-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PYJlqwCFMg6Oa9bvf6VT4gPBwFhSaSKTlROHSmdqIZvx30zlS907hHlAdS/8PVs5 oWuf5UsHJhBlroiJ//7suQ== 0000950116-99-000647.txt : 19990409 0000950116-99-000647.hdr.sgml : 19990409 ACCESSION NUMBER: 0000950116-99-000647 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 DATE AS OF CHANGE: 19990408 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REXX ENVIRONMENTAL CORP CENTRAL INDEX KEY: 0000012203 STANDARD INDUSTRIAL CLASSIFICATION: 2330 IRS NUMBER: 132625545 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14121 FILM NUMBER: 99584237 BUSINESS ADDRESS: STREET 1: 350 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2127898900 MAIL ADDRESS: STREET 1: 1411 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 FORMER COMPANY: FORMER CONFORMED NAME: OAKHILL SPORTSWEAR CORP /NY/ DATE OF NAME CHANGE: 19940131 FORMER COMPANY: FORMER CONFORMED NAME: BIO MEDICAL SCIENCES INC DATE OF NAME CHANGE: 19830725 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTRONIC SCIENCES INC DATE OF NAME CHANGE: 19690415 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission File Number December 31, 1998 0-5613 - - ------------------------- ---------------------- REXX ENVIRONMENTAL CORPORATION - - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New York 13-2625545 - - ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 350 Park Avenue, New York, New York 10022 - - ------------------------------------------- --------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 750-7755 -------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.02 - - -------------------------------------------------------------------------------- (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 ------- ------ 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 registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Based on the closing price on March 9, 1999, the aggregate market value of voting stock held by nonaffiliates of the registrant (assuming that all the stock referred to under Item 12 hereof is held by affiliates) was approximately $2,270,000. As of March 9, 1999, the registrant had 2,467,576 shares of $.02 par value common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Document Part of Form 10-K -------- ----------------- Portions of definitive proxy statement for As referred to in the 1999 Annual Meeting of Shareholders Part III - Items which may be filed pursuant to Regulation 14A 10, 11, 12 and 13. under the Securities Exchange Act of 1934. Exhibit index of pages 36 - 38 1 OF 40 PAGES REXX ENVIRONMENTAL CORPORATION ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED DECEMBER 31, 1998 PART I Item 1. Business: General - Current REXX Environmental Corporation's operating subsidiary, Watkins Contracting, Inc. ("WCI"), is a leading regional provider of asbestos-abatement services, demolition and dismantling services and other related specialty contracting services, including lead paint abatement, to a broad range of governmental, commercial, industrial and institutional clients located primarily in California. During the course of 1998, WCI performed a higher percentage of demolition projects relative to prior years, which resulted in lower gross margins during 1998, particularly in the fourth quarter, when the Company incurred a substantial net loss, causing a net loss for the year. Unanticipated difficulties associated with many demolition projects caused losses and lower than planned gross profits on large projects, especially in the fourth quarter, due principally to: (a) higher than planned costs to complete jobs, including additional hauling and disposal fees, as well as for extra labor, especially on jobs performed outside WCI's primary San Diego County region; (b) an inability to maximize the utilization of WCI-owned equipment and minimize use of leased equipment when delays on out of town projects arose; (c) higher labor and living costs on out of town projects which were not completed on an efficient or timely schedule; (d) the need to reserve for future projected losses on certain projects; and (e) the elimination of a large portion of the revenue on a project that had been completed because the customer notified WCI in January 1999 that it would not pay for work performed under a verbal (i.e., unsigned) change order (however, WCI expects to collect most or all of this disputed amount in the future by utilizing available dispute mechanisms.) As a result of the losses incurred in the fourth quarter and fiscal year ended December 31, 1998, as of year-end the Company and WCI were not in compliance with the financial covenants of WCI's revolving credit agreement expiring November 1999 with Wells Fargo Bank, which is guaranteed by the Company. WCI and the Company have received a waiver of its year-end covenant non-compliance from Wells Fargo and, as of March 26, 1999, WCI and the Company are in discussions with Wells Fargo regarding a resetting of the financial covenants for the future and changes to WCI's borrowing limits and interest rates payable under the credit agreement. As of March 26, 1999, on a preliminary basis, Management anticipates that the Company will incur a loss in the first quarter ended March 31, 1999, which is expected to be smaller than the loss incurred in the fourth quarter of 1998. The Company has taken actions to improve its gross margins at WCI going forward and to reduce expenses both at WCI and the corporate level in an attempt to achieve profitable results from operations in the second quarter of 1999. Because of its working capital constraints and in order to concentrate more fully on the necessary actions to improve existing operations, the Company has suspended its activity for external growth of its environmental and demolition business through acquisitions or the opening of additional regional offices. As of March 26, 1999, the Company is in negotiations to sell WCI. If WCI is sold, the Company expects to continue the effort begun in the first quarter of 1999 to identify potential business combinations for the Company. As the Company is not, and does not anticipate being, in a favorable cash position, potential new business combinations are expected to rely upon the issuance of the Company's common stock for the major portion of the consideration required to complete a transaction. There is no assurance that a business combination will take place and, if a transaction does occur, that the Company's shareholders will not incur significant dilution as a result of the Company's issuance of its common stock as consideration. A sale of WCI and/or a business combination may require approvals of the Company's shareholders. 2 of 41 Pages In the event the Company does not sell WCI, it will face certain constraints based upon its working capital requirements and WCI's credit agreement with Wells Fargo. These constraints will result in continuing with suspension of the Company's external growth efforts in its environmental and demolition business, as well as a reevaluation of the projects WCI bids, contracts for and performs in the future. In order to exercise greater control over field expenses and projects, particularly those involving demolition, management anticipates that WCI will seek less work outside of its primary San Diego County geographic area. In addition, projects which utilize equipment owned by WCI rather than third party rentals will be more attractive to WCI in the bidding process. However, even if the Company and WCI are successful in negotiating a resetting of the financial covenants in the credit agreement and acceptable borrowing limits and interest rates payable, it is likely that WCI will not be able to increase its revenues significantly in 1999, and may, in fact, shrink its revenues, as a result of working capital constraints. If the negotiations to well WCI which are underway at March 26, 1999 fail to produce a sale of WCI, the Company may seek additional parties interested in purchasing WCI. Whether or not it contracts to sell WCI, the Company may seek additional opportunities to effect a business combination. There is no assurance that the Company will be successful in finding any acceptable opportunities for business combinations or that it will find other potential purchasers for WCI. General - Historical REXX Environmental Corporation (the "Company") was incorporated in New York in 1967 as Computronic Sciences Inc. The Company changed its name in 1969 to Bio-Medical Sciences, Inc. and, from 1969 to 1979, the Company was primarily a manufacturer and marketer of disposable thermometers and sterilization monitors. In 1979, the Company acquired substantially all of the assets of Oak Hill Sportswear, Inc., and became primarily engaged in the manufacture and marketing of women's apparel and accessories. In 1983, the Company changed its name to Oak Hill Sportswear Corporation. In 1984, the Company sold its disposable medical devices business. From 1984 to 1995, the Company was engaged exclusively in the importation, manufacture, marketing and distribution of women's apparel and accessories. As of June 30, 1995, the Company sold its women's apparel business. Its accessories business was phased out and its operating assets were sold during 1996 and 1997. On October 21, 1997, the Company completed the acquisition of 100% of the outstanding shares of WCI, a privately-owned, San Diego-based environmental remediation contractor. On February 18, 1998, in order to more accurately reflect its current business operations, the Company changed its name to REXX Environmental Corporation pursuant to an amendment to its certificate of incorporation. 3 OF 41 PAGES Asbestos-Abatement and Demolition Operations WCI provides asbestos-abatement, demolition and dismantling services and other specialty contracting services from its headquarters office located in San Diego, California. WCI is licensed to conduct asbestos-abatement services in California and currently provides such services with non-union labor. WCI is licensed to conduct demolition and dismantling services in California and currently provides such services with non-union labor; WCI also often utilizes subcontractor and temporary labor. An asbestos-abatement or demolition program is focused on meeting the needs of the facility owner or operator to effect the abatement or demolition and manage properly the financial, regulatory and safety-related risks associated with a project. WCI's abatement and demolition services require the coordination of several processes: marketing, estimating, bidding and contracting, project management, health and safety programs and the actual asbestos removal or dismantling and demolition. WCI's management maintains administrative and operational control over all phases of a project, from estimating and bidding through project completion. The Bidding and Contract Process WCI obtains work and performs services under contract, often on the basis of plans, specifications or requirements prepared by the client or the client's agent. While some of its contracts are entered into directly with its clients without a formal bidding process, WCI receives the majority of its asbestos-abatement and demolition and dismantling contracts through a bidding process. The majority of WCI's projects are contracted on a fixed-price basis, while the remainder are contracted either on a time and materials or a unit-price basis. Contracting opportunities are identified by management and the local sales force and are entered into following competitive bidding or direct negotiations with the customer or its agent. Generally, these contracts encompass supplying project management, labor, tools, equipment and materials. In most cases, a significant portion of the total costs incurred by WCI's asbestos-abatement operations is attributable to labor, while a significant portion of the total costs of its demolition and dismantling operations is attributable to equipment costs and hauling and disposal charges. While large abatement contracts may last more than one year, the majority of WCI's projects are completed within two months of inception. In accordance with industry standards, a 10% retention amount is withheld from gross billings by customers on certain projects until the final completion of such projects. Project Management Each asbestos-abatement or demolition project is coordinated and supervised by a project manager who selects the requisite equipment, ensures contract compliance and supervises all personnel. The project manager reviews the progress of the project, which includes any subsequent change orders. The day-to-day documentation 4 OF 41 PAGES of air testing, lead monitoring and final clearance analysis is an important part of the process and is generally provided by the client's consultants. Health and Safety WCI's written Safety Program, which is issued to all supervisory personnel, contains specific outlines for all safety, health and regulatory requirements associated with an asbestos-abatement project. During the asbestos-abatement process, WCI engages in daily personal air monitoring and during the demolition and dismantling process, WCI engages in daily personal air monitoring as well as lead, heavy metal and other contaminant testing. It is WCI's policy to comply with all regulatory and safety requirements. The Abatement and Demolition Process WCI's workers remove asbestos in accordance with the regulations of the Environmental Protection Agency ("EPA"), OSHA and applicable state and local regulations. Throughout the abatement process, air samples are taken to indicate the level of airborne fibers both inside and outside the work area to protect the workers and the building occupants. The environmental consultant, engineer or industrial hygienist tests air samples from the work area both during and upon completion of the project to monitor compliance with job specifications. A thorough cleaning of the work area is conducted after removal, which includes high-efficiency particulate air filter vacuuming and wet mopping of all surfaces. All barriers erected during the 5 OF 41 PAGES asbestos-abatement project are dismantled and disposed of in the same manner as asbestos waste. WCI encapsulates the area from which asbestos was removed by applying a penetrating encapsulant in an effort to seal off remaining fibers. WCI performs commercial and governmental demolition and industrial dismantling for public and private customers, primarily in California. All work is done in accordance with the specifications prepared by the owner and in accordance with all applicable OSHA, EPA, and state and federal governmental regulations. Commercial and governmental demolition involves demolishing high-rise office buildings, hospitals, apartment complexes and other buildings. WCI's workers, utilizing specialized equipment, demolish the buildings and remove the debris off site. Materials generated from demolition activities are either recycled or disposed of in a licensed landfill. Markets and Customers California is WCI's primary market for its asbestos-abatement, demolition and dismantling and other specialty contracting services. WCI's headquarters is located in San Diego, California. WCI believes that its primary clients, which include general contractors, governmental agencies, large industrial processing and manufacturing corporations, insurance companies, real estate development companies and owners and tenants of large commercial and governmental facilities, tend to emphasize quality and safety along with price considerations in making their decision. WCI typically contracts directly with general contractors, owners, operators or tenants of properties and works closely with the environmental consultant of the customer in performing removal services. WCI markets its services directly to companies that are in need of asbestos-abatement or demolition and dismantling services, to general contractors who oversee large renovation projects, and to asbestos-abatement consulting firms from which WCI receives asbestos project referrals because of its reputation and experience. During 1998, one customer accounted for approximately 13% of the Company's revenues for the year. No other customer accounted for more than 10% of 1998 revenues. During the short period from the date of the Company's acquisition of WCI, October 21, 1997, to December 31, 1997, one customer accounted for approximately 28% of the Company's revenues due to the completion of a large project during the period. 6 OF 41 PAGES Seasonality WCI's business is subject to variations in revenue and net income for interim periods and from year to year, and increased revenue may not always result in a corresponding increase in net income. These conditions are due to a number of characteristics shared by WCI to varying degrees with most other members of the industry, including the following: (1) its businesses are affected by the scheduling of work at commercial properties, fiscal funding of projects by government entities, outages at utilities and shutdowns at other industrial facilities; (2) its asbestos business is labor intensive whereas its demolition business is equipment intensive; (3) its performance on a given project is often dependent on the performance of other contractors, who are working on the same job, over which WCI has no control; and (4) costs ultimately incurred by WCI on a job may be materially affected by such risks as technical problems, labor shortages and disputes, time extensions, weather, delays caused by external sources and fluctuations in the prices of materials. Revenue and operating results of asbestos-abatement activities may also be affected by the timing of large contracts, especially if all or a substantial part of the performance of such contracts occurs within one or two quarters. Accordingly, quarterly results or other interim results should not be considered indicative of results to be expected for any other quarter or for the full fiscal year. Competition The market for WCI's services is fragmented and highly competitive. WCI's ability to compete as a provider of asbestos-abatement and demolition and dismantling services depends upon pricing its services competitively, having the ability to respond promptly and with adequate amounts of resources, having a reputation for quality and safety, being able to obtain appropriate bonding and insurance, and hiring, training and retaining qualified personnel, particularly in the areas of estimating and project management. While WCI is a significant participant in the asbestos-abatement and demolition and dismantling services market in California, it experiences competition from national, regional and local firms, some of which have greater resources and experience. Insurance and Bonding WCI has established an insurance program that has been tailored to meet the mutual risk management needs of its customers and WCI. The primary package begins with commercial general liability, automobile liability and workers' compensation policies. This plan is written with an A. M. Best Rated A+ XV carrier. The Company carries an umbrella policy of $9,000,000 which, when added to the base policy limits of $1,000,000 per occurrence ($2,000,000 aggregate), extends coverage under general liability, automobile liability and workers' compensation policies to $10,000,000 per occurrence ($11,000,000 aggregate) each. Effective as of July 1, 1998, the Company's retained liability per occurrence under the general liability policy is $0 for defense and $5,000 for indemnity, the Company's retained liability under the automobile liability policy is $1,000 per occurrence and liability under the workers' compensation policy is covered 100%, without retention, up to the policy limits. 