEM
/s/ JCP
<PAGE> 18
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Affiliate 2.1(e)
Agreement Preamble
Additional Compensation 1.4(b)
Base Fee 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)
Consultant & its Management Designee Preamble
Consultant & its Management Designee Claims 4.4
Explanation of Termination of Engagement 1.5(g)
Notice of Termination 1.5(g)
Term 1.3
Without Cause 1.5(c)
Without Good Reason 1.5(f)
</TABLE>
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APPENDIX A
CALCULATION OF THE ANNUAL PROFIT PARTICIPATION
Subject to the adequacy of the Company's Annual Profit Participation, the
Consultant shall be paid an Annual Profit Participation which shall be
determined and paid on or before February 28th in each year, for the fiscal year
ended the preceding November 30th, as set forth below:
50% of the Annual Base Fee if the Company's earning per share are equal
to or greater than budget of US$0.30 up to US$0.50 per share; or
100% of the Annual Base Fee if the Company's earning per share are
equal to or greater than US$0.51 to US$1.00 per share; or
150% of the Annual Base Fee if the Company's earning per share are
equal to or greater than US$1.01 to US$1.50 per share; or
200% of the Annual Base Fee if the Company's earning per share are
equal to or greater than US$1.51 per share.
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EXHIBIT 10.8
AGREEMENT
This AGREEMENT (the "Agreement") is effective as of and from May 1, 1999
(hereinafter the "Effective Date") by and between American Eco Corporation, an
Ontario, Canada corporation whose principal executive offices are in Houston,
Texas (the "Company"), and Michael McGinnis ("Executive") of Houston, Texas.
RECITALS
WHEREAS Executive has served as the President and Chief Executive Officer
of the Company since 1993 and has significant management responsibilities in the
conduct of the Company's business;
AND WHEREAS 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, and 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 the Company, its employees and consultants;
AND WHEREAS the Company wishes to attract and retain well-qualified
Executive and key personnel and to assure itself of the continuity of its
management;
AND WHEREAS the Company recognizes that Executive is a valuable resource of
the Company and the Company desires to be assured of the continued services of
Executive;
AND WHEREAS Executive is a key employee of the Company and he acknowledges
that his talents and services to the Company are of a special, unique, unusual
and extraordinary character and are of particular and peculiar benefit and
importance to the Company;
AND WHEREAS the Company is concerned that in the event of a possible or
threatened change in control of the Company, uncertainties necessarily arise;
Executive may have concerns about the continuation of his employment status and
responsibilities and may be approached by others offering competing employment
opportunities; the Company, therefore desires to provide Executive with
assurances as to the continuation of his employment status and responsibilities
in such event;
AND WHEREAS the Company further desires to assure Executive that, if a
possible or threatened change in control should arise and executive should be
involved in deliberations or negotiations in connection therewith, Executive
would be in a secure position to consider and participate in such transaction as
objectively as possible in the best interests of the Company and to this end
desires to protect Executive from any direct or implied threat to his financial
well-being;
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AND WHEREAS Executive is willing to continue to serve as such but desires
assurances that in the event of such a change in control he will continue to
have the employment status and responsibilities he could reasonably expect
absent such event and, that in the event this turns out not to be the case, he
will have fair and reasonable severance protection on the basis of his service
to the Company to that time;
AND WHEREAS 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 business environment;
AND WHEREAS the Bylaws of the Company require the Company to indemnify its
directors and officers to the full extent permitted by law;
AND WHEREAS costs, limits in coverage and availability of director's and
officer's 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
of public corporations generally;
AND WHEREAS in recognition of the Executive's need for substantial
protection against liability and 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;
AND WHEREAS 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 the Company on the terms and conditions hereinafter provided.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
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ARTICLE I
ENGAGEMENT
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 President and
Chief Executive Officer, 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 the Executive's duties pursuant to this
Agreement.
1.3 Term. The term of this Agreement shall commence on May 1, 1999 and
shall end on the fifth yearly anniversary of the date on which the Board of
Directors of the Company acting reasonably notifies the Executive that the Board
of Directors has determined to discontinue the automatic daily extension of 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 (the "Base Salary") of Three Hundred Thousand Dollars
(USD$300,000.00) per year in United States funds 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 or profit participation equal in
the aggregate 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 the Company's fiscal
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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 20, 1999, 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.
