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® HEHETT-BIER CONSTRUCTION, INC. NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 NOTE 5. PENSION AND PROFIT SHARING PLANS (Continued) Profit Sharing Plan - Contributions by the Company are at the discretion of its Board of Directors and were authorized in the amount of $50,000 for the year ended December 31, 1997. Each participant is required to defer an amount equal to 5% of his compensation. The deferred compensation for the year ended December 31, 1997 amounted to $36, 137. NOTE 6. RELATED PARTY TRANSACTION The Company rents office facilities on a month-to-month basis from an entity that is owned by its present and former stockholders. In the opinion of management, the monthly rent is substantially equivalent to that which would have been obtained between unrelated parties and revocation of this agreement would not adversely affect operations. The amounts .paid under this arrangement amounted to $30,952 for the year ended December 31, 1997. NOTE 7. COMMITMENTS AND CONTINGENCIES ® Consulting and Non-Compete Agreements Effective December 31, 1996 Robert Kier sold his interest in the Company to James Hewett. In connection with this transfer, the Company entered into . multi-year consulting and non-compete agreements with Mr. Kier. Remaining annual amounts payable for performance and/or compliance under these agreements are as follows: Consulting Non-Compete December 31, 1998 $ 67,500 $ 45,000 1999 45,000 45,000 2000 22,500 45,000 2001 -0- 45,000 $135,000 $180,000 Litigation The Company is from time to time subject to claims and suits arising in the ordinary course of operations. At the time and to the extent liability is determined probable, litigation claims are recorded in the accompanying financial statements. In addition to recorded claims, the Company is subject to possible liability for attorneys' fees claimed (approximately $150,000) and unclaimed in connection with pending lawsuits. Furthermore, in a case involving a defaulted subcontractor, a claim has been made against the Company for wrongful contract termination in the amount of $230,000. The outcome of these matters is not currently determinable; however, it is anticipated that the Court will award minimal attorneys' fees with respect to those matters pending and that the subcontractor' s claim will be settled favorably. Accordingly, in the opinion of management and counsel, the ultimate resolution of pending legal proceedings will not have a material adverse effect on the Company's financial position, results of operations or liquidity. - 8 -