7 OF 41 PAGES Public asbestos-abatement and demolition and dismantling projects require that WCI post surety bonds as guarantees of performance of WCI's contracts. The bonds are required to protect the interests of the general public, as public funding is utilized in project financing. Additionally, surety bonds also guarantee that WCI will pay all of its bills, including suppliers and subcontractors who are working on projects for WCI. Similarly, many private projects also require surety bonds to serve as protection and provide guarantees for private owners. The Company has an existing surety relationship with ECS Underwriting, Inc. (Reliance Insurance Companies). Employees As of December 31, 1998, REXX Environmental Corporation (including WCI) had approximately 159 employees (including 4 leased employees), of which approximately 5 were employed as executives, approximately 7 provided project management, technical or engineering services, approximately 11 were employed in sales, clerical and data processing activities and approximately 136 were employed in other capacities, principally hourly labor. During 1998, the number of hourly-rate employees of the Company ranged from 102 to 140. WCI considers its relations with its employees to be satisfactory and has not experienced any work stoppages or slowdowns. Patents and Service Marks The Company and WCI do not own any patents or service marks. Governmental Regulation The asbestos-abatement and demolition and dismantling process is regulated by the federal government through the EPA, OSHA and the Department of Transportation ("DOT"). EPA regulations establish standards for the control of asbestos fiber and airborne lead emissions into the environment during removal and demolition projects. AHERA mandates that public schools inspect for levels of asbestos contamination and prepare a specific management plan for appropriate remedial action. OSHA regulations establish maximum airborne asbestos fiber, airborne lead and heavy metal exposure levels applicable to asbestos and demolition employees and set standards for employee protection during the demolition, removal or encapsulation of asbestos, as well as storage, transportation and final disposition of asbestos and demolition debris. 8 OF 41 PAGES DOT regulations cover the management of the transportation of asbestos and demolition debris and establish certain certification labeling and packaging requirements. In addition, under the Comprehensive Environmental Response, Compensation and Liability Act, also known as the Superfund Act, companies which arrange for the transportation and disposal of asbestos waste materials may be exposed to liability relating to the disposal of such material at sites which are or may be designated as national priority list sites. The states in which WCI currently operates have adopted laws and regulations governing the conduct of asbestos-abatement contractors. Such laws and regulations generally require the training and licensing of asbestos-abatement contractors and their workers and notice before the commencement of any asbestos-abatement project and specify standards of performance for the asbestos removal process. In addition, some states authorize municipalities to adopt more stringent standards. Management believes that governmental authorities are likely to adopt further, similar laws and regulations and that existing laws and regulations are going to become more restrictive. The regulations concerning asbestos-abatement are primarily promulgated on the state and local level. In addition, although subject to change, OSHA has adopted regulations to which WCI's operations are subject. Many of the regulations are complex and frequently amended and, therefore, WCI's management is unable to predict what, if any, impact such regulations will have 9 OF 41 PAGES on its revenues, results of operations or financial condition. As a result of the extensive regulation, WCI is, has been and may in the future be, subject to audits and investigations by federal, state and local governmental agencies. Although its management believes that WCI is in substantial compliance with all regulatory requirements, because of the changing regulatory environment, there can be no assurance that violations by WCI of federal, state or local laws and regulations may not have occurred, or will not occur in the future, or that changes in such laws and regulations would not have an adverse effect on WCI's business or position. Failure to comply with regulations could result in the imposition of civil and criminal penalties, any of which could have a material adverse effect upon WCI's business. Licensing Requirements States in which WCI operates require that WCI obtain asbestos licenses to provide asbestos-abatement services and contractor licenses to provide demolition and dismantling services. These licenses are generally subject to annual renewal. WCI has been able to obtain the renewal of its licenses without unusual difficulty or delay, and WCI's management believes that it is in substantial compliance with all current state licensing requirements where WCI intends to conduct business. In addition, certain states have adopted regulations which require state-specific training, testing and licensing of employees engaging in asbestos-abatement or demolition and dismantling activities. Backlog The majority of WCI's asbestos-abatement and demolition and dismantling services are contracted on a fixed-price basis, while the remainder are contracted either on a time and materials or a unit-price basis. WCI's backlog at December 31, 1998 was approximately $7,700,000, compared to approximately $6,400,000 at December 31, 1997. WCI's backlog at December 31, 1998 is expected to be substantially completed in the current calendar year, however, working capital constraints and third party schedules could result in a portion of the backlog work being completed in the year 2000. 10 OF 41 PAGES Item 2. Properties: The Company's executive offices are located at 350 Park Avenue, New York, New York 10022 in leased premises of 3700 square feet, approximately 2300 of which the Company subleases to unaffiliated parties, under a lease which expires in July 1999. WCI's offices and warehouse are located at 5490 Complex Street, Suite 603, San Diego, California 92123, in leased premises of approximately 6,000 square feet, under a lease which expires in April 1999. WCI leases a parcel of land in San Diego, California from two officers of WCI for use as storage for large machinery. The Company owns a warehousing facility in Mississippi which is approximately 64,000 square feet. At December 31, 1997 and 1998, the property was carried as an asset held for sale and the Company is currently seeking to sell the property. Since November 14, 1997, the property has been leased to an unaffiliated company. Item 3. Legal proceedings: There are no material pending legal proceedings involving the Company or WCI. Item 4. Submission of matter to a vote of security holders: No matter was submitted during the fourth quarter of 1998 to a vote of the Company's shareholders. 11 OF 41 PAGES PART II Item 5. Market for the registrant's common stock and related security holder matters: The Company's common stock, trading symbol REX, has been listed on The American Stock Exchange since May 14, 1998. Prior thereto, the Company's common stock, trading symbol REXX (since February 19, 1998, prior to which the trading symbol was OHSC), was traded on The Nasdaq Stock Market and was designated as a National Market security (NMS). Through the facilities of The American Stock Exchange and the NASDAQ/NMS reporting system, actual sale prices of the Company's common stock are available. The table below sets forth the high and low prices for the common stock. Prices High Low 1997: 1st quarter 1 5/8 1 1/4 2nd quarter 1 5/8 1 1/4 3rd quarter 1 9/16 1 3/16 4th quarter 5 1 3/8 1998: 1st quarter 5 5/16 3 3/4 2nd quarter 5 1/4 3 1/2 3rd quarter 3 3/4 2 1/2 4th quarter 2 13/16 1 3/4 1999: 1st quarter (to March 9, 1999) 2 1/2 1 3/8 As of March 9, 1999, there were approximately 380 holders of record and 680 beneficial holders of the Company's common stock. The Company has not paid any cash dividends and it does not expect to in the foreseeable future. 12 OF 41 PAGES Item 6. Selected financial data: For the years ended December 31, 1998 1997 1996 1995 1994 (In thousands except per share amounts) Revenues $13,743 $2,298 $ 75 $ 38 $ 0 ======= ====== ====== ====== ==== Net loss from continuing operations ( 496) ( 167) ( 218) ( 70) ( 206) (Loss) income from discontinued operations - - ( 792) ( 4,908) 435 Loss on disposal of discontinued operations - - ( 300) ( 1,861) - ------- ------ ------ ------ ---- Net (loss) income ($ 496) ($ 167) ($1,310) ($6,839) $229 ======= ====== ====== ====== ==== Per share data, basic and diluted: Net loss from continuing operations ($.20) ($.08) ($.11) ($ .03) ($.10) (Loss) income from discontinued operations - - ( .38) ( 2.39) .21 Loss on disposal of discontinued operations - - ( .15) ( .90) - ---- ---- ---- ----- ---- Net (loss) income ($.20) ($.08) ($.64) ($3.32) $.11 ==== ==== ==== ===== ==== Weighted average common shares and equivalents outstanding: Basic 2,468 2,137 2,058 2,058 2,067 Diluted 2,468 2,137 2,058 2,058 2,067 Balance sheet: Total assets $10,422 $9,055 $6,880 $9,115 $27,364 Long-term debt $ 738 $ 180 $ 0 $ 0 $ 1,581 See consolidated financial statements. 13 OF 41 PAGES Item 7. Management's discussion and analysis of financial condition and results of operations: Liquidity and capital resources: Working capital at December 31, 1998 was $943,000 as compared to $1,469,000 at December 31, 1997. The decrease of $526,000 was primarily due to the net loss for the period. Net accounts receivable were $4,749,000 at December 31, 1998 as compared to $2,353,000 at December 31, 1997, an increase of $2,396,000. The increase was principally due to higher revenues in the fourth quarter of 1998 compared to 1997, as well as increased retention receivables (the 10% portion of gross accounts receivable payable upon completion of certain projects which is customary in WCI's industry attributable to higher revenues throughout 1998 as compared to 1997. During the course of 1998, WCI performed a higher percentage of demolition projects relative to prior years, which resulted in lower gross margins during 1998, particularly in the fourth quarter, when the Company incurred a substantial net loss, causing a net loss for the year. Unanticipated difficulties associated with many demolition projects caused losses and lower than planned gross profits on large projects, especially in the fourth quarter, due principally to: (a) higher than planned costs to complete jobs, including additional hauling and disposal fees, as well as for extra labor, especially on jobs performed outside WCI's primary Southern California region; (b) an inability to maximize the utilization of WCI-owned equipment and minimize use of leased equipment when delays on out of town projects arose; (c) higher labor and living costs on out of town projects which were not completed on an efficient or timely schedule; (d) the need to reserve for future projected losses on certain projects; and (e) the elimination of a large portion of the revenue on a project that had been completed because the customer notified WCI in January 1999 that it would not pay for work performed under a verbal (i.e., unsigned) change order (however, WCI expects to collect most or all of this disputed amount in the future by utilizing available dispute mechanisms.) WCI executed, as of November 10, 1998, a revolving credit agreement with Wells Fargo Bank, N.A. The credit agreement, which expires November 9, 1999, calls for interest payable at Wells Fargo's prime rate, as in effect from time to time, and borrowing up to 75% of eligible accounts receivable, subject to a maximum of $2,000,000 (reduced by approximately $100,000 of equipment loans made to WCI by Wells Fargo). At December 31, 1998, WCI had $1,681,000 borrowed under the credit agreement, in addition to approximately $100,000 of equipment loans made by Wells Fargo to WCI. The Company has guaranteed WCI's borrowings under the credit agreement, which is also secured by WCI's accounts receivable and all other assets (with the exception of vehicles and equipment subject to purchase contract lending agreements with third party lenders.) In addition, the credit agreement provides for certain financial covenants based upon the Company's consolidated financial condition, including its current ratio and tangible net worth. As of December 31, 1998, WCI and the Company were not in compliance with the covenants in the credit agreement. On March 26, 1999, Wells Fargo Bank issued a waiver of such year-end noncompliance. As of March 26, 1999, WCI, the Company and Wells Fargo Bank are negotiating the resetting of the financial covenants and potential changes to WCI's borrowing limits and interest rates payable under the credit agreement. 14 OF 41 PAGES As of March 26, 1999, on a preliminary basis, management anticipates that the Company will incur a loss in the first quarter ended March 31, 1999, which is expected to be smaller than the loss incurred in the fourth quarter of 1998. The Company has taken actions to improve its gross margins at WCI going forward and to reduce expenses both at WCI and the corporate level in an attempt to achieve profitable results from operations in the second quarter of 1999. Because of its working capital constraints and in order to concentrate more fully on the necessary actions to improve existing operations, the Company has suspended its activity for external growth of its environmental and demolition business through acquisitions or the opening of additional regional offices. As of March 26, 1999, the Company is in negotiations to sell WCI. If WCI is sold, the Company expects to continue the effort begun in the first quarter of 1999 to identify potential business combinations for the Company. As the Company is not, and does not anticipate being, in a favorable cash position, potential new business combinations are expected to rely upon the issuance of the Company's common stock for the major portion of the consideration required to complete a transaction. There is no assurance that a business combination will take place and, if a transaction does occur, that the Company's shareholders will not incur significant dilution as a result of the Company's issuance of its common stock as consideration. A sale of WCI and/or a business combination may require approvals of the Company's shareholders. In the event the Company does not sell WCI, it will face certain constraints based upon its working capital requirements and WCI's credit agreement with Wells Fargo. These constraints will result in continuing the suspension of the Company's external growth efforts in its environmental and demolition business, as well as a reevaluation of the projects WCI bids, contracts for and performs in the future. In order to exercise greater control over field expenses and projects, particularly those involving demolition, management anticipates that WCI will seek less work outside of its primary San Diego County geographic area. In addition, projects which utilize equipment owned by WCI rather than third party rentals will be more attractive to WCI in the bidding process. However, even if the Company and WCI are successful in negotiating a resetting of the financial covenants in the credit agreement and acceptable borrowing limits and interest rates payable, it is likely that WCI will not be able to increase its revenues significantly in 1999, and may, in fact, shrink its revenues, as a result of working capital constraints. If the negotiations to sell WCI which are underway at March 26, 1999 fail to produce a sale of WCI, the Company may seek additional parties interested in purchasing WCI. Whether or not it contracts to sell WCI, the Company may seek additional opportunities to effect a business combination. There is no assurance that the Company will be successful in finding any acceptable opportunities for business combinations or that it will find other potential purchasers for WCI. Item 7A. Quantitative and qualitative disclosure about market risk: The principal market risk (i.e., the risk of loss arising from adverse changes in market rates and prices) to which the Company is exposed is interest rates on its debt. A one percent change in interest rates on variable rate debt would impact interest expense by $22,000, based on principal balances at December 31, 1998. Year 2000 Compliance: Internal The Company uses a number of computer software programs, operating systems and equipment with computer processing chips in its internal operations, including in its financial business systems and administrative functions. To the extent that the programs, operating systems and equipment contain source code or computer chips that are unable to interpret appropriately the upcoming calendar year 2000, some level of modification or replacement will be necessary. The Company is in the process of evaluating critical software, operating systems and equipment for year 2000 compliance. Currently, the Company is in the inventory/assessment phase of its evaluation, which is expected to continue into the first half of 1999, with some remediation taking place. 