(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 $5,000,000. The proceeds from such policy shall be
payable as follows: 50% to the Company and 50% to the Executive's estate.
(e) Disability Insurance. During the Term and subject to the
Executive's qualification under normal disability insurance underwriting
standards as of the date hereof and at any policy renewal date, the Company
shall provide, at the company's expense, a disability insurance policy that will
pay the Executive, pursuant to the terms of such policy, an annual disability
benefit of $300,000 until the Executive reaches the age of 65.
(f) 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.
(g) 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 thirty (30) days of receipt of such documentation.
(h) 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
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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.
(i) Vacation. 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).
(j) 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.
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
unless the Executive reasonably believed in good faith that such act or non act
was in the best interests of the Company; (ii) final, nonappealable conviction
of a felony, 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 sixty (60) days to the extent cure is
possible after such notice is sent or given under this Agreement. The Executive
and his counsel shall be permitted to respond and 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 Disability.
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(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, or retirement or as a result of his
death or by the Executive other than for Company Breach or Change
in Control;
(ii) any 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 country other than Harris County, Houston, Texas, or any
county contiguous thereto or the Company's requiring the
Executive to be based anywhere other than Harris County,
Houston, Texas, or any country 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, Houston, Texas, (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
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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 4.12 (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 and stating that such breach is grounds for Company
Breach, and unless the Company fails to cure such breach within sixty (60) days
after such notice is sent or given under this Agreement.
(e) Change in Control. The Executive may forthwith terminate his
employment hereunder at any time or times within twelve (12) months of a Change
in Control (defined below):
"Change in Control" shall mean and shall be deemed to mean any of
the following:
(1) any consolidation, sale, 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;
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(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 individuals who were members of the Board of
Directors of the Company immediately prior to a meeting of
the shareholders of the Company involving a contest for the
election of Directors shall not constitute a majority of the
Board of Directors following such election; or
(6) the acquisition of beneficial ownership (within the
meaning of Rule 13d-3 under the Securities Exchange Act of
1934 (USA), 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 acquirer 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; or
(7) pursuant to applicable Canadian and/or United States of
America Bankruptcy or Insolvency laws, in a Chapter 11
Bankruptcy proceeding (US Bankruptcy Code) the appointment
of a trustee, receiver, monitor, liquidator or the
conversion of a case involving the Company to a case under
Chapter 7 (US Bankruptcy Code).
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(f) Without Good Reason. During the Term, at any time or times,
the Executive may terminate his employment Without Good Reason effective
immediately. 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 not 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 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
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pay in a lump sum no later than the 15th day following the Date of Termination,
the following amounts:
i) any payment of the Base Salary (at the rate in effect as of
the Date of Termination) and Annual Bonus which has already become
payable, but has not yet been paid, through to the Date of
Termination; and
ii) his Annual Bonus for the fiscal year in which the Date of
Termination occurs, as pro-rated through to 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 the
five (5) year period 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 five (5).
The Company shall also continue to provide the Executive with the
employee benefits set forth in Section 1.6(f) (Employee Benefits) for the period
described therein.
If the Executive terminates his employment for Company Breach based
upon a 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 said reduction
that the Executive claims as grounds for Company Breach.
(e) Termination Upon a Change in Control. If the Executive terminates
his employment after a Change in Control pursuant to Section 1.5(e) (Change in
Control), then the Company shall pay to the Executive as severance pay and as
liquidated damages (because actual damages are difficult to ascertain), in a
lump sum, in cash, within fifteen (15) days after termination, an amount equal
to the amounts provided in Section 1.6(d) (i), (ii) and (iii) above. In
addition, if the Executive is liable for the payment of any excise or GST taxes
(the "Basic Excise Tax") because of Section 4999 of the Internal Revenue Code of
1986 (USA), as amended (the "Code"), and the Revenue Canada regulations, or any
successor or similar provisions, 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, provincial, and local taxes applicable thereto,
including, without limitation, any
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further excise tax under such Section 4999 of the Code, Revenue Canada
regulations, on, with respect to or resulting from the Special Reimbursement,
equal to 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) Employment 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 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's or otherwise.
(h) Survival of Stock Options. Notwithstanding any of the foregoing
relative to Termination the Company agrees that any stock options granted to the
Executive shall remain in force for a period of not less than twelve (12) months
following the date of termination.
(i) Liquidated Claim. The parties agree that any payments stipulated
hereunder constitute a reasonable estimate of the damages which would be
incurred in the event of termination of the employment of the Executive and in
no event shall such payments be construed as a penalty.
(j) All stock options and awards to which the Executive is entitled
will immediately vest and the time for exercising any option will be the later
of as specified in the plan or pursuant to subparagraph (h) above as if the
Executive were still employed by the Company; provided however if the immediate
vesting of all benefits under the plan is not permitted by the plan, then the
benefits will be vested only to the extent authorized or permitted by the plan.
(k) If Executive elects to treat the termination as retirement then
on the Date of Termination, the Executive shall be deemed to have retired from
the Company. At that time, or at such later time as he may elect consistent with
the terms of any applicable plan or benefit, in order to receive benefits or
avoid or minimize any applicable early pension reduction provisions, he shall be
entitled to commence to receive total combined qualified and non-qualified
retirement benefits to which he is entitled hereunder; or, his total
non-qualified retirement benefit hereunder if under the terms of the Company's
qualified retirement plan or
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salaried employees he is not entitled to a qualified benefit. Executive may
treat the termination as termination other than "retirement" if Executive so
elects and may defer "retirement" to a later date if permitted by any applicable
plan.
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 limitation 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 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; (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; and (iv) the Company shall pay
to the Executive's estate within thirty (30) days of his decease an amount equal
to one time the Annual Base Salary.
1.8 Confidentiality of Settlement. The parties hereto agree that any
payment pursuant to this Article shall remain confidential as between them and
shall not be disclosed by any of them to any person, corporation, group or
organization whatsoever with the exception of each party's legal and financial
advisors and except as may be required by the Toronto Stock Exchange, Nasdaq or
by applicable laws.
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 within Agreement is
not mutually renewed at the end of its term, or unless the within 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 termination of the Executive's employment
within Canada and the United States of America, in consideration for Company's
obligations and the payment of all sums due 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:
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(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 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 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 (USA) and (y) the Executive does not beneficially own (as
defined by Rule 13d-3 promulgated under the Securities Exchange
Act of 1934) in excess of 5% percent 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, divert or take away any suppliers, customers
or clients of the Company or any of its Affiliates (as defined in
Section 2.1(d) 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 entity, 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) Nature of Restrictions. The Executive acknowledges that the
business of the Company and its Affiliates is in Canada and the United States of
America 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.
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(c) Competing Business. "Competing Business" shall mean any
individual, business, firm, company, partnership, joint venture, organization,
or other entity engaged in the industrial maintenance services and specialty
fabrication businesses in Canada and the United States of America market areas
in which the Company or any of its Affiliates does business at any time during
the Executive's employment with the Company.
(d) 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 subsidiaries or 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.
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.