15 OF 41 PAGES The Company has been notified by the vendor of its financial and payroll software that such software is year 2000 compliant. Nevertheless, this software will be analyzed and tested for compliance. From fiscal 1995 through the present, the Company, in its normal course of business, replaced substantially all of its business systems hardware and software. To date, expenses associated with year 2000 compliance have been minimal. The Company believes that periodic, scheduled upgrades of hardware and software will satisfy its needs for year 2000 compliance and that the related costs will differ nominally from expenditures which would have been made in its normal course of business. The costs necessary to modify or replace the items mentioned above, or the interruption of administrative or service processes relating from compliance failure, are not expected to have a material adverse effect on the Company's business and financial condition or its results of operations. External There can be no assurance that the Company's customers and suppliers are, or will be, year 2000 compliant. The Company believes the most reasonably likely result of the failure of key customers to achieve year 2000 compliance would be the delay of projects and the delay in the collection of accounts receivable from such customers for an indeterminate period of time. Currently, the Company is not aware of any customers that are not year 2000 compliant. In order to address the potential non-compliance with the year 2000 by the Company's customers and suppliers, the Company is in the process of preparing questionnaires to be sent to its customers and vendors asking them to respond with their year 2000 plans. Until this process is substantially complete, the Company will not be in a position to fully assess its year 2000 risks. The Company expects to complete this process in the first half of 1999 and is developing a response program for the possible worst-case scenario, which may include the possible replacement of non-compliant customers or vendors. Results of operations: 1998 Compared to 1997 - Revenues in 1998 consisted of solely WCI's contract revenues. Revenues in 1997 consisted of WCI's contract revenues (from October 21, 1997, the date of the Company's acquisition of WCI) and consulting income. Contract revenues in 1998 were $13,743,000 compared to $2,248,000 in 1997. The increase was due to the inclusion of a full year of WCI's contract revenues in 1998 as opposed to only the period from October 21 through December 31 in 1997, as well as an expansion of WCI's demolition-related revenues in 1998. Consulting income, which arose from the Company's agreement with a purchaser of its former Sportswear Division, was $50,000 in 1997. The consulting agreement expired on December 31, 1997 and was not renewed. Gross profit in 1998 amounted to $3,419,000 as compared to $962,000 in 1997, an increase of $2,457,000. The increase is attributable to the inclusion of WCI's gross profit for a full year in 1998 versus the period from October 21 through December 31 in 1997. Gross profit margin decreased to 25% in 1998 from 42% in 1997, principally due to lower margins on demolition-related projects in 1998 and the inclusion of very high margin asbestos projects in the fourth quarter of 1997. General administrative expenses rose to $3,859,000 in 1998 from $1,226,000 in 1997, an increase of $2,633,000. Excluding intercompany charges, $2,262,000 of the increase was incurred at WCI and $371,000 of the increase was incurred at the corporate level, including a $170,000 increase in the amortization of goodwill. General and administrative expenses rose as a result of four factors: (1) the inclusion of WCI's general and administrative expenses for a full year in 1998 compared to the period from October 21 to December 31, 1997; (2) increased general and 16 OF 41 PAGES administrative expenses at WCI in connection with its substantial revenue growth in 1998 versus 1997; (3) the growth in corporate expenses associated with the administration of WCI for a full year, the Company's expansion efforts, and the related financing efforts; and (4) expenses which were no longer allocated to discontinued operations. Interest expense-net was $126,000 in 1998 compared to interest income-net of $137,000 in 1997, a net expense increase of $263,000. The change was due to the Company's position as a net borrower in 1998 compared to holding a net cash balance during 1997. The borrowings in 1998 were used to finance the Company's increase in accounts receivable, purchases of equipment and the net loss for the year. Amortization of goodwill rose in 1998 compared to 1997 as a result of recording a full year of amortization in 1998 versus recognizing amortization in 1997 for the period from October 21 through December 31. The Company recorded a benefit from income taxes in 1998 of $45,000 compared to a provision for income taxes of $48,000 in 1997. The net decrease of $93,000 was due to the Company's larger loss in 1998 versus 1997 and the reversal of an accrual for income taxes payable from prior years. 1997 Compared to 1996 - Revenues in 1997 consisted of WCI's contract revenues (from October 21, 1997, the date of the Company's acquisition of WCI) and consulting income. Revenues in 1996 consisted solely of consulting income. Contract revenues in 1997 were $2,248,000. Consulting income, which arose from the Company's agreement with a purchaser of its former Sportswear Division, decreased in 1997 as compared to 1996 due to a contractual reduction in the consulting fee from $75,000 in 1996 to $50,000 in 1997. The consulting agreement expired on December 31, 1997 and was not renewed. Gross profit in 1997 amounted to $962,000 as compared to $75,000 in 1996, an increase of $887,000. The increase is attributable to the addition of WCI's gross profit from October 21, 1997 to December 31, 1997. General and administrative expenses rose in 1997 compared to 1996 principally as a result of three factors: (1) the addition of WCI's general and administrative expenses for the period from October 21, 1997 to December 31, 1997; (2) the growth in expenses in connection with the Company's acquisition search, including increased personnel expenses; and (3) expenses which were no longer allocated to discontinued operations. Interest income-net decreased to $137,000 in 1997 from $247,000 in 1996, a reduction of $110,000. The decrease was due to the Company's lower average cash balance in 1997, particularly after the acquisition of WCI and the related reduction of cash of more than $3,600,000, and to interest expense incurred by WCI. Amortization of goodwill and other income did not exist in 1996. In 1997, they were attributable to the acquisition of WCI, which was accounted for as a purchase. Provision for income taxes grew to $48,000 in 1997 from $9,000 in 1996, an increase of $39,000. The increase was due to the Company's new status in 1997 as a taxpayer in California. In both 1997 and 1996, the Company recorded no provision for federal income taxes as the Company incurred net losses in both years, and has a net operating loss carryforward to offset non-deductible expenses. State income taxes for states other than California represents franchise taxes in both years. 17 OF 41 PAGES Forward-Looking Information From time to time, the Company or its representatives may have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made by or with the approval of an authorized executive officer, or in this report or other filings made by the Company with the Securities and Exchange Commission. The words or phrases "trend," "expectation," "growing," "will be," "will require," "likely result," "expected," "continued," "anticipated," "estimated," "projected," "potential," "opportunity," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to ensure that such statements are accompanied by meaningful cautionary statements, so as to maximize to the fullest extent possible the protections of the safe harbor established in the said Act. Accordingly, such statements are qualified in their entirety by reference to and are accompanied by the following discussion of certain important factors that could cause actual results to differ materially from such forward-looking statements. Investors should also be aware of factors that could have an impact on the Company's business or financial position or performance. These include intensified competition and its impact on revenues and profit margins, changes in competitors business strategies, availability of qualified labor to meet the Company's needs, ability to retain current labor, adverse changes in national and local economic conditions, adjustments in fiscal funding levels for government entities, timing of large contracts, increasingly stringent requirements for compliance with government regulations, the availability of capital under WCI's credit agreement, the Company's ability to negotiate the resetting of the financial covenants, future borrowing limits and interest rates under the credit agreement, WCI and the Company's continued reliance upon waivers of noncompliance from Wells Fargo, reliability of estimates, of anticipated first quarter losses, success of actions taken to improve gross margins and reduce operating expenses, risks associated with the potential sale of WCI, the Company's potential inability to sell WCI, risks associated with potential business combinations, the Company's potential inability to complete a business combination, risk of shareholder dilution, potentionally lower revenues in 1999, failure of the Company to become fully year 2000 compliant, failure of key customers to become fully year 2000 compliant and the effect it might have on the Company's ability to collect its accounts receivable in a timely fashion or obtain supplies from its vendors, and other factors detailed from time to time in the Company's Securities and Exchange Commission filings or other readily available or generally disseminated writings. The risks identified here are not all inclusive. Reference is also made to other parts of this report that include additional information concerning factors that could adversely impact the Company's business or financial position or performance. Moreover, the Company operates in a changing and very competitive business environment. New risks may emerge from time to time, and it is not possible for management to predict all risk factors, nor can it necessarily identify or assess the impact of all such factors on the Company or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statement. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. 18 OF 41 PAGES Item 8. Financial statements and additional financial data REXX ENVIRONMENTAL CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FILED WITH THE ANNUAL REPORT OF THE COMPANY ON FORM 10-K Page Report of independent accountants 20 Consolidated balance sheets at December 31, 1998 and 1997 21 Consolidated statements of operations for the years ended December 31, 1998, 1997 and 1996 22 Consolidated statements of stockholders' equity for the years ended December 31, 1998, 1997 and 1996 23 Consolidated statements of cash flows for the years ended December 31, 1998, 1997 and 1996 24-25 Notes to consolidated financial statements 26-36 19 OF 41 PAGES REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of REXX Environmental Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of REXX Environmental Corporation (formerly Oak Hill Sportswear Corporation) and its subsidiaries at December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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. PricewaterhouseCoopers LLP New York, New York March 26, 1999 20 OF 41 PAGES REXX ENVIRONMENTAL CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands) December 31, 1998 1997 Assets Current assets: Cash and cash equivalents $ 68 $ 710 Accounts receivable - net 4,749 2,353 Costs in excess of billings 223 600 Assets held for sale 780 1,350 Other current assets 164 142 ------- ------- Total current assets 5,984 5,155 Property and equipment, net 1,487 718 Goodwill, net 2,914 3,125 Other assets 37 57 ------- ------- $10,422 $ 9,055 ======= ======= Liabilities and stockholders' equity Current liabilities: Current portion of long-term debt $ 668 $ 1,015 Notes payable to bank 1,681 0 Accounts payable 1,872 1,153 Billings in excess of costs 409 238 Accrued expenses 311 752 Deposit on asset held for sale 0 152 Income taxes payable 100 376 ------- ------- Total current liabilities 5,041 3,686 ------- ------- Long-term debt, net of current portion 738 180 ------- ------- Other long-term liabilities 0 50 ------- ------- Stockholders' equity - see accompanying statement: Preferred stock, $1.00 par value, authorized 1,000,000 shares; -0- shares issued Common stock, $.02 par value, authorized 12,000,000 shares; 5,279,828 shares issued 105 105 Capital in excess of par value 27,925 27,925 Accumulated deficit (6,379) (5,883) Common stock held in treasury, at cost (2,812,252 shares) (17,008) (17,008) ------- ------- Total stockholders' equity 4,643 5,139 ------- ------- $10,422 $ 9,055 ======= ======= See notes to consolidated financial statements. 21 OF 41 PAGES REXX ENVIRONMENTAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands except per share amounts) Years ended December 31, 1998 1997 1996 Revenues $13,743 $ 2,298 $ 75 Cost of services 10,324 1,336 0 ------- ------- ------ Gross profit 3,419 962 75 General and administrative expenses 3,859 1,226 531 ------- ------- ------ Loss from operations ( 440) ( 266) ( 456) Other (income) expense: Interest expense 135 37 0 Interest (income) ( 9) ( 174) ( 247) Other (income) ( 25) ( 8) 0 ------- ------- ------ Loss from continuing operations before provision for taxes ( 541) ( 119) ( 209) (Benefit from) provision for taxes ( 45) 48 9 ------- ------- ------ Loss from continuing operations ( 496) ( 167) ( 218) ------- ------- ------ Discontinued operations: Loss, net 0 0 ( 792) Loss on disposal, net 0 0 ( 300) ------- ------- ------ 0 0 ( 1,092) ------- ------- ------ Net loss ($ 496) ($ 167) ($1,310) ======= ======= ====== Per share data (basic and diluted): Loss from continuing operations ($.20) ($.08) ($ .11) ----- ----- ----- Discontinued operations: Loss, net .00 .00 ( .38) Loss on disposal, net .00 .00 ( .15) ----- ----- ----- .00 .00 ( .53) ----- ----- ----- Net loss ($.20) ($.08) ($ .64) ===== ===== ===== See notes to consolidated financial statements. 22 OF 41 PAGES REXX ENVIRONMENTAL CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Total Common stock Capital in Accumu- stock- Shares Par In excess of lated holders' Issued Value treasury par value deficit equity Balance, December 31, 1995 4,870 $97 ($17,008) $27,363 ($4,406) $ 6,046 Net loss for the year ended December 31, 1996 ( 1,310) ( 1,310) ----- --- ------- ------ ------ ------ Balance, December 31, 1996 4,870 97 ( 17,008) 27,363 ( 5,716) 4,736 Shares issued in connection with acquisition 400 8 542 550 Shares issued upon exercise of stock options 10 - 20 20 Net loss for the year ended December 31, 1997 ( 167) ( 167) ----- ---- ------- ------- ------ ------ Balance, December 31, 1997 5,280 105 ( 17,008) 27,925 ( 5,883) 5,139 Net loss for the year ended December 31, 1998 ( 496) ( 496) ----- ---- ------- ------- ------ ------ Balance, December 31, 1998 5,280 $105 ($17,008) $27,925 ($6,379) $4,643 ===== ==== ======= ======= ====== ====== See notes to consolidated financial statements. 23 OF 41 PAGES REXX ENVIRONMENTAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years ended December 31, 1998 1997 1996 Cash flows from operating activities: Net loss ($ 496) ($ 167) ($1,310) Adjustments to reconcile net loss to net cash used by operating activities: Loss on disposal of assets and discontinued operations 20 - 300 Depreciation and amortization 365 223 - ------- ------ ------ ( 111) 56 ( 1,010) Changes in assets and liabilities ( 1,898) ( 1,478) 75 ------- ------ ------ Net cash used in operating activities ( 2,009) ( 1,422) ( 935) ------- ------ ------ Cash flows from investing activities Acquisition of WCI - ( 3,883) - Capital expenditures ( 1,013) ( 105) - Net proceeds on disposal of assets and discontinued operations 640 648 926 Deposit on asset held for sale ( 152) 143 - ------- ------ ------ Net cash (used in) provided by investing activities ( 525) ( 3,197) 926 ------- ------ ------ Cash flows from financing activities: Exercise of options - 20 - Net increase in short term borrowings 1,334 17 - Net increase (decrease) in long-term debt 558 ( 22) ( 500) ------- ------ ------ Net cash provided by (used in) financing activities 1,892 15 ( 500) ------- ------ ------ Net decrease in cash ( 642) ( 4,604) ( 509) Cash and cash equivalents at beginning of year 710 5,314 5,823 ------- ------ ------ Cash and cash equivalents at end of year $ 68 $ 710 $5,314 ======= ====== ====== See Notes to consolidated financial statements. 24 OF 41 PAGES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED Supplemental disclosures of cash flow information: Changes in assets and liabilities: Accounts receivable ($2,396) ($ 609) $ 438 Costs in excess of billings 377 ( 64) - Other current assets ( 22) 80 62 Other assets 20 4 - Billings in excess of costs 171 23 - Accounts payable and accrued expenses 278 ( 526) ( 404) Accrued income taxes ( 276) ( 386) ( 21) Other liabilities ( 50) - - ------ ------ ------ ($1,898) ($1,478) $ 75 ====== ====== ====== Cash paid during the year for: Interest $ 147 $ 38 $ 67 Income taxes (including interest thereon) $ 219 $ 633 $ 30 Noncash investing activities: Capital stock issued for acquisition $ - $ 550 $ - Details of acquisition: Fair value of assets acquired $ - $6,968 $ - Liabilities assumed - ( 2,535) - Stock issued - ( 550) - ------ ------ ------ Cash paid - 3,883 - Less cash acquired - ( 27) - ------ ------ ------ Net cash paid for acquisition $ - $3,856 $ - ====== ====== ====== See notes to consolidated financial statements. 25 OF 41 PAGES REXX ENVIRONMENTAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ACCOUNTING POLICIES: A. Basis of presentation and principles of consolidation: REXX Environmental Corporation's (the "Company") consolidated financial statements have been prepared in conformity with generally accepted accounting principles. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Watkins Contracting, Inc. ("WCI") (since its acquisition by the Company on October 21, 1997) and Oak Hill Sportswear Holding Corporation, which was inactive. Certain previously reported amounts have been reclassified to conform to the 1998 presentation. B. Cash equivalents: Cash equivalents include all highly liquid debt instruments (primarily U.S. Treasury obligations) purchased with original maturities of less than three months. C. Goodwill: Goodwill represents the excess of the cost of the business acquired, WCI, over the fair value of its net tangible assets. Goodwill is amortized using the straight line method over a 15 year period. Amortization of goodwill for 1998 and 1997 was $211,000 and $41,000, respectively. D. Pension and profit-sharing plans: The Company has defined contribution pension and profit-sharing plans covering eligible employees (which have permanently ceased contributions) and WCI has a defined contribution 401K plan covering eligible employees. Costs for these plans are funded as accrued and there are no prior service costs with respect to these plans. E. Net loss per share: In 1997, the Company adopted Statement of Financial Accounting Standards No. 128 ("FAS 128"), Earnings per Share. FAS 128 prescribes that companies present basic and diluted earnings per share amounts, as defined, on the face of the statement of operations. Net loss per share is based on the weighted average number of shares outstanding. The number of shares used in the computations for basic and diluted net income per share for 1998, 1997 and 1996 were 2,467,576, 2,136,905 and 2,057,576, respectively. Net loss used in the computation of basic and diluted net loss per share is not affected by the assumed issuance of stock under the Company's stock option plan and is therefore the same for both calculations. Options to purchase 304,000, 195,000 and 184,000 shares at prices ranging from $2.00 to $5.00 per share were outstanding in 1998, 1997 and 1996, respectively, but were not included in the computation of diluted net income per share because the options' exercise price was greater than the average market price of the common shares in the respective years. 26 OF 41 PAGES F. Method of Income Recognition: The percentage-of-completion method of accounting for construction contracts is used in the financial statements. Under this method, revenues and related income are recognized as the work on the contract progresses. Generally, such income represents the percentage of estimated total income that costs incurred to date bear to estimated total costs. When current estimates of total contract costs indicate a loss on a contract, provision is made in the financial statements for the entire estimated amount of the loss. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to cost and income and are recognized in the period in which the revisions are determined. Contract costs include all direct material and labor costs and those indirect costs related to contract performance such as indirect labor, supplies, tools and repairs. Selling, general and administrative costs are charged to expense as incurred. Amounts earned on specific projects in excess of billings are treated as a current asset and billings in excess of earnings are treated as a current liability. G. Property and Equipment: Property and equipment is carried at cost and depreciated using the straight line method over the estimated useful lives of the individual assets, generally three to ten years for all assets. H. Revenues: Consulting fees are recognized as earned. Consulting income received from a buyer of the Company's former Sportswear division for 1998, 1997, and 1996 was $0, $50,000 and $75,000, respectively. I. Fair value of financial instruments: The fair value of the Company's financial instruments (cash, receivables, payables and mortgage note) approximates the carrying value due to the relatively short-term nature of these assets. J. 