(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 any one else who has a need
to know), 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
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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 other 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 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
the Executive 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) Enforcement Costs. The Company is aware that upon the occurrence
of a Change in Control, or under other circumstances even when a Change in
Control has not occurred, the Board of Directors or a shareholder of the Company
may then cause or attempt to cause the Company to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the Company
to institute, or may institute, litigation seeking to have this Agreement
declared unenforceable, or may take, or attempt to take other action to deny
Executive the benefits intended under this Agreement, or actions may be taken to
enforce the non-competition or confidentiality provisions of this Agreement. In
these circumstances, the purpose of this Agreement could be frustrated. It is
the intent of the parties that Executive not be required to incur the legal fees
and expenses associated with the protection or enforcement
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of his rights under this Agreement by litigation or other legal action because
such costs would substantially detract from the benefits intended to be extended
to Executive hereunder, nor be bound to negotiate any settlement of his rights
hereunder under threat of incurring such costs. Accordingly, if at any time
after the Effective Date of this Agreement, it should appear to the Executive
that the Company is or has acted contrary to or is failing or has failed to
comply with any of its obligations under this Agreement for the reason that it
regards this Agreement to be void or unenforceable, that Executive has violated
the terms of this Agreement, or for any other reason, or that the Company has
purported to terminate his employment for cause or is in the course of doing so,
or is withholding payments or benefits, or is threatening to withhold payments
or benefits, contrary to this Agreement, or in the event that the Company or any
other person takes any action to declare this Agreement void or unenforceable,
or institutes any litigation or other legal action designed to deny, diminish or
to recover from Executive the benefits provided or intended to be provided to
him hereunder, and the Executive has acted in good faith to perform his
obligations under this Agreement, the Company irrevocably authorizes Executive
from time to time to retain counsel of his choice at the expense of the company
to represent him in connection with the protection and enforcement of his rights
hereunder including, without limitation, representation in connection with
termination of his employment or withholding of benefits or payments contrary to
this Agreement or with the initiation or defense of any litigation or any other
legal action, whether by or against the Executive or the Company or any
Director, Officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Company is not authorized to withhold the periodic payment of
attorney's fees and expenses hereunder based upon any belief or assertion by the
Company that Executive has not acted in good faith or has violated this
Agreement. If Company subsequently establishes that Executive was not acting in
good faith and has violated this Agreement, Executive will be liable to the
Company for reimbursement of amounts paid due to Executive's actions not based
on good faith and in violation of this Agreement. The reasonable fees and
expenses of counsel selected from time to time by Executive as hereinabove
provided shall be paid or reimbursed to Executive by the Company, on a regular,
periodic basis within thirty (30) days after presentation by Executive of a
statement or statements prepared by such counsel in accordance with its
customary practices, up to a maximum aggregate amount of $250,000.00
(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 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.
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4.2 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.
4.3 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:
Michael E. McGinnis
15226 Jones Road
Houston, Texas 77070
U.S.A.
If to the Company:
American Eco Corporation
11011 Jones Road
Houston, Texas 77070 U.S.A.
Attn: Vice-President
And to:
American Eco Corporation
154 University Avenue, Suite 200
Toronto, Ontario M5H 3Y9
Attn: The Chairman
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.
4.4 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.
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4.5 Partial Invalidity. In the event that any part, portion, paragraph,
clause, article or section of this Agreement is found to be invalid or
unenforceable for any reason, the remaining provisions of this Agreement shall
be binding upon the parties hereto and the Agreement will be construed to give
meaning to the remaining provisions of this Agreement in accordance with the
intent of this Agreement.
4.6 Effect of Prior Agreements. On and as of 12:00 o'clock noon of the
Effective Date all prior employment and non-competition contracts between
Company and Executive are hereby amended, modified and superseded by this
Agreement insofar as future employment, compensation, non-competition,
confidentiality, accrual of payments or any form of compensation or benefits
from the Company are concerned. This Agreement does not release or relieve
Company from its liability or obligation with respect to any compensation,
payments, or benefits already accrued to Executive, nor to any vesting of
benefits or other rights which are attributable to length of employment,
seniority or other such matters. This agreement does not relieve Executive of
any prior non-competition or confidentiality obligations and agreements and the
same are hereby modified and amended as to future matters and future
confidentiality even as to matters accruing prior to the Effective Date hereof.
4.7 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.
4.8 Applicable Law and Jurisdiction. This Agreement and all of the rights
and obligations arising herefrom shall be interpreted and applied in accordance
with the laws of the Province of Ontario and the courts of the Province of
Ontario shall have exclusive jurisdiction to determine all disputes, relating to
this Agreement and all of the rights and obligations created hereby. The parties
hereto hereby irrevocably attorn to the jurisdiction of the courts of the
Province of Ontario.
4.9 Injunctive Relief. In the event that the Company breaches any of the
terms of the within agreement the Company acknowledges that the Executive shall
have in addition to any other remedies available to him either in law or in
equity the right to seek injunctive relief in court as provided for Company in
Section 2.3 (Injunctive Relief) of this Agreement and further Executive inter
alia has the right to a judicial determination that he should be indemnified by
the Company (as provided for in Section 3 of this Agreement).
4.10 Survival. The covenants and agreements of the parties set forth in
Article 2 (Non-Competition and Confidentiality), Article 3 (Indemnification),
Article 4 (Miscellaneous) and Article 5 (Additional) are of a continuing nature
and shall survive the expiration, termination or cancellation of this Agreement,
regardless of the reason therefor.
4.11 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 have otherwise actually
received payment (under any insurance
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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 indemnifies 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.
4.12 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), heirs, executors and administrators. 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. If the
company should split, divide or otherwise become more than one entity, all
liability and obligations of the Company shall be the joint and several
liability and obligations of all of the entities.
4.13 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.
4.14 The Recitals are an integral part of the within Agreement.
4.15 Further Assurances. The parties hereto shall do, execute, acknowledge
and deliver or cause to be done, executed, acknowledged and delivered such
further acts and documents as shall be reasonably required to accomplish the
intention of this Agreement.
4.16 Wherever any monetary amount is to be determined or specified in any
notice permitted or required to be given under this Agreement, or where any
monetary amount is to be determined for any purpose hereunder, such amount shall
be quoted or stated as the case may be in U.S. dollars.
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4.17 Company. Company means American Eco Corporation, an Ontario
corporation, as the same presently exists, as well as any and all successors,
regardless of the nature of the entity or the province, state or nation of
organization, whether by reorganization, merger, consolidation, absorption or
dissolution.
4.18 Non-Exclusive Agreement. The specific arrangements referred to herein
are not intended to exclude or limit Executive's participation in other benefits
available to executive personnel generally, or to preclude or limit other
compensation or benefits as may be authorized by the Board of Directors of the
company at any time, or to limit or reduce any compensation or benefits to which
Executive would be entitled but for this Agreement.
4.19 Non-Alienation. The Executive shall not have any right to pledge
hypothecate, anticipate, or in any way create a lien upon any amounts provided
under this Agreement, and no payments or benefits due hereunder shall be
assignable in anticipation of payment either by voluntary or involuntary acts
or by operation of law. So long as the Executive lives, no person, other than
the parties hereto, shall have any rights under or interest in this Agreement or
the subject matter hereof. Upon the death of the Executive, his Executors,
Administrators, devisees and heirs, in that order, shall have the right to
enforce the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officer thereunto duly authorized, and Executive have signed
this Agreement, all as of the day and year first above written.
AMERICAN ECO CORPORATION
By: /s/ J.C. PENNIE
-------------------------------------
Name J.C. Pennie
Title: Chairman
I have authority to bind the Corporation
By: /s/ DON. R. GETTY
--------------------------------------
Hon. Donald Getty,
Chairman, Compensation Committee
& Director
/s/ MICHAEL E. MCGINNIS
--------------------------------------
Michael E. McGinnis
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
Affiliate 2.1(e)
Agreement Preamble
Additional Compensation 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)
Executive & his Management Designee Preamble
Executive & his Management Designee 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)
</TABLE>
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APPENDIX A
CALCULATION OF THE ANNUAL BONUS POOL
Subject to the adequacy of the Company's Annual Bonus Pool, the Executive shall
be paid an Annual Bonus which shall be determined and paid on or before February
28th in each year, for the fiscal year ended the preceding November 30th, as set
forth below:
50% of the Executive's Base Salary if the Company's earning per share are
equal to or greater than budget of US$0.30 up to US$0.50 per share; or
100% of the Executive's Base Salary if the Company's earning per share are
equal to or greater than US$0.51 to US$1.00 per share; or
150% of the Executive's Base Salary if the Company's earning per share are
equal to or greater than US$1.01 to US$1.50 per share; or
200% of the Executive's Base Salary if the Company's earnings per share are
equal to or greater than US$1.51 per share.
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") effective as of June 1,
1999 by and between American Eco Corporation, an Ontario, Canada corporation
whose principal executive offices are in Houston, Texas (the "Company"), and
Michael Appling, Jr. (the "Executive").
R E C I T A L S
Executive will serve as Vice President - Chief Financial Officer.
The Chief Executive Officer 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.
<PAGE> 2
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 I
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 - Chief Financial Officer 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 Chief Executive Officer.
(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 the Executive's duties pursuant to this Agreement.
1.3 Term. The term of this Agreement shall commence on June 1, 1999 and
shall end on the second anniversary of the date on which the Chief Executive
Officer notifies the Executive that the Chief Executive Officer has determined
to discontinue the automatic daily extension of 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 $150,000 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
2
<PAGE> 3
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 the 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, but shall not exceed 75% of
1.4(a).