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, costs and expenses during the reporting period. The principal estimates made with respect to these financial statements relate to job costs and the percentage completion of each job. Actual results could differ from those estimates. NOTE 2 - ACQUISITION AND CONSOLIDATED CONDENSED PRO FORMA FINANCIAL INFORMATION On October 21, 1997, the Company completed the acquisition of 100% of the outstanding shares of WCI, a privately-owned, San Diego-based environmental remediation contractor. Founded in 1991, WCI provides asbestos abatement, hazardous materials and soil remediation and 27 OF 41 PAGES demolition services, primarily in California, to commercial and governmental clients. The total consideration consisted of (a) $3,600,000 in cash, using cash on hand, (b) 400,000 shares of restricted REXX Environmental Corporation common stock and (c) rights entitling the former owners of WCI to sell up to 50,000 shares per quarter of the common stock back to the Company starting in April 1999, at $5.00 per share if WCI earns in excess of $2,700,000 pretax income during 1998, and to sell up to an additional 50,000 shares per quarter back to the Company starting in April 2000, at $5.00 per share if WCI earns in excess of $2,700,000 pretax income during 1999. During 1998, WCI did not meet the earnings requirement and, therefore, the rights relating to 1998 income expired. The acquisition was accounted for using the purchase method of accounting. The purchase price was allocated to the assets purchased and liabilities assumed based upon the fair values on the date of acquisition, as follows: Working capital $ 685,000 Property and equipment 1,204,000 Other assets 61,000 Goodwill 3,166,000 Other liabilities ( 683,000) ---------- Purchase price $4,433,000 ========== The following condensed unaudited pro forma statements reflect the results of operations of the Company as if the acquisition had been consummated at the beginning of 1997. The unaudited pro forma financial information presented herein does not necessarily reflect the results of operations and financial position of the Company had the acquisition actually taken place on these dates. Consolidated Condensed Pro Forma Statements of Operations (unaudited) 1997 Revenues $10,350,000 ----------- Income from operations 1,180,000 Other income 36,000 ----------- Income before income taxes 1,216,000 Income taxes 151,000 ----------- Net income $ 1,065,000 =========== Pro forma net income per share - basic $0.43 ===== 28 OF 41 PAGES NOTE 3 - ACCOUNTS RECEIVABLE: Accounts receivable at December 31, 1998 and 1997 are as follows: 1998 1997 --------- ---------- Contracts in progress: Currently receivable $1,779,000 $ 902,000 Unbilled retentions 388,000 149,000 ---------- ---------- 2,167,000 1,051,000 ---------- ---------- Completed contracts: Currently receivable 1,798,000 949,000 Retentions receivable 681,000 361,000 ---------- ---------- 2,479,000 1,310,000 ---------- ---------- Other accounts receivable 138,000 27,000 ---------- ---------- 4,784,000 2,388,000 Less allowance for doubtful accounts ( 35,000) ( 35,000) ---------- ---------- $4,749,000 $2,353,000 ========== ========== During 1998, one customer accounted for approximately 13% of the Company's revenues. During the short period from the date of the Company's acquisition of WCI, October 21, 1997, to December 31, 1997, one customer accounted for approximately 28% of the Company's revenues due to the completion of a large project during the period. NOTE 4 - CONTRACTS IN PROGRESS: Contracts in progress at December 31, 1998 and 1997 are as follows: 1998 1997 ---------- ---------- Costs incurred on contracts in progress $4,174,000 $1,325,000 Estimated earnings on contracts in progress 743,000 704,000 ---------- ---------- Total costs and estimated earnings 4,917,000 2,029,000 Less billings to date ( 5,103,000) ( 1,667,000) --------- --------- ($ 186,000) $ 362,000 ========== ========== Contracts in progress are included in the accompanying balance sheet under the following headings Costs and estimated earnings in excess of billings on contracts in progress $ 223,000 $ 600,000 Billings in excess of costs and estimated earnings on contracts ( 409,000) ( 238,000) ---------- ---------- ($ 186,000) $ 362,000 ========== ========== 29 OF 41 PAGES NOTE 5 - ASSETS HELD FOR SALE: In connection with the acquisition of WCI, WCI owned certain land for which WCI had an agreement with Envira Minerals, Inc. ("Envira") whereby Envira (whose minority stockholders include the former owners of WCI) would purchase the land from WCI at an agreed-upon price. Until Envira is able to obtain financing for the acquisition of this land, Envira has agreed to reimburse WCI for all monthly payments due under a loan from the Small Business Administration. Pursuant to the stock purchase agreement between the Company and the former owners of WCI, the former owners of WCI were obligated to purchase the land from WCI in the event the land was not sold to Envira or any other party during a specified time period. During December 1997, WCI received a deposit from the former owners of WCI towards the purchase of the land. During February 1998, the Small Business Administration loan secured by the land was repaid by the former owners of WCI. During 1998, WCI transferred title to the land to the former owners of WCI. WCI and the Company recognized no gain or loss on the sale of the land. The Company owns a warehousing facility in Mississippi, which is approximately 64,000 square feet. During November 1997, the Company leased the facility to an unaffiliated company. The Company is currently seeking to sell the facility. NOTE 6 - PROPERTY AND EQUIPMENT: Property and equipment at December 31, 1998 and 1997 consisted of: 1998 1997 ---------- --------- Machinery and equipment $1,163,000 $350,000 Office equipment 105,000 90,000 Furniture and fixtures 29,000 7,000 Leasehold improvements 42,000 41,000 Vehicles 338,000 252,000 ---------- -------- 1,677,000 740,000 Less accumulated depreciation ( 190,000) (22,000) ---------- -------- Net property and equipment $1,487,000 $718,000 ========== ======== Depreciation expense for the years ended December 31, 1998 and 1997 was $184,000 and $22,000, respectively. NOTE 7 - NOTES PAYABLE TO BANK: The Company's wholly owned subsidiary, Watkins Contracting, Inc. ("WCI"), has a revolving credit agreement with Wells Fargo Bank, N.A. The credit agreement, which expires November 9, 1999, calls for interest payable at Wells Fargo's prime rate, as in effect from time to time. WCI may borrow up to $2,000,000 (reduced by approximately $100,000 of equipment loans made to WCI by Wells Fargo) under the credit agreement, based upon a formula of 75% of eligible accounts receivable. At December 31, 1998, WCI had $1,681,000 borrowed under the credit agreement, in addition to approximately $100,000 of equipment loans made by Wells Fargo to WCI. The Company has guaranteed WCI's borrowings under the credit agreement, which is also secured by WCI's accounts receivable and all other assets (with the exception of vehicles and equipment subject to purchase contract lending agreements with third party lenders.) In addition, the credit agreement provides for certain financial covenants based upon the Company's consolidated financial condition, including its current ratio and tangible net worth. As of 30 OF 41 PAGES December 31, 1998, WCI and the Company were not in compliance with all of the covenants in the credit agreement. On March 26, 1999, Wells Fargo Bank issued a waiver of such noncompliance. As of March 26, 1999, WCI, the Company and Wells Fargo Bank are negotiating the resetting of the financial covenants and borrowing limits available under the credit agreement. NOTE 8 - LONG-TERM DEBT: The Company has an outstanding mortgage note, which is secured by land and a building in Mississippi (and, from December 1996 to April, 1998, by a $500,000 certificate of deposit) which carries an interest rate of 1/2% above the Bank of Mississippi's Prime Rate (7.75% at December 31, 1998). The principal balance of the mortgage was $469,000 at December 31, 1998 and $500,000 at December 31, 1997. During 1998, the mortgage was refinanced and $31,000 of the principal balance of the mortgage was paid. The Company has classified this as a current liability as it is likely that part or all of such note will be repaid in 1999. WCI acquired vehicles and equipment under long-term purchase contracts which were secured by the related assets. Vehicles and equipment under purchase contracts had a net book value of $1,076,000 at December 31, 1998 and $313,000 at December 31, 1997. Long-term debt at December 31, 1998 and 1997 included: 1998 1997 ---------- ---------- Debt on assets held for sale $ 469,000 $ 918,000 Purchase contracts (at interest rates of 6.34% to 9.64% and with maturities from 4/99 to 11/03): 937,000 266,000 Capitalized leases: Total minimum lease payments 0 12,000 Less amounts representing interest 0 ( 1,000) ---------- ---------- 0 11,000 Present value of long-term debt and capitalized leases 1,406,000 1,195,000 Less current portion of long-term debt 668,000 1,015,000 ---------- ---------- Long-term debt, net of current portion $ 738,000 $ 180,000 ========== ========== Maturities on long-term debt and capitalized leases: 1999 $ 668,000 2000 200,000 2001 203,000 2002 208,000 2003 127,000 ---------- Total maturities $1,406,000 ========== 31 OF 41 PAGES NOTE 9 - STOCK OPTIONS: On October 11, 1994, the Board of Directors adopted a Non-Qualified Stock Option Plan (the "Plan") covering up to 199,250 shares of the Company's Common Stock. The Plan provides that (1) the option price per share is to be not less than 50% of the fair market value of the stock on the date of the grant and (2) options granted shall be for a term of not more than five years and shall become exercisable in equal installments in each year of the term on a cumulative basis, other than the first year, or to the extent that the Board of Directors shall determine. No option may be granted under the Plan after October 11, 2004. On April 22, 1996, the Board of Directors approved an amendment to the Plan, which was also approved by a majority of shareholders at the Company's Annual Meeting held on June 26, 1996. The amendment provides that the Plan is permitted to grant options to non-employee directors and provides that each director who is not an employee of the Company shall receive options to purchase 15,000 shares at the then-current market price for the Company's stock upon joining the Board. On December 3, 1997, the Board of Directors approved amendments to the Plan, which were also approved by a majority of shareholders at a Special Meeting of Shareholders held on February 17, 1998. The amendments provide for (1) reserving from the Company's authorized but unissued shares of Common Stock 250,000 shares for issuance on exercise of options which may be granted under the Plan, (2) increasing the maximum number of shares for which a person may receive options under the Plan from 100,000 shares to 150,000 shares and (3) adding the incentive to key employees of any business which the Company acquires or in which it acquires an interest to continue in its employ, by the grants of options under the Plan to such employees, as a purpose of the Plan. At December 31, 1998, the Company reserved 439,250 shares of its Common Stock for the purposes of the Plan. At that date, there were 304,000 options outstanding at exercise prices of $2.00-$5.00. 32 OF 41 PAGES Additional information concerning stock options under the Plan is summarized as follows: Number of Weighted Number of Options Range of Average Options Available Number Exercise Exercise Exercisable For Future of Shares Prices Price At Year End Grant --------- -------- -------- ----------- ---------- Options outstanding at Jan. 1, 1996 74,000 $4.25 $4.25 18,500 125,250 Granted 110,000 2.00 2.00 - - Exercised - - - - - Terminated - - - - - ------- ----------- ----- ------ ------- Options outstanding at Dec. 31, 1996 184,000 $2.00-$4.25 $2.90 37,000 15,250 Granted 41,000 3.00- 4.00 3.55 - - Exercised (10,000) 2.00 2.00 - - Terminated (20,000) 2.00 2.00 - - ------- ----------- ----- ------ ------ Options Outstanding at Dec. 31, 1997 195,000 $2.00-$4.25 $3.18 82,167 - Granted 119,000 $2.00-$5.00 $3.74 - - Exercised 0 - - - - Terminated ( 10,000) $3.00-$5.00 $4.60 - - ------- ----------- ----- ------ ------- Options Outstanding at Dec. 31, 1998 304,000 $2.00-$5.00 $3.25 139,583 135,250 ======= =========== ===== ======= ======= As of December 31, 1998, 1997 and 1996, the weighted average remaining contractual life of outstanding options was approximately 3.0 years, 3.8 years and 3.9 years, respectively. As permitted, the Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation plan. Had compensation cost for the Company's stock-based compensation plan been determined based on the fair values at the grant dates for awards under the Plan, consistent with the alternative method of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, the Company's 1998 net loss and net loss per share would have been impacted by $46,907 and $0.02 per share, respectively, and the Company's 1997 net loss and net loss per share would have been impacted by $14,000 and $0.01 per share, respectively. These pro forma amounts may not be representative of future disclosures because the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for grants in 1998, 1997 and 1996, respectively: expected volatility of 58.9%, 63.3% and 34.2%, risk free interest rate of 5.17%, 5.48% and 6.37%, expected option term of 5 years for all options issued and no dividend yield or forfeiture rate for all options granted. 33 OF 41 PAGES NOTE 10 - TAXES: Provision for taxes consists of the following components: 1998 1997 1996 Current ($45,000) $48,000 $ 9,000 Deferred - - - ------- ------- ------- Total ($45,000) $48,000 $ 9,000 ======= ======= ======= The provisions for 1997 and 1996 represent state and local taxes. There is no provision for federal income taxes as the Company had net losses in 1998, 1997 and 1996. In 1998, the Company reversed $65,000 of excess federal income tax accruals and provided $20,000 for state and local taxes. At December 31, 1998, the Company has available for Federal income tax purposes net operating loss carryforwards of approximately $11,756,000 that begin to expire in the year 2007. A reconciliation of the statutory income tax rate and the effective tax rates for 1998, 1997 and 1996 follows: 1998 1997 1996 ---- ---- ---- Statutory rate 34.0% 34.0% 34.0% State and local taxes ( 2.4) (26.6) ( .5) Amortization and other non-deductible expenses (13.8) (16.3) ( 1.1) Reversal of excess federal accrual 12.0 - - Valuation allowance (21.4) (31.4) (33.1) ---- ---- ---- Effective rate 8.4% (40.3%) ( .7%) ===== ===== ===== The following summarizes the significant components of deferred tax (liabilities) assets: December 31, December 31, 1998 1997 ------------ ------------ Accrued expenses $ 23,000 $ 88,000 Operating loss carryforward 3,997,000 3,955,000 Capital loss carryforward - 121,000 --------- ---------- Gross deferred tax assets 4,020,000 4,164,000 --------- ---------- Deferred tax asset valuation allowance 4,020,000 4,164,000 --------- ---------- Deferred Taxes $ 0 $ 0 ========= ========== During 1995, the Internal Revenue Service ("IRS") completed a field audit of the Company's tax returns for the years 1990 through 1992. As a result of the field audit, the IRS issued a "30 day letter," assessing a claim of approximately $1,400,000, including interest. The Company, believing it had meritorious defenses against such assessment, filed an appeal. In February 1997, the Company and the IRS reached a settlement which resulted in the payment of approximately $550,000 in tax and interest. The major issue of dispute in the audit process was the timing of a particular deduction relating to inventory. Although the settlement includes a disallowance of a portion of the Company's inventory deduction in the particular year taken, the Company was entitled to the deduction in a subsequent tax year. 34 OF 41 PAGES NOTE 11 - PROFIT-SHARING AND PENSION PLANS: The Company has a non-contributory profit-sharing plan which provided for annual contributions, at the discretion of the Board of Directors, of between 2% and 15% of the defined compensation of eligible employees until October 21, 1997, at which point all contributions permanently ceased. Profit-sharing expense was $0 in 1998, $3,800 in 1997 and $7,500 in 1996. The Company also has defined contribution (money purchase) pension plans that cover employees who meet specified eligibility requirements. The contributions required under the plans vary; however, the Company principally contributed 1% of the first $20,000 and 4% above $20,000 (limited to an additional $130,000) of the defined compensation of eligible employees until October 21, 1997, at which point all contributions permanently ceased. Pension expense was $0 in 1998, $6,400 in 1997 and $37,000 in 1996. WCI has a 401(k) profit sharing plan ("the 401(k) Plan") in which employees become eligible to participate in the 401(k) Plan after six months of service and having reached the age of 21 years. Participation by the employee is at the employee's option. WCI's match of the employee's contributions equals 25% of each participant's salary reduction, not to exceed 6% of the participant's compensation. WCI may also make discretionary contributions to the 401(k) Plan for the benefit of the employees. Employees are 100% vested in their employee contributions and begin vesting at 20% in WCI's contributions starting with their first year of service. Their vesting portion increases by 20% per year of service until the fifth year of service when the employee is 100% vested in the employer contributions. Employer contributions for 1998 were $6,000 and for the 1997 period from October 21, to December 31, 1997 were $1,000. Voluntary employee contributions into the plan for 1998 were $24,000 and for the period from October 21, 1997 to December 31, 1997 were $6,000. NOTE 12 - ACCRUED EXPENSES: Accrued expenses at December 31 consist of: 1998 1997 -------- -------- Salaries, wages and related expenses $151,000 $241,000 Transaction costs 0 140,000 Pension and profit-sharing and 401K plans 7,000 12,000 Consulting and professional fees 83,000 0 Accrual related to discontinued operations 28,000 305,000 Other 42,000 54,000 -------- -------- $311,000 $752,000 ======== ======== NOTE 13 - CONCENTRATION OF CREDIT RISK: The Company's customers, contracts and projects are located primarily in California. The Company extends credit to its customers, a large percentage of which are general contractors. The majority of the Company's contracts are secured or securable by construction liens. 