(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.
(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) Disability Insurance. During the Term and subject to the
Executive's qualification under normal disability insurance
underwriting standards as of the date hereof and at any policy renewal
date, the Company shall provide, at the Company's expense, a disability
insurance policy that will pay the Executive, pursuant to the terms of
such policy, an annual disability benefit of $200,000 until the
Executive reaches the age of 65.
(f) 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.
(g) 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.
(h) 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.
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(i) 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).
(j) 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.
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
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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
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(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 within 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
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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 not 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.
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(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 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 pro-rated 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, 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), 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, multiplied by (B) the
number one (1).
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 after a Change in Control pursuant to Section
1.5(e) (Change in Control), then the Company shall pay to the Executive
as severance pay and as liquidated damages (because actual damages are
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 except (iii) shall be multiplied by
the number two (2). In addition, if the Executive is liable for the
payment of any excise tax (the "Basic Excise Tax") because of Section
4999
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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 limitation 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.
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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,
divert 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 entity, 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
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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 Restrictions. 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, joint 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.
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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 other 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
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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.
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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:
Michael Appling, Jr.
1605 Harold
Houston, Texas 77006
If to the Company:
American Eco Corporation
11011 Jones Road
Houston, Texas 77070
Attn: Chief Executive Officer
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.
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<PAGE> 15
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 out 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
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<PAGE> 16
on a location within thirty (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 any 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 indemnifies
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
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<PAGE> 17
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.
4.15 This Agreement supercedes and rescinds any existing employment
contracts now in effect between the Company and the Executive.
* * * * * * * *
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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:
-----------------------------
Name:
---------------------------
Title:
--------------------------
--------------------------------
Michael Appling, Jr.
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
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)
</TABLE>
19
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") effective as of June 1,
1999 by and between American Eco Corporation, an Ontario, Canada corporation
whose principal executive offices are in Houston, Texas (the "Company"), and
Matthew D. Hill (the "Executive").
R E C I T A L S
Executive will serve as Senior Vice President - Chief Operating
Officer.
The Chief Executive Officer 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.
<PAGE> 2
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 I
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 Senior
Vice President - Chief Operating Officer 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 Chief Executive Officer.
(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 the Executive"s duties pursuant to this Agreement.
1.3 Term. The term of this Agreement shall commence on June 1, 1999 and
shall end on the third anniversary of the date on which the Chief Executive
Officer notifies the Executive that the Chief Executive Officer has determined
to discontinue the automatic daily extension of 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 $200,000 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
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<PAGE> 3
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 the 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, but shall not exceed 100% of
1.4(a).
(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.
(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) Disability Insurance. During the Term and subject to the
Executive"s qualification under normal disability insurance
underwriting standards as of the date hereof and at any policy renewal
date, the Company shall provide, at the Company's expense, a disability
insurance policy that will pay the Executive, pursuant to the terms of
such policy, an annual disability benefit of $200,000 until the
Executive reaches the age of 65.
(f) 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.
(g) 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.
(h) 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.
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<PAGE> 4
(i) 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).
(j) 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.
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
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<PAGE> 5
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
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<PAGE> 6
(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 within 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
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<PAGE> 7
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 not 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.
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<PAGE> 8
(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 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 pro-rated 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, multiplied by (B) the number two (2).
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 after a Change in Control pursuant to Section
1.5(e) (Change in Control), then the Company shall pay to the Executive
as severance pay and as liquidated damages (because actual damages are
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
8
<PAGE> 9
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 limitation 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
9
<PAGE> 10
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,
divert 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 entity, 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.
10
<PAGE> 11
(c) Nature of Restrictions. 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, joint venture,
organization, or other entity engaged in the industrial support
services and specialty fabrication 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
11
<PAGE> 12
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 other 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,
12
<PAGE> 13
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
13
<PAGE> 14
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:
Matthew D. Hill
12402 Wealdstone
Tomball, Texas 77375
If to the Company:
American Eco Corporation
11011 Jones Road
Houston, Texas 77070
Attn: Chief Executive Officer
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.