35 OF 41 PAGES NOTE 14 - COMMITMENTS AND CONTINGENCIES The Company leases office space and equipment under operating leases. Future minimum lease payments, net of sublease income, under these leases are as follows: 1999 $204,000 2000 177,000 2001 173,000 2002 135,000 Thereafter 137,000 -------- $826,000 ======== The Company is involved in various legal matters in the ordinary course of business. In the opinion of management, these matters are not anticipated to have a material adverse effect on the results of operations, financial position or liquidity of the Company. See Note 2 regarding contingencies related to the acquisition of WCI. NOTE 15 - DISCONTINUED OPERATIONS: At the Company's 1995 Annual Meeting, held on July 24, 1995, shareholders approved the future sale of the Harmal Division of the Company. The Company's Board of Directors had authorized management to seek a purchaser for the Harmal Division. As of December 31, 1996, the Harmal Division was being treated as a discontinued operation and its assets were being carried as assets held for sale. Harmal's reduced sales level during 1996 was insufficient to cover its operating expenses, resulting in significant operating losses. These operating losses prevented the Company from completing a transaction to sell the Harmal Division. As a result, Management undertook a plan to phase out this business and sell Harmal's assets on an orderly basis to recoup a portion of the Company's investment in the Division's operating assets. As of December 31, 1997, the phase out of the Harmal Division's business and the sale of its operating assets was entirely complete. Sales made by the Company's Harmal Division in 1997 and 1996 were $82,000, and $3,697,000, respectively. 36 OF 41 PAGES Item 9. Disagreements on accounting and financial disclosure: None. PART III Item 10. Directors and executive officers of the registrant: To be provided by an amendment to this Form 10-K filed within 120 days of the Company's fiscal year end or incorporated by reference to information under the caption "Certain Information Regarding Directors and Nominees" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A within said 120 days. Item 11. Executive compensation: To be provided by an amendment to this Form 10-K filed within 120 days of the Company's fiscal year end or incorporated by reference to information under the captions "Executive Compensation", and "Fees Paid to Directors" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A within said 120 days. Item 12. Security ownership of certain beneficial owners and management: To be provided by an amendment to this Form 10-K filed within 120 days of the Company's fiscal year end or incorporated by reference to information under the captions "Principal Holders of Common Stock" and "Certain Information Regarding Directors and Nominees" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A within said 120 days. Item 13. Certain relationships and related transactions: To be provided by an amendment to this Form 10-K filed within 120 days of the Company's fiscal year end or incorporated by reference to information under the captions "Fees Paid to Directors" and "Executive Compensation" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A within said 120 days. 37 0F 41 PAGES PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K:
Filed herewith or incorporated by reference to: ------------------ (a) Documents filed as part of this Form 10-K: 1. Consolidated financial statements. The consolidated financial statements filed as part of this Form 10-K are listed on the index thereto, on page 17 hereof. 2. Financial statement schedules. All schedules are omitted because they are not required, are inapplicable or the information is otherwise shown in the financial statements or notes thereto. 3. Exhibits filed under Item 601 of Regulation S-K. (Numbers assigned to the following exhibits correlate to those used in said Item.) (3) Articles of Incorporation and By-Laws. (a)(1) Certificate of Exhibit 3.1 to the Incorporation, as Company's Form 10-K's amended. for its years ended December 31, 1980 and December 31, 1983, and Exhibit 6 to its Form 10-Q for its quarter ended June 30, 1988. (2) Amendment to Certificate Exhibit 3(a)(2) to the of Incorporation filed Company's Form 10-K for February 18, 1998, its year ended December effecting name change to 31, 1997. REXX Environmental Corporation (b) By-laws, as amended. Exhibit 3(c) to the Company's Form 10-K for its year ended December 31, 1986, and Exhibit C-1 to its proxy statement dated May 13, 1987.
38 OF 41 PAGES
Filed herewith or incorporated by reference to: 10. Material Contracts. ----------------- (f)(1) Non-Qualified Stock Exhibit 10 (iii) to Option Plan. the Company's Form 10-Q for its quarter ended September 30, 1994. (2) Amendment to Non-Qualified Exhibit 10(f)(2) to the Stock Option Plan, adopted Company's Form 10-K for February 17, 1998. its year ended December 31, 1997. (i) Relating to the Purchase of Watkins Contracting, Inc.: (1) Stock Purchase Agreement, Exhibit 2.1 to the dated October 21, 1997, Company's Form 8-K between Oak Hill dated October 30, 1997. Sportswear Corporation, as Buyer, and Greg S. Watkins and Daren J. Barone, as Sellers, together with a list identifying the contents of items in a Disclosure Letter provided for in said Agreement pertaining to certain provisions thereof. (2) Rights Agreement, dated Exhibit 2.2 to said October 21, 1997, between Form 8-K. Oak Hill Sportswear Corporation and Greg S. Watkins.
39 OF 41 PAGES
Filed herewith or incorporated by reference to: ----------------- (3) Rights Agreement, dated Exhibit 2.3 to said October 21, 1997, between Form 8-K. Oak Hill Sportswear Corporation and Daren J. Barone. (4) Employment Agreement, dated Exhibit 2.4 to said October 21, 1997, between Form 8-K. Watkins Contracting, Inc. and Greg S. Watkins. (5) Employment Agreement, dated Exhibit 2.5 to said October 21, 1997, between Form 8-K. Watkins Contracting, Inc. and Daren J. Barone. (j) Relating to the Credit Agreement between Watkins Contracting, Inc. and Wells Fargo Bank: (1) Credit Agreement, dated as Exhibit 10(j)(1) filed of November 10, 1998, by herewith. and between Watkins Contracting, Inc. and Wells Fargo Bank, N.A. (2) Revolving line of Credit Exhibit 10(j)(2) filed Note. herewith. (3) Continuing Guaranty of REXX Exhibit 10(j)(3) filed Environmental Corporation herewith. granted to Wells Fargo Bank, N.A. in connection with the Credit Agreement. (k) Form of Indemnity Agreement dated Exhibit 10(k) filed as of January 4, 1998 between the herewith. Company and its directors and executive officers. (24) (i) Consent of Exhibit 24(i) filed PricewaterhouseCoopers herewith. (c) See Item 14(a)(3) above. (d) See Item 14(a)(2) above.
40 OF 41 PAGES S I G N A T U R E S Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) REXX ENVIRONMENTAL CORPORATION By: /s/ Arthur L. Asch --------------------------------------------------------------------------- Arthur L. Asch, Chairman of the Board (Principal executive officer) By: /s/ Michael A. Asch --------------------------------------------------------------------------- Michael A. Asch, President and Treasurer (Principal financial officer) Date: March 31, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Arthur L. Asch /s/ Michael A. Asch - - -------------------------------- ----------------------------------- Arthur L. Asch, Director Michael A. Asch, Director Date: March 31, 1999 Date: March 31, 1999 /s/ James L. Hochfelder /s/ Joseph Greenberger - - -------------------------------- ----------------------------------- James L. Hochfelder, Director Joseph Greenberger, Director Date: March 31, 1999 Date: March 31, 1999 /s/ Brian A. Wasserman - - -------------------------------- ----------------------------------- Brian A. Wasserman, Director Date: March 31, 1999 41 OF 41 PAGES EX-10.(J)(I) 2 EXHIBIT 10(J)(I) Exhibit 10(j)(i) CREDIT AGREEMENT THIS AGREEMENT is entered into as of November 10, 1998, by and between Watkins Contracting, Inc., a Nevada corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITAL Borrower has requested from Bank the credit accommodation described below, and Bank has agreed to provide said credit accommodation to Borrower on the terms and conditions contained herein. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows: ARTICLE I THE CREDIT SECTION 1.1. LINE OF CREDIT. (a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including November 9, 1999, not to exceed at any time the aggregate principal amount of Two Million Dollars ($2,000,000.00) ("Line of Credit"), the proceeds of which shall be used to finance working capital requirements. Borrower's obligation to repay advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which are incorporated herein by this reference. (b) Limitation on Borrowings. Outstanding borrowings under the Line of Credit, to a maximum of the principal amount set forth above, shall not at any time exceed an aggregate of seventy-five percent (75%) of Borrower's eligible accounts receivable. All of the foregoing shall be determined by Bank upon receipt and review of all collateral reports required hereunder and such other documents and collateral information as Bank may from time to time require. Borrower acknowledges that said borrowing base was established by Bank with the understanding that, among other items, the aggregate of all returns, rebates, discounts, credits and allowances for the immediately preceding three (3) months at all times shall be less than five percent (5%) of Borrower's gross sales for said period. If such dilution of Borrower's accounts for the immediately preceding three (3) months at any time exceeds five percent (5%) of Borrower's gross sales for said period, or if there at any time exists any other matters, events, conditions or contingencies which Bank reasonably believes may affect payment of any portion of Borrower's accounts, Bank, in its sole discretion, may reduce the foregoing advance rate against eligible accounts receivable to a percentage appropriate to reflect such additional dilution and/or establish additional reserves against Borrower's eligible accounts receivable. As used herein, "eligible accounts receivable" shall consist solely of trade accounts created in the ordinary course of Borrower's business, upon which Borrower's right to receive payment is absolute and not contingent upon the fulfillment of any condition whatsoever, and in which Bank has a perfected security interest of first priority, and shall not include: (i) any account which is past due more than twice Borrower's standard selling terms, except with respect to any account for which Borrower has provided extended payment terms not to exceed one hundred eighty (180) days, any such account which is more than thirty (30) days past due; (ii) that portion of any account for which there exists any right of setoff, defense or discount (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted; (iii) any account which represents an obligation of an account debtor located in a foreign country; (iv) any account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, affiliate, partner, member, parent or subsidiary of Borrower; (v) any account which represents an obligation of any account debtor when twenty percent (20%) or more of Borrower's accounts from such account debtor are not eligible pursuant to (i) above excepting therefrom any amounts classified as retentions up to a maximum of 10% of the original contract amount of account debtor; (vi) that portion of any account from an account debtor which represents the amount by which Borrower's total accounts from said account debtor exceeds twenty-five percent (25%) of Borrower's total accounts; (vii) any account deemed ineligible by Bank when Bank, in its sole discretion, deems the creditworthiness or financial condition of the account debtor, or the industry -2- in which the account debtor is engaged, to be unsatisfactory. (c) Borrowing and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. SECTION 1.2. INTEREST/FEES. (a) Interest. The outstanding principal balance of the Line of Credit shall bear interest at the rate of interest set forth in the Line of Credit Note. (b) Computation and Payment. Interest shall be computed on the basis of a 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in the Line of Credit Note. (c) Commitment Fee. Borrower shall pay to Bank a non-refundable commitment fee for the Line of Credit equal to $3,000.00, which fee shall be due and payable in full upon the execution of this Agreement. SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all interest and fees due under the Line of Credit by charging Borrower's demand deposit account number 4968-039826 with Bank, or any other demand deposit account maintained by Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower. SECTION 1.4. COLLATERAL. As security for all indebtedness of Borrower to Bank subject hereto, Borrower hereby grants to Bank security interests of first priority in all Borrower's accounts receivable and other rights to payment, general intangibles, inventory and equipment except for prior liens previously disclosed to Bank as of the date of this Agreement. All of the foregoing shall be evidenced by and subject to the terms of such security agreements, financing statements, deeds of trust and other documents as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for all -3- costs and expenses incurred by Bank in connection with any of the foregoing security, including without limitation, filing and recording fees and costs of appraisals, audits and title insurance. SECTION 1.5. GUARANTIES. All indebtedness of Borrower to Bank shall be guaranteed by Rexx Environmental Corporation in the principal amount of Two Million Dollars ($2,000,000.00), as evidenced by and subject to the terms of guaranties in form and substance satisfactory to Bank. ARTICLE II REPRESENTATIONS AND WARRANTIES Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement. SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and existing and in good standing under the laws of the state of Nevada, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Line of Credit Note, and each other document, contract and instrument required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms. SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound. SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any -4- governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date hereof. SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated September 30, 1998, a true copy of which has been delivered by Borrower to Bank prior to the date hereof, (a) is complete and correct and presents fairly the financial condition of Borrower subject to year end auditor adjustments, (b) discloses all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent and subject to year end auditor adjustments, and (c) has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such financial statement there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Bank or as otherwise permitted by Bank in writing. SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year. SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower. SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law. SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the -5- Plan documents and under generally accepted accounting principles. SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment. ARTICLE III CONDITIONS SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to extend any credit contemplated by this Agreement is subject to the fulfillment to Bank's satisfaction of all of the following conditions: (a) Approval of Bank Counsel. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank's counsel. (b) Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed: (i) This Agreement and the Note. (ii) Articles of Incorporation. (iii) Corporate Resolution: Borrowing. (iv) Certificate of Incumbency. (v) Continuing Guaranty. (vi) Corporate Resolution: Continuing Guaranty -6- (vii) Security Agreement: Rights to Payment and Inventory. (viii) Security Agreement: Equipment. (ix) UCC 1 Financing Statement. (x) Such other documents as Bank may require under any other Section of this Agreement. (c) Financial Condition. There shall have been no material adverse change, as determined by Bank, in the financial condition or business of Borrower or any guarantor hereunder, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower or any such guarantor. (d) Insurance. Borrower shall have delivered to Bank evidence of insurance coverage on all Borrower's property, in form, substance, amounts, covering risks and issued by companies satisfactory to Bank, and where required by Bank, with loss payable endorsements in favor of Bank. SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions: (a) Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist. (b) Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit. ARTICLE IV AFFIRMATIVE COVENANTS Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing: -7- SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein. SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower. SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank: (a) not later than 90 days after and as of the end of each fiscal year, an unaudited consolidated financial statement of Borrower, prepared by Borrower, to include a balance sheet and income statement; (b) not later than 45 days after and as of the end of each fiscal quarter, a consolidating financial statement of Borrower, prepared by Borrower, to include a balance sheet and income statement; (c) not later than 20 days after and as of the end of each month, an aging of accounts receivable with a breakdown of retention on each job, and an aging of accounts payable, with a breakout of sub-contracts payable and retention to subcontractors and suppliers; (d) not later than 90 days after and as of the end of each fiscal year of guarantor, an audited consolidated financial statement of guarantor hereunder, prepared by a certified public accountant acceptable to Bank, to include a balance sheet, income statement and 10K statement as submitted to the Securities Exchange Commission; (e) not later than 45 days after and as of the end of each fiscal quarter, a 10Q statement from guarantor hereunder, as submitted to the Securities Exchange Commission; (f) not later than 45 days after and as of the end of each fiscal quarter, a consolidating financial statement of guarantor, prepared by guarantor, to include a balance sheet and income statement; (g) not later than 30 days after and as of the end of each month, a progress billing report; -8- (h) from time to time such other information as Bank may reasonably request. SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower and/or its business. SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to that of Borrower, including but not limited to fire, extended coverage, public liability, flood, property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect. SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained. SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except such (a) as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Bank's satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment. SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower. SECTION 4.9. FINANCIAL CONDITION. Maintain guarantor's consolidated financial condition as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein: (a) Current Ratio not at any time less than 1.20 to 1.0, with "Current Ratio" defined as total current assets divided by total current liabilities. -9- (b) Tangible Net Worth not at any time less than $2,250,000.00, with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets. (c) Total Liabilities divided by Tangible Net Worth not at any time greater than 2.00 to 1.0, with "Total Liabilities" defined as the aggregate of current liabilities and non-current liabilities less subordinated debt, and with "Tangible Net Worth" as defined above. SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property. SECTION 4.11. YEAR 2000 COMPLIANCE. Perform all acts reasonably necessary to ensure that (a) Borrower and any business in which Borrower holds a substantial interest, and (b) all customers, suppliers and vendors that are material to Borrower's business, become Year 2000 Compliant in a timely manner. Such acts shall include, without limitation, performing a comprehensive review and assessment of all of Borrower's systems and adopting a detailed plan, with itemized budget, for the remediation, monitoring and testing of such systems. As used herein, "Year 2000 Compliant" shall mean, in regard to any entity, that all software, hardware, firmware, equipment, goods or systems utilized by or material to the business operations or financial condition of such entity, will properly perform date sensitive functions before, during and after the year 2000. Borrower shall, immediately upon request, provide to Bank such certifications or other evidence of Borrower's compliance with the terms hereof as Bank may from time to time require. -10- ARTICLE V NEGATIVE COVENANTS Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank's prior written consent: SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof. SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof, and (c) additional indebtedness limited to purchase money transactions for equipment to a maximum of $500,000.00 per calendar year. SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity; make any substantial change in the nature of Borrower's business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business. SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank. SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity, except any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof. SECTION 5.6. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, except any of the foregoing in favor of Bank or which is existing -11- as of, and disclosed to Bank in writing prior to, the date hereof. ARTICLE VI EVENTS OF DEFAULT SECTION 6.1. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) Borrower shall fail to pay within three (3) days of the date when due any principal, interest, fees or other amounts payable under any of the Loan Documents. (b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made. (c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence, except that in the case of defaults which by their nature can be cured under the following sections of this Agreement, such defaults shall continue for a period of twenty (20) days after Borrower receives written notice thereof from Bank: Section 4.2 as it relates to the maintenance of adequate books and records; Section 4.3 as it relates to the form and detail of financial statements; Section 4.4; Section 4.5; Section 4.6; Section 4.7 as it relates to the making of provision to Bank's satisfaction for payment; and Section 4.11. (d) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower or any guarantor hereunder has incurred any debt or other liability to any person or entity, including Bank; provided, however, that any cure period applicable thereto has expired. (e) The filing of a notice of judgment lien against Borrower or any guarantor hereunder; or the recording of any abstract of judgment against Borrower or any guarantor hereunder in any county in which Borrower or such guarantor has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower or any guarantor hereunder; or the entry -12- of a judgment against Borrower or any guarantor hereunder; provided, however, that within twenty (20) days after the creation thereof, or at least ten (10) days prior to the date on which any assets could be lawfully sold in satisfaction thereof, such debt or claim, as the case may be, is not satisfied or stayed pending appeal and insured against in a manner satisfactory to Bank. (f) Borrower or any guarantor hereunder shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower or any guarantor hereunder shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower or any guarantor hereunder and such involuntary petition or proceeding is unopposed or is not dismissed within sixty (60) days of its commencement; or Borrower or any such guarantor shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower or any such guarantor shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower or any such guarantor by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors. (g) There shall exist or occur any event or condition which Bank in good faith believes impairs, or is substantially likely to impair, the prospect of payment or performance by Borrower of its obligations under any of the Loan Documents and same is not cured within thirty (30) days after written notice thereof from Bank to Borrower. (h) The dissolution or liquidation of Borrower or any guarantor hereunder; or Borrower or any such guarantor, or any of its their directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower or such guarantor. (i) Any change in ownership during the term of this Agreement of an aggregate of twenty-five percent (25%) or more of the common stock of members' equity in Borrower. -13- SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by each Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit accommodation from Bank subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law. or equity. ARTICLE VII MISCELLANEOUS SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address: BORROWER: Watkins Contracting, Inc. 5490 Complex Street, Suite #603 San Diego, CA 92123 BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION San Diego Regional Commercial Banking Office 401 B Street, Suite 2201 San Diego, CA 92101 -14- or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit extended by Bank to Borrower, Borrower or its business, any guarantor hereunder or the business of such guarantor, or any collateral required hereunder. SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to any extension of credit by Bank subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto. -15- SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement. SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California. SECTION 7.11. ARBITRATION. (a) Arbitration. Upon the demand of any party, any Dispute shall be resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Agreement. A "Dispute" shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, any of the Loan Documents, or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Loan Documents, including without limitation, any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Loan Documents. Any party may by summary proceedings bring an action in court to compel arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. (b) Governing Rules. Arbitration proceedings shall be administered by the American Arbitration Association ("AAA") or -16- such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the Loan Documents. The arbitration shall be conducted at a location in California selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction; provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. ss.91 or any similar applicable state law. (c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration or reference hereunder. (d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be active members of the California State Bar or retired judges of the state or federal judiciary of California, with expertise in the substantive laws applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of California, (ii) may grant any remedy or relief that a court of the state of California could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party -17- expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. (e) Judicial Review. Notwithstanding anything herein to the contrary, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitrations (i) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of California, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (A) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (B) whether the conclusions of law are erroneous under the substantive law of the state of California. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of California. (f) Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such Dispute is not submitted to arbitration, the Dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. -18- (g) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the Dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. WELLS FARGO BANK, WATKINS CONTRACTING, INC. NATIONAL ASSOCIATION By: /s/ Greg Watkins By: /s/ David Bruen -------------------------------- -------------------------------- David Bruen Title: President Vice President ----------------------------- -19- EX-10.(J)(2) 3 EXHIBIT 10(J)(2) EX-10(j)(2) WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE - - -------------------------------------------------------------------------------- $2,000,000.00 San Diego, California November 10, 1998 FOR VALUE RECEIVED, the undersigned WATKINS CONTRACTING, INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at San Diego RCBO, 401 B Street Suite 2201, San Diego, CA 92101, or at such other piece as the holder hereby may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of $2,000,000.00, or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) at a rate per annum equal to the Prime Rate in effect from time to time. The Prime Rate' is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. (b) Payment of interest. Interest accrued on this Note shall be payable on the 9th day of each month, commencing December 9,1998. (c) Default Interest. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to 4% above the rate of interest from time to time applicable to this Note. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of the Credit Agreement between Borrower and Bank defined below; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on November 9,1999. (b) Advances. Advances hereunder, to the total amount of the principal sum available hereunder, may be made by the holder at the oral or written request of (i) Greg S. Watkins or Daren J. Barone or John Sullivan, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any account of any Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. (c) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of November 10, 1998, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note. MISCELLANEOUS (a) Remedies. Upon the occurrence of any Event of Default as defined in the Credit Agreement, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all Page 1 allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether Incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. (b) Obligations Joint and Several. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (c) Governing Law. This Note shall be governed by and construed in accordance with the laws of the state of California. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. WATKINS CONTRACTING, INC. By: Greg Watkins ---------------------------------------- Title: President ------------------------------------- Page 2 EX-10.(J)(3) 4 EXHIBIT 10(J)(3) Exhibit 10(j)(3) WELLS FARGO BANK CONTINUING GUARANTY - - -------------------------------------------------------------------------------- TO: WELLS FARGO BANK, NATIONAL ASSOCIATION 1. GUARANTY; DEFINITIONS. In consideration of any credit or other financial accommodation heretofore, now or hereafter extended or made to WATKINS CONTRACTING, INC. ("Borrowers"), or any of them, by WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"), and for other valuable consideration, the undersigned REXX ENVIRONMENTAL CORPORATION ("Guarantor"), jointly and severally unconditionally guarantees and promises to pay to Bank, or order, on demand in lawful money of the United States of America and in immediately available funds, any and all Indebtedness of any of the Borrowers to Bank. The term "Indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Borrowers, or any of them, heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Borrowers may be liable individually or jointly with others, and whether recovery upon such Indebtedness may be or hereafter becomes unenforceable. 2. MAXIMUM LIABILITY; SUCCESSIVE TRANSACTIONS; REVOCATION; OBLIGATION UNDER OTHER GUARANTIES. The liability of Guarantor shall not exceed at any one time the sum of $2,000,000.00 for principal, plus all interest thereon and costs and expenses pertaining to the enforcement of this Guaranty and/or the collection of the Indebtedness of any of the Borrowers to Bank. Notwithstanding the foregoing, Bank may permit the Indebtedness of Borrowers to exceed Guarantor's liability. This is a continuing guaranty and all rights, powers and remedies hereunder shall apply to all past, present and future Indebtedness of each of the Borrowers to Bank, including that arising under successive transactions which shall either continue the Indebtedness, increase or decrease it, or from time to time create new Indebtedness after all or any prior Indebtedness has been satisfied, and notwithstanding the death, incapacity, dissolution, liquidation or bankruptcy of any of the Borrowers or Guarantor or any other event or proceeding affecting any of the Borrowers or Guarantor. This Guaranty shall not apply to any new Indebtedness created after actual receipt by Bank of written notice of its revocation as to such new Indebtedness; provided however, that loans or advances made by Bank to any of the Borrowers after revocation under commitments existing prior to receipt by Bank of such revocation, and extensions, renewals or modifications, of any kind, of Indebtedness incurred by any of the Borrowers or committed by Bank prior to receipt by Bank of such revocation, shall not be considered new Indebtedness. Any such notice must be sent to Bank by registered U.S. mail, postage prepaid, addressed to its office at San Diego RCBO, 401 B Street Suite 2201, San Diego, CA 92101, or at such other address as Bank shall from time to time designate. Any payment by Guarantor with respect to the Indebtedness shall not reduce Guarantor's maximum obligation hereunder unless written notice to that effect is actually received by Bank at or prior to the time of such payment. The obligations of Guarantor hereunder shall be in addition to any obligations of Guarantor under any other guaranties of any liabilities or obligations of any of the Borrowers or any other persons heretofore or hereafter given to Bank unless said other guaranties are expressly modified or revoked in writing; and this Guaranty shall not, unless. expressly herein provided, affect or invalidate any such other guaranties. 3. OBLIGATIONS JOINT AND SEVERAL; SEPARATE ACTIONS; WAIVER OF STATUTE OF LIMITATIONS; REINSTATEMENT OF LIABILITY. The obligations hereunder are joint and several and independent of the obligations of Borrowers, and a separate action or actions may be brought and prosecuted against Guarantor whether action is brought against any of the Borrowers or any other person, or whether any of the Borrowers or any other person is joined in any such action or actions. Guarantor acknowledges that this Guaranty is absolute and unconditional, there are no conditions precedent to the effectiveness of this Guaranty, and this Guaranty is in full force and effect and is binding on Guarantor as of the date written below, regardless of whether Bank obtains collateral or any guaranties from others or takes any other action contemplated by Guarantor. Guarantor waives the benefit of any statute of limitations affecting Guarantor's liability hereunder or the enforcement thereof, and Guarantor agrees that any payment of any Indebtedness or other act which shall toll any statute of limitations applicable thereto shall similarly operate to toll such statute of limitations applicable to Guarantor's liability hereunder. The liability of Guarantor hereunder shall be CONTINUING GUARANTY (08/96), Page 1 reinstated and revived and the rights of Bank shall continue if and to the extent that for any reason any amount at any time paid on account of any Indebtedness guaranteed hereby is rescinded or must otherwise be restored by Bank, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, all as though such amount had not been paid. The determination as to whether any amount so paid must be rescinded or restored shall be made by Bank in its sole discretion; provided however, that if Bank chooses to contest any such matter at the request of Guarantor, Guarantor agrees to indemnify and hold Bank harmless from and against all costs and expenses, including reasonable attorneys' fees, expended or incurred by Bank In connection therewith, including without limitation, in any litigation with respect thereto. 4. AUTHORIZATIONS TO BANK. Guarantor authorizes Bank either before or after revocation hereof, without notice to or demand on Guarantor, and without affecting Guarantor's liability hereunder, from time to time to: (a) alter, compromise, renew, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of, the Indebtedness or any portion thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security for the payment of this Guaranty or the Indebtedness or any portion thereof, and exchange, enforce, waive, subordinate or release any such security; (c) apply such security and direct the order or manner of sale thereof, including without limitation, a non-judicial sale permitted by the terms of the controlling security agreement or deed of trust, as Bank in its discretion may determine; (d) release or substitute any one or more of the endorsers or any other guarantors of the Indebtedness, or any portion thereof, or any other party thereto; and (e) apply payments received by Bank from any of the Borrowers to any Indebtedness of any of the Borrowers to Bank, in such order as Bank shall determine in its sole discretion, whether or not such indebtedness is covered by this Guaranty, and Guarantor hereby waives any provision of law regarding application of payments which specifies otherwise. Bank may without notice assign this Guaranty in whole or in part. Upon Bank's request, Guarantor agrees to provide to Bank copies of Guarantor's financial statements. 5. REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Bank that: (a) this Guaranty is executed at Borrowers' request; (b) Guarantor shall not, without Bank's prior written consent, sell, lease, assign, encumber, hypothecate, transfer or otherwise dispose of all or a substantial or material part of Guarantor's assets other then In the ordinary course of Guarantor's business; (c) Bank has made no representation to Guarantor as to the creditworthiness of any of the Borrowers; and (d) Guarantor has established adequate means of obtaining from each of the Borrowers on a continuing basis financial and other information pertaining to Borrowers' financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events or circumstances which might in any way affect Guarantor's risks hereunder, and Guarantor further agrees that Bank shall have no obligation to disclose to Guarantor any information or material about any of the Borrowers which is acquired by Bank in any manner. 