14
<PAGE> 15
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 out 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 thirty (30) days of the appointment of the
last arbitrator, then at a site chosen by the arbitrators;
15
<PAGE> 16
(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 any 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 indemnifies
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.
16
<PAGE> 17
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.
4.15 This Agreement supercedes and rescinds any existing employment
contracts now in effect between the Company and the Executive.
* * * * * * * *
17
<PAGE> 18
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:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
--------------------------------------
Matthew D. Hill
18
<PAGE> 19
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
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)
</TABLE>
19
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
Name* Incorporation
- ----- -------------
<S> <C>
State of:
ACTION CONTRACT SERVICES, INC. Delaware
ATNAM, INC. (81.9%) Delaware
BROOKFIELD CORPORATION Ohio
C.A. TURNER CONSTRUCTION COMPANY Delaware
C.A. TURNER MAINTENANCE, INC. Texas
CAMBRIDGE CONSTRUCTION SERVICE CORP. Nevada
CANADIAN ENERGY SERVICES LIMITED British Columbia
CHEMPOWER, INC. Ohio
CONTROLLED POWER LIMITED PARTNERSHIP Illinois
ECO SYSTEMS, INC. Delaware
GIBCA SEPARATION & RECOVERY SYSTEMS, L.L.C. INC. (49%) United Arab Emirates
GLOBAL POWER COMPANY Ohio
H.E. CO. SERVICES, INC. Texas
IDS INTEGRATED DESIGN SERVICES, INC. Texas
INDUSTRA ENGINEERS & CONSULTANTS, INC. British Columbia
INDUSTRA SERVICE CORP. Washington
INDUSTRA SERVICE CORPORATION British Columbia
INDUSTRA THERMAL SERVICE CORP. Washington
INDUSTRA THERMAL SERVICE CORPORATION British Columbia
INDUSTRA, INC. Washington
LAKE CHARLES CONSTRUCTION CORPORATION Louisiana
MIDATLANTIC RECYCLING TECHNOLOGIES, INC. Delaware
MM INDUSTRA LIMITED Nova Scotia
NUCON LTD. Alberta
NUS, INC. Washington
P.W. STEPHENS CONTRACTORS , INC. (81.9%) Missouri
P.W. STEPHENS RESIDENTIAL, INC. (81.9%) California
P.W. STEPHENS SERVICES, INC. (81.9%) Missouri
SEPARATION & RECOVERY SYSTEMS, (PTY) LTD.IMITED (50%) South Africa
SEPARATION AND RECOVERY SYSTEMS LIMITED, LTD. United Kingdom
SEPARATION AND RECOVERY SYSTEMS RECUPERTEC, INC. (50%) British Virgin Islands
SEPARATION AND RECOVERY SYSTEMS, CALIFORNIA INC. U.S. Virgin Islands
SEPARATION AND RECOVERY SYSTEMS, INC. Nevada
SOUTHWICK CORPORATION Ohio
SPECIALTY MANAGEMENT GROUP, INC. Texas
SRS-ECO LTD. (50%) British Virgin Islands
THE TURNER GROUP, INC. Delaware
UNITED ECO SYSTEMS, INC. Delaware
U.S. INDUSTRIAL SERVICES, INC. (81.9%) Delaware
</TABLE>
*All subsidiaries are 100% owned, except where otherwise indicated.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> NOV-30-1999
<CASH> 5,480
<SECURITIES> 0
<RECEIVABLES> 66,713
<ALLOWANCES> 4,528
<INVENTORY> 16,694
<CURRENT-ASSETS> 103,425
<PP&E> 73,186
<DEPRECIATION> 16,309
<TOTAL-ASSETS> 236,924
<CURRENT-LIABILITIES> 67,295
<BONDS> 117,300
0
0
<COMMON> 90,450
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 236,924
<SALES> 258,077
<TOTAL-REVENUES> 258,077
<CGS> 224,942
<TOTAL-COSTS> 289,587
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,387
<INCOME-PRETAX> (42,897)
<INCOME-TAX> (890)
<INCOME-CONTINUING> (42,007)
<DISCONTINUED> (4,264)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,271)
<EPS-BASIC> (2.12)
<EPS-DILUTED> (2.12)
</TABLE>