6. GUARANTOR'S WAIVERS. (a) Guarantor waives any right to require Bank to: (i) proceed against any of the Borrowers or any other person; (ii) marshal assets or proceed against or exhaust any security held from any of the Borrowers or any other person; (iii) give notice of the terms, time and place of any public or private sale of personal property security held from any of the Borrowers or any other person, or otherwise comply with the provisions of Section 9504 of the California Uniform Commercial Code; (iv) take any action or pursue any other remedy in Bank's power; or (v) make any presentment or demand for performance, or give any notice of nonperformance, protest, notice of protest or notice of dishonor hereunder or in connection with any obligations or evidences of indebtedness held by Bank as security for or which constitute in whole or in part the Indebtedness guaranteed hereunder, or in connection with the creation of new or additional Indebtedness. (b) Guarantor waives any defense to its obligations hereunder based upon or arising by reason of: (i) any disability or other defense of any of the Borrowers or any other person; (ii) the cessation or limitation from any cause whatsoever, other than payment in full, of the Indebtedness of any of the Borrowers or any other person; (iii) any lack of authority of any officer, director, partner, agent or any other person acting or purporting to act on behalf of any of the Borrowers which is a corporation, partnership or other type of entity, or any defect in the formation of any of such Borrower; (iv) the application by any of the Borrowers of the proceeds of any Indebtedness for purposes other than the purposes represented by Borrowers to, or intended or understood by, Bank or Guarantor; (v) any act or omission by Bank which directly or indirectly results in or CONTINUING GUARANTY (08/96), Page 2 aids the discharge of any of the Borrowers or any portion of the Indebtedness by operation of law or otherwise, or which in any way impairs or suspends any rights or remedies of Bank against Borrower; (vi) any impairment of the value of any interest in any security for the Indebtedness or any portion thereof, including without limitation, the failure to obtain or maintain perfection or recordation of any interest in any such security, the release of any such security without substitution, and/or the failure to preserve the value of, or to comply with applicable law in disposing of, any such security; or (vii) any modification of the Indebtedness, in any form whatsoever, including any modification made after revocation hereof to any Indebtedness incurred prior to such revocation, and including without limitation the renewal, extension, acceleration or other change in time for payment of, or other change in the terms of, the Indebtedness or any portion thereof, including increase or decrease of the rate of interest thereon. Until all Indebtedness shall have been paid in full. Guarantor shall have no right of subrogation, and Guarantor waives any right to enforce any remedy which Bank now has or may hereafter have against any of the Borrowers or any other person, and waives any benefit of, or any right to participate in, any security now or hereafter held by Bank. Guarantor further waives all rights and defenses Guarantor may have arising out of (A) any election of remedies by Bank. even though that election of remedies, such as a non-judicial foreclosure with respect to any security for any portion of the Indebtedness, destroys Guarantor's rights of subrogation or Guarantor's rights to proceed against any of the Borrowers for reimbursement, or (B) any loss of rights Guarantor may suffer by reason of any rights, powers or remedies of any of the Borrowers in connection with any anti-deficiency laws or any other laws limiting, qualifying or discharging Borrowers' Indebtedness, whether by operation of Sections 726, 580a or 580d of the Code of Civil Procedure as from time to time amended, or otherwise, including any rights Guarantor may have to a Section 580a fair market value hearing to determine the size of a deficiency following any trustee's foreclosure sale or other disposition of any real property security for any portion of the Indebtedness. 7. BANK'S RIGHTS WITH RESPECT TO GUARANTOR'S PROPERTY IN BANK'S POSSESSION. In addition to all liens upon and rights of setoff against the monies, securities or other property of Guarantor given to Bank by law, Bank shall have a lien upon and a right of setoff against all monies, securities and other property of Guarantor now or hereafter in the possession of or on deposit with Bank, whether held in a general or special account or deposit or for safekeeping or otherwise, and every such lien and right of setoff may be exercised without demand upon or notice to Guarantor. No lien or right of setoff shall be deemed to have been waived by any act or conduct on the part of Bank, or by any neglect to exercise such right of setoff or to enforce such lien, or by any delay in so doing, and every right of setoff and lien shall continue in full force and effect until such right of setoff or lien is specifically waived or released by Bank in writing. 8. SUBORDINATION. Any Indebtedness of any of the Borrowers now or hereafter held by Guarantor is hereby subordinated to the Indebtedness of Borrowers to Bank. Such Indebtedness of Borrowers to Guarantor is assigned to Bank as security for this Guaranty and the Indebtedness and, if Bank requests, shall be collected and received by Guarantor as trustee for Bank and paid over to Bank on account of the Indebtedness of Borrowers to Bank but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. Any notes or other instruments now or hereafter evidencing such Indebtedness of any of the Borrowers to Guarantor shall be marked with a legend that the same are subject to this Guaranty and, if Bank so requests, shall be delivered to Bank. Guarantor will, and Bank is hereby authorized in the name of Guarantor from time to time to, execute and file financing, statements and continuation statements and execute such other documents and take such other action as Bank deems necessary or appropriate to perfect, preserve and enforce its rights hereunder. 9. REMEDIES; NO WAIVER. All rights, powers and remedies of Bank hereunder are cumulative. No delay, failure or discontinuance of Bank in exercising any right, power or remedy hereunder shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by bank of any breach of this Guaranty, or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing. 10. COSTS, EXPENSES AND ATTORNEYS' FEES. Guarantor shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended CONTINUING GUARANTY (O8/96), Page 3 or incurred by Bank in connection with the enforcement of any of Bank's rights, powers or remedies and/or the collection of any amounts which become due to Bank under this Guaranty, and the prosecution or defense of any action in any way related to this Guaranty, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Guarantor or any other person or entity. All of the foregoing shall be paid by Guarantor with interest from the date of demand until paid in full at a rate per annum equal to the greater of ten percent (10%) or Bank's Prime Rate in effect from time to time. The "Prime Rate" is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. 11. SUCCESSORS; ASSIGNMENT. This Guaranty shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Guarantor may not assign or transfer any of its interests or rights hereunder without Bank's prior written consent. Guarantor acknowledges that Bank has the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, any Indebtedness of Borrowers to Bank and any obligations with respect thereto, including this Guaranty. In connection therewith, Bank may disclose all documents and information which Bank now has or hereafter acquires relating to Guarantor and/or this Guaranty, whether furnished by Borrowers, Guarantor or otherwise. Guarantor further agrees that Bank may disclose such documents and information to Borrowers. 12. AMENDMENT. This Guaranty may be amended or modified only in writing signed by Bank and Guarantor. 13. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this Guaranty as a Guarantor hereby expressly agrees that recourse may be had against his or her separate property for all his or her obligations under this Guaranty. 14. APPLICATION OF SINGULAR AND PLURAL In all cases where there is but a single Borrower, then all words used herein in the plural shall be deemed to have been used in the singular where the context and construction so require; and when there is more than one Borrower named herein, or when this Guaranty is executed by more than one Guarantor, the word "Borrowers" and the word "Guarantor" respectively shall mean all or any one or more of them as the context requires. 15. UNDERSTANDING WITH RESPECT TO WAIVERS; SEVERABILITY OF PROVISIONS. Guarantor warrants and agrees that each of the waivers set forth herein is made with Guarantor's full knowledge of its significance and consequences, and that under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any waiver or other provision of this Agreement shall be held to be prohibited by or invalid under applicable public policy or law, such waiver or other provision shell be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such waiver or other provision or any remaining provisions of this Agreement. 16. GOVERNING LAW. This Guaranty shall be governed by and construed in accordance with the laws of the state of California. 17. ARBITRATION. (a) Arbitration. Upon the demand of any party, any Dispute shall be resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Guaranty. A "Dispute" shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, this Guaranty and each other document, contract and instrument required hereby or now or hereafter delivered to Bank in connection herewith (collectively, the "Documents"), or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Documents, including without limitation, any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Documents. Any party may by summary CONTINUING GUARANTY (O8/96), Page 4 proceedings bring an action in court to compel arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. (b) Governing Rules. Arbitration proceedings shall be administered by the American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the Documents. The arbitration shall be conducted at a location in California selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction; provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. ss.91 or any similar applicable state law. (c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration or reference hereunder. (d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be active members of the California State Bar or retired judges of the state or federal judiciary of California, with expertise in the substantive law applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of California, (ii) may grant any remedy or relief that a court of the state of California could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. (e) Judicial Review. Notwithstanding anything herein to the contrary, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitrations (i) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of California, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (A) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (B) whether the conclusions of law are erroneous under the substantive law of the state of California. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of California. (f) Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in CONTINUING GUARANTY (O8/96), Page 5 whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such Dispute is not submitted to arbitration, the Dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (g) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially apples to a Dispute, the arbitration provision most directly related to the Documents or the subject matter of the Dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Documents or any relationship between the parties. IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty as of November 10, 1998. REXX ENVIRONMENTAL CORPORATION By: Michael Asch ---------------------------------------- Title: President ------------------------------------- CONTINUING GUARANTY (O8/96), Page 6 EX-10.K 5 EXHIBIT 10(K) EXHIBIT 10(k) THIS INDEMNIFICATION AGREEMENT, dated as of the 4th day of January 1998, between Oak Hill Sportswear Corporation, a New York corporation (the "Company"), and ______________, a resident of the State of New York indemnitee"). W I T N E S S E T H WHEREAS, the Company desires to retain the services, or the continuation of the services, of the Indemnitee as a director of the Company, and as a director of a subsidiary of the Company; and WHEREAS, the Company is willing to indemnify the Indemnitee to the fullest extent permitted by law in order to retain such services, or the continuation of such services, of the Indemnitee. NOW, THEREFORE, for and in consideration of the mutual premises and covenants contained herein, the Company and the Indemnitee agree as follows: 1. Mandatory Indemnification in Proceedings Other than Those by or in the Right of the Company. Subject to Section 4 hereof, the Company shall indemnify and hold harmless the Indemnitee from and against any and all claims, damages, expenses (including attorneys' fees), judgments, penalties, fines (including excise taxes assessed with respect to an employee benefit plan), settlements, and all other liabilities incurred or paid by him in connection with the investigation, defense, prosecution, settlement or appeal of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) and to which the Indemnitee was or is a party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an officer, director, shareholder, employee or agent of the Company, or is or was serving at the request of the Company as an officer, director, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, or by reason of anything done or not done by the Indemnitee in any such capacity or capacities, provided that the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. 2. Mandatory Indemnification in Proceedings by or in the Right of the Company. Subject to Section 4 hereof, the Company shall indemnify and hold harmless the Indemnitee from and against any and all expenses (including attorneys' fees) and amounts actually and reasonably incurred or paid by him in connection with the investigation, defense, prosecution, settlement or appeal of any threatened, pending or completed action, suit or proceeding by or in the right of the Company to procure a judgment in its favor, whether civil, criminal, administrative or investigative, and to which the Indemnitee was or is party or is threatened to be made a party by reason of the fact that the Indemnitee is or was an officer, director, shareholder, employee or agent of the Company, or is or was serving at the request of the Company as an officer, director, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, or by reason of anything done or not done by the Indemnitee in any such capacity or capacities, provided that (a) the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and (b) no indemnification shall be made under this Section 2 in respect of any claim, issue or matter as to which the Indemnitee shall have been adjudged to be liable to the Company for misconduct in the performance of his duty to the Company unless, and only to the extent that, the court in which such proceeding was brought (or any other court of competent jurisdiction) shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. 3. Reimbursement of Expenses Following Adjudication of Negligence. The Company shall reimburse the Indemnitee for any expenses (including attorneys' fees) and amounts actually and reasonably incurred or paid by him in connection with the investigation, defense, settlement or appeal of any action or suit described in Section 2 hereof that results in an adjudication that the Indemnitee was liable for negligence, gross negligence or recklessness (but not willful misconduct) in the performance of his duty to the Company; provided, however, that the Indemnitee acted in good faith and in a manner he believed to be in the best interests of the Company. 4. Authorization of Indemnification. Any indemnification under Section 1 and 2 hereof (unless ordered by a court) and any reimbursement made under Section 3 hereof shall be made by the Company only as authorized in the specific case upon a determination (the "Determination") that indemnification or reimbursement of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in Sections 1, 2 or 3 hereof, as the case may be. Subject to Sections 5.6, 5.7 and 8 of this Agreement, the Determination shall be made in the following order of preference. (a) first, by the Company's Board of Directors (the "Board") by majority vote or consent of a quorum consisting of directors ("Disinterested Directors") who are not, at the time of the Determination, named parties to such action, suit or proceeding; or (b) next, if such a quorum of Disinterested Directors cannot be obtained, by majority vote or consent of a committee duly designated by the Board (in which designation all directors, whether or not Disinterested Directors, may participate) consisting solely of two or more Distinterested Directors; or (c) next, if such a committee cannot be designated, by any independent legal counsel (who may be any outside counsel regularly employed by the Company) in a written opinion; or 2 (d) next, if such legal determination cannot be obtained, by vote or consent of the holders of a majority of the Company's Common Stock. 4.1 No Presumptions. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not act in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 4.2 Benefit Plan Conduct. The Indemnitee's conduct with respect to an employee benefit plan for a purpose he reasonably believed to be in the interests of the participants in and beneficiaries of the plan shall be deemed to be conduct that the Indemnitee reasonably believed to be not opposed to the best interests of the Company. 4.3 Reliance as Safe Harbor. For purposes of any Determination hereunder, the Indemnitee shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, to have had no reasonably cause to believe his conduct was unlawful, if his action is based on (a) the records or books of account of the Company or another enterprise, including financial statements, (b) information supplied to him by the officers of the Company or another enterprise in the course of their duties, (c) the advice of legal counsel for the Company or another enterprise, or (d) information or records given or reports made to the Company or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Company or another enterprise. The term "another enterprise" as used in this Section 4.3 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which the Indemnitee is or was serving at the request of the Company as an officer, director, partner, trustee, employee or agent. The provisions of this Section 4.3 shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in Sections 1, 2 or 3 hereof, as the case may be. 4.4 Success or Merits or Otherwise. Notwithstanding any other provision of this Agreement, to the extent that the Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding described in Sections 1 or 2 hereof, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the investigation, defense, settlement or appeal thereof. For purposes of this Section 4.4, the term "successful on the merits or otherwise" shall include, but not be limited to, (a) an termination, withdrawal, or dismissal (with or without prejudice) of any claim, action, suit or proceeding against the Indemnitee without any express finding of liability or guilt against him, (b) the expiration of 120 days after the making of any claim or threat of an action, suit or proceeding without the institution of the same and without any promise or payment made to induce a settlement, or (c) the settlement of any action, suit or proceeding under Sections 1, 2 or 3 hereof pursuant to which the Indemnitee pays less than $10,000. 3 4.5 Partial Indemnification or Reimbursement. If the Indemnitee is entitled under any provision of this Agreement to indemnification and/or reimbursement by the Company for some or a portion of the claims, damages, expenses (including attorneys' fees), judgments, fines or amounts paid in settlement by the Indemnitee in connection with the investigation, defense, settlement or appeal of any action specified in Sections 1,2 or 3 hereof, but not, however, for the total amount thereof, the Company shall nevertheless indemnify and/or reimburse the Indemnitee for the portion thereof to which the Indemnitee is entitled. The party or parties making the Determination shall determine the portion (if less than all) of such claims, damages, expenses (including attorneys' fees), judgments, fines or amounts paid in settlement for which the Indemnitee is entitled to indemnification and/or reimbursement under this Agreement. 5. Procedures for Determination of Whether Standards have been Satisfied. 5.1 Cost. All costs of making the Determination required by Section 4 hereof shall be borne solely by the Company, including, but not limited to, the costs of legal counsel, proxy solicitations and judicial determinations. The Company shall also be solely responsible for paying (a) all reasonable expenses incurred by the Indemnitee to enforce this Agreement, including, but not limited to, the costs incurred by the Indemnitee to obtain court-ordered indemnification pursuant to Section 8 hereof, regardless of the outcome of any such application or proceeding, and (b) all costs of defending any suits or proceedings challenging payments to the Indemnitee under this Agreement. 5.2. Timing of the Determination. The Company shall use its best efforts to make the Determination contemplated by Section 4 hereof promptly. In addition, the Company agrees: (a) if the Determination is to be made by the Board or a committee thereof, such Determination shall be made not later than 15 days after a written request for a Determination (a "Request") is delivered to the Company by the Indemnitee; and (b) if the Determination is to be made by independent legal counsel, such Determination shall be made not later than 30 days after a Request is delivered to the Company by the Indemnitee; and (c) if the Determination is to be made by the shareholders of the Company, such Determination shall be made not later than 90 days after a Request is delivered to the Company by the Indemnitee. The failure to make a Determination within the above-specified time period shall constitute a Determination approving full indemnification or reimbursement of the Indemnitee. Notwithstanding anything herein to the contrary, a Determination may be made in advance of (a) the Indemnitee's payment (or incurring) of expenses with respect to which indemnification or reimbursement is sought, and/or (b) final disposition of the action, suit or proceeding with respect to which indemnification or reimbursement is sought. 4 5.3 Reasonableness of Expenses. The evaluation and finding as to the reasonableness of expenses incurred by the Indemnitee for purposes of this Agreement shall be made (in the following order of preference) within 15 days after the Indemnitee's delivery to the Company of a Request that includes a reasonable accounting of expenses incurred: (a) first, by the Board by a majority vote of a quorum consisting of Disinterested Directors; or (b) next, if a quorum cannot be obtained under paragraph (a) or (b) majority vote or consent of a committee duly designated by the Board (in which designation all directors, whether or not Disinterested Directors, may participate), consisting solely of two or more Disinterested Directors; or (c) next, if a finding cannot be obtained under either subparagraph (a) or (b), by vote or consent of the holders of a majority of the Company's Common Stock that are represented in person or by proxy at a meeting called for such purpose. All expenses shall be considered reasonable for purposes of this Agreement if the finding contemplated by this Section 5.3 is not made within the prescribed time. The finding required by this Section 5.3 may be made in advance of the payment (or incurring) of the expenses for which indemnification or reimbursement is sought. 5.4 Payment of Indemnified Amount. Immediately following a Determination that the Indemnitee has met the applicable standard of conduct set forth in Section 1, 2 or 3 hereof, as the case may be, and the finding of reasonableness of expenses contemplated by Section 5.3 hereof, or the passage of time prescribed for making such determination(s), the Company shall pay to Indemnitee in cash the amount to which the Indemnitee is entitled to be indemnified and/or reimbursed, as the case may be, without further authorization or action by the Board; provided, however, that the expenses for which indemnification or reimbursement is sought have actually been incurred by the Indemnitee. 5.5 Shareholder Vote on Determination. The Indemnitee and any other shareholder who is a party to the proceeding for which indemnification or reimbursement is sought shall be entitled to vote on any Determination to be made by the Company's shareholders, including a Determination made pursuant to Section 5.7 hereof. In addition, in connection with each meeting at which a shareholder Determination will be made, the Company shall solicit proxies that expressly include a proposal to indemnify or reimburse the Indemnitee. The Company proxy statement relating to the proposal to indemnify or reimburse the Indemnitee shall not include a recommendation against indemnification or reimbursement. 5.6 Selection of Independent Legal Counsel. If the Determination required under Section 4 is to be made by independent legal counsel, such counsel shall be selected by the Indemnitee with the approval of the Board, which approval shall not be unreasonably withheld. The 5 fees and expenses incurred by counsel in making any Determination (including Determinations pursuant to Section 5.8 hereof) shall be borne solely by the Company regardless of the results of any Determination and, if requested by counsel, the Company shall give such counsel an appropriate written agreement with respect to the payment of their fees and expenses and such other matters as may be reasonably requested by counsel. 5.7 Right of Indemnitee to Appeal an Adverse Determination by Board. If a Determination is made by the Board or a committee thereof that the Indemnitee did not meet the applicable standard of conduct set forth in Sections 1, 2 or 3 hereof, upon the written request of the Indemnitee and Indemnitee's delivery of $500 to the Company, the Company shall cause a new Determination to be made by the Company's shareholders at the next regular or special meeting of shareholders. Subject to Section 8 hereof, such Determination by the Company's shareholders shall be binding and conclusive for all purposes of this Agreement. 5.8 Right of Indemnitee to Select Forum for Determination. If, at any time subsequent to the date of this Agreement, "Continuing Directors" do not constitute a majority of the members of the Board, or there is otherwise a change in control of the Company (as contemplated by Item 403(c) of Regulation S-K), then upon the request of the Indemnitee, the Company shall cause the Determination required by Section 4 hereof to be made by independent legal counsel selected by the Indemnitee and approved by the Board (which approval shall not be unreasonably withheld), which counsel shall be deemed to satisfy the requirements of subparagraph (c) of Section 4 hereof. If none of the legal counsel selected by the Indemnitee are willing and/or able to make the Determination, then the Company shall cause the Determination to be made by a majority vote or consent of a Board committee consisting solely of Continuing Directors. For purposes of this Agreement, a "Continuing Director" means either a member of the Board at the date of this Agreement or a person nominated to serve as a member of the Board by a majority of the then Continuing Directors. 5.9 Access by Indemnitee to Determination. The Company shall afford to the Indemnitee and his representatives ample opportunity to present evidence of the facts upon which the Indemnitee relies for indemnification or reimbursement, together with other information relating to any requested Determination. The Company shall also afford the Indemnitee the reasonable opportunity to include such evidence and information in any Company proxy statement relating to a shareholder Determination. 5.10 Judicial Determinations in Derivative Suits. In each action or suit described in Section 2 hereof, the Company shall cause its counsel to use its best efforts to obtain from the Court in which such action or suit was brought (a) an express adjudication whether the Indemnitee is liable for negligence or misconduct in the performance of his duty to the Company, and, if the Indemnitee is so liable, (b) a determination whether and to what extent, despite the adjudication of liability but in view of all the circumstances of the case (including this Agreement), the Indemnitee is fairly and reasonably entitled to indemnification. 6 6. Scope of Indemnity. The actions, suits and proceedings described in Sections 1 and 2 hereof shall include, for purposes of this Agreement, any actions that involve, directly or indirectly, activities of the Indemnitee both in his official capacities as a Company director or officer and actions taken in another capacity while serving as director or officer, including but not limited to actions or proceedings involving (a) compensation paid to the Indemnitee by the Company, (b) activities by the Indemnitee on behalf of the Company, including actions in which the Indemnitee is plaintiff, (c) actions alleging a misappropriation of a "corporate opportunity," (d) responses to a takeover attempt or threatened takeover attempt of the Company, (e) transactions by the Indemnitee in Company securities, and (f) the Indemnitee's preparation for and appearance (or potential appearance) as a witness in any proceeding relating, directly or indirectly, to the Company. In addition, the Company agrees that, for purposes of this Agreement, all services performed by the Indemnitee on behalf of, in connection with or related to any subsidiary of the Company, any employee benefit plan established for the benefit of employees of the company or any subsidiary, any corporation or partnership or other entity in which the Company or any subsidiary has a 5% ownership interest, or any other affiliate shall be deemed to be at the request of the Company. 7. Advance for Expenses. 7.1 Mandatory Advance. Expenses (including attorneys' fees) incurred by the Indemnitee in investigating, defending, settling or appealing any action, suit or proceeding described in Sections 1 or 2 hereof shall be paid by the Company in advance of the final disposition of such action, suit or proceeding. The Company shall promptly pay the amount of such expenses to the Indemnitee, but in no event later than 10 days following the Indemnitee's delivery to the Company of a written request for an advance pursuant to this Section 7, together with a reasonable accounting of such expenses. 7.2 Undertaking to Repay. The Indemnitee hereby undertakes and agrees to repay to the Company any advances made pursuant to this Section 7 if and to the extent that it shall ultimately be found that the Indemnitee is not entitled to be indemnified by the Company for such amounts. 7.3 Miscellaneous. The Company shall make the advances contemplated by this Section 7 regardless of the Indemnitee's financial ability to make repayment, and regardless whether indemnification of the Indemnitee by the Company will ultimately be required. Any advances and undertakings to repay pursuant to this Section 7 shall be unsecured and interest-free. 8. Court-Ordered Indemnification. Regardless whether the Indemnitee has met the standard of conduct set forth in Sections 1, 2 or 3 hereof, as the case may be, and notwithstanding the presence or absence of any Determination whether such standards have been satisfied, the Indemnitee may apply for indemnification (and/or reimbursement pursuant to Sections 3 or 12 hereof) to the court conducting any proceeding to which the Indemnitee is a party or to any other court of competent jurisdiction. On receipt of an application, the court, after giving any notice the 7 court considers necessary, may order indemnification (and/or reimbursement) if it determines the Indemnitee is fairly and reasonably entitled to indemnification (and/or reimbursement) in view of all the relevant circumstances (including this Agreement). 9. Nondisclosure of Payments. Except as expressly required by Federal securities laws or the New York Business Corporation Law, neither party shall disclose any payments under this Agreement unless prior approval of the other party is obtained. Any payment to the Indemnitee that must be disclosed shall, unless otherwise required by law, be described only in Company proxy or information statements relating to special and/or annual meetings of the Company's shareholders, and the Company shall afford the Indemnitee the reasonable opportunity to review all such disclosures and, if requested, to explain in such statement any mitigating circumstances regarding the events reported. 10. Covenant Not to Sue, Limitation of Actions and Release of Claims. No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company (or any of its subsidiaries) against the Indemnitee, his spouse, heirs, executors, personal representatives or administrators after the expiration of two years from the date the Indemnitee ceases (for any reason) to serve as either an officer or a director of the Company, and any claim or cause of action of the Company (or any of its subsidiaries) shall be extinguished and deemed released unless asserted by filing of a legal action within such two-year period. 11. Indemnification of Indemnitee's Estate. Notwithstanding any other provision of this Agreement, and regardless whether indemnification of the Indemnitee would be permitted and/or required under this Agreement, if the Indemnitee is deceased, the Company shall indemnify and hold harmless the Indemnitee's estate, spouse, heirs, administrators, personal representatives and executors (collectively the "Indemnitee's Estate") against, and the Company shall assume, any and all claims, damages, expenses, (including attorneys' fees), penalties, judgments, fines and amounts paid in settlement actually incurred by the Indemnitee or the Indemnitee's Estate in connection with the investigation, defense, settlement or appeal of any action described in Sections 1 or 2 hereof. Indemnification of the Indemnitee's Estate pursuant to this Section 11 shall be mandatory and not require a Determination or any other finding that the Indemnitee's conduct satisfied a particular standard of conduct. 12. Reimbursement of All Legal Expenses. Notwithstanding any other provision of this Agreement, and regardless of the presence or absence of any Determination, the Company promptly (but not later than 30 days following the Indemnitee's submission of a reasonable accounting) shall reimburse the Indemnitee for all attorneys' fees and related court costs and other expenses incurred by the Indemnitee in connection with the investigation, defense, settlement or appeal of any action described in Section 1 or 2 hereof (including, but not limited to, the matters specified in Section 6 hereof). 8 13. Miscellaneous. 13.1 Notice Provision. Any notice, payment, demand or communication required or permitted to be delivered or given by the provisions of this Agreement shall be deemed to have been effectively delivered or given and received on the date personally delivered to the respective party to whom it is directed, or when deposited by registered or certified mail, with postage and charges prepaid and addressed to the parties at the addresses set forth below opposite their signatures to this Agreement. 13.2 Entire Agreement. Except for the Company's Certificate of Incorporation, as amended, this Agreement constitutes the entire understanding of the parties and supersedes all prior understandings, whether written or oral, between the parties with respect to the subject matter of this Agreement. 13.3 Severability of Provisions. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of each such illegal, invalid, or unenforceable provision there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. 13.4 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 13.5 Execution in Counterparts. This Agreement and any amendment may be executed simultaneously or in counterparts, each of which together shall constitute one and the same instrument. 13.6 Cooperation and Intent. The Company shall cooperate in good faith with the Indemnitee and use its best efforts to ensure that the Indemnitee is indemnified and/or reimbursed for liabilities described herein to the fullest extent permitted by law. 13.7 Amendment. No amendment, modification, or alteration of the terms of this Agreement shall be binding unless in writing, dated subsequent to the date of this Agreement, and executed by the parties. 9 13.8 Binding Effect. The obligations of the Company to the Indemnitee hereunder shall survive and continue as to the Indemnitee even if the Indemnitee ceases to be a director, officer, employee and/or agent of the Company. Each and all of the covenants, terms and provisions of this Agreement shall be binding upon and inure to the benefit of the successors to the Company and, upon the death of the Indemnitee, to the benefit of the estate, heirs, executors, administrators and personal representatives of the Indemnitee. 13.9 Nonexclusivity. The rights of indemnification and reimbursement provided in this Agreement shall be in addition to any rights to which the Indemnitee may other wise be entitled by statute, bylaw, agreement, vote of shareholders or otherwise. 13.10 Effective Date. The provisions of this Agreement shall cover claims, actions, suits and proceedings whether now pending or hereafter commenced and shall be retroactive to cover acts or omissions or alleged acts or omissions which heretofore have taken place. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. THE COMPANY: THE INDEMNITEE: - - ------------ --------------- OAK HILL SPORTSWEAR CORPORATION By: ___________________________________ __________________________ ADDRESS: __________________________ __________________________ __________________________ __________________________ 10 EX-24.I 6 EXHIBIT 24(I) Exhibit 24(i) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (No. 33-31587 and No. 33-31588) of REXX Environmental Corporation (formerly Oak Hill Sportswear Corporation) of our report dated March 26, 1999 appearing on page 20 of this Form 10-K. PricewaterhouseCoopers LLP New York, New York March 26, 1999 EX-27 7 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1998 DEC-31-1998 68 0 4,749 0 0 5,984 1,487 0 10,422 5,041 738 0 0 4,643 0 10,422 13,743 13,743 10,324 14,183 (36) 0 135 (541) (45) (496) 0 0 0 (496) (.20) (.20)
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