10-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

For the year ended June 30, 2002

OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

For the transition period from __________ to __________.

Commission File Number 333-64745

PENHALL INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)

ARIZONA
(State or other jurisdiction of
incorporation or organization) 86-0634394
(I.R.S. Employer
Identification No.)

1801 PENHALL WAY, ANAHEIM, CA 92803
(Address of principal executive offices) (Zip Code)
(714) 772-6450

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

     As of September 20, 2002, there were 986,015 shares of the registrant’s common stock outstanding, all of which were owned by affiliates of the registrant.

DOCUMENTS INCORPORATED BY REFERENCE:
None

TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION.
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
	ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
	ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 10.12
EXHIBIT 10.13
EXHIBIT 10.14
EXHIBIT 10.15
EXHIBIT 10.20
EXHIBIT 10.21
EXHIBIT 10.22
EXHIBIT 12
EXHIBIT 21

PART I

ITEM 1. BUSINESS

GENERAL

     Penhall consists of Penhall International Corporation, an Arizona Corporation, and two wholly owned subsidiaries, Penhall Company and Penhall Rental Corporation, both California Corporations. Penhall Company has three wholly owned subsidiaries, Penhall Investments, a California Corporation, Bob Mack Company, A California Corporation, and Penhall Leasing, a California single member limited liability company (collectively Penhall International Corporation and the five subsidiaries are the “Company” or “Penhall”).

     Penhall was founded in 1957 and is one of the largest operated equipment rental providers in the United States. Penhall differentiates itself from other equipment rental companies by providing specialized services in connection with infrastructure projects through renting equipment along with skilled operators on an hourly or fixed-price quote basis (“Operated Equipment Rental Services”) to serve construction, industrial, manufacturing, governmental and residential customers. In addition, Penhall complements its Operated Equipment Rental Services by providing the same type of services on a fixed-price contract basis for long-term projects. Penhall employs over 800 skilled operators and has 761 units in its diverse operated equipment rental fleet, which includes a broad selection of equipment ranging from smaller items such as diamond abrasive saws and coring units, to large equipment such as backhoes, excavators, water trucks and concrete grinders. Penhall provides its services from 38 locations in 17 states, with a presence in some of the fastest growing states in terms of construction spending and population growth, including its primary market, California, as well as other strategic markets including Arizona, Colorado, Nevada, Texas, Georgia, North and South Carolina, Oregon, New York and Utah. Penhall has a diverse base of over 14,000 customers. With the exception of the California Department of Transportation (which represented less than 1% of total revenue in fiscal 2002 and 6% in fiscal 2001), no one customer has accounted for more than 5% of its total revenue in any of the past five fiscal years. Penhall has a reputation for high quality service, which results in a high degree of customer loyalty, and management believes that a significant percent of its revenues are derived through repeat business from existing customers. Penhall has increased its revenues from $95.3 million in fiscal 1997 to $161.2 million in fiscal 2002 through 1) increased rental fleet utilization, 2) increasing its rental equipment fleet, 3) acquisitions, and 4) opening of new offices.

     Through its skilled operators and equipment rental fleet, Penhall performs new construction, rehabilitation and demolition services in connection with infrastructure projects. For short duration assignments, typically lasting from several hours to a few weeks, Penhall generally provides Operated Equipment Rental Services on an hourly or fixed-price quote basis. Services provided in this manner include specialized work such as highway and airport runway grooving and asphalt cutting, as well as demolition work such as concrete breaking, removal and recycling. For longer duration projects, which may last from a few days to several years, Penhall provides services on a fixed-price contractual basis. Services provided in this manner include work for highway, airport and building general contractors, federal, state and municipal agencies and for property owners. A majority of fixed-price contract revenues are derived from long-term highway projects, which have an average contract length of approximately ten months. Penhall strives to maximize utilization of its operated equipment rental fleet and uses its fixed-price contract services to (i) market its Operated Equipment Rental Services, (ii) increase utilization of its operated equipment rental fleet and (iii) differentiate it from other equipment rental competitors. As part of a fixed-price contract project, Penhall is responsible for completion of an entire job or project, and typically employs its Operated Equipment Rental Services. On average, approximately 28% of Operated Equipment Rental Services revenues are generated from fixed-price contracts.

     The operated equipment rental industry is a specialized niche segment of the highly fragmented United States equipment rental industry. As of June 30, 2001, there were an estimated 17,000 equipment rental companies in the United States, and no single company represented more than 7% of total market revenues in 1999. According to industry sources, the United States equipment rental industry grew from approximately $600 million in revenues in 1982 to an estimated $28 billion in 1999, representing an approximate Compounded Annual Growth Rate (CAGR) of 25.4%. Management believes that the operated equipment rental industry has grown at a similar rate during this period. This growth has been driven primarily by construction spending and continued outsourcing of equipment needs by construction and industrial companies. While customers traditionally have rented equipment for specific purposes such as supplementing capacity during peak periods and in connection with special projects, customers are increasingly looking to rental operators to provide an ongoing, comprehensive supply of equipment, enabling such customers to benefit from the economic advantages and convenience of rental.

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THE REORGANIZATION

     Penhall International, Inc., a California corporation (“PII”), prior to the consummation of the Transactions (as defined below) conducted all its operations through Phoenix Concrete Cutting, Inc., an Arizona corporation (the “Company”), and the Penhall Company, a California corporation (“PenCo”). As of June 30, 1998, PII, the stockholders of PII, the Company, and Penhall Acquisition Corp., an Arizona Corporation (the “Issuer” or “PAC”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, the Company formed PCC Merger Sub, a California corporation and wholly-owned subsidiary (“PCC Merger Sub”), which on August 4, 1998, was merged with and into PII (the “Reorganization Merger”), with the result that (i) PII continued as the surviving corporation, (ii) each stockholder of PII had his or her common equity in PII converted into common equity in the Company, (iii) PII received common equity in the Company approximately equal in value to the value of its common equity in the Company immediately prior to the consummation of the Reorganization Merger and (iv) the Company received common equity in PII such that the Company became the corporate parent of and owns all the outstanding capital stock of PII (which continues to hold all the outstanding capital stock of PenCo). Pursuant to the Merger Agreement, immediately following the Reorganization Merger, the Issuer merged with and into the Company (the “Recapitalization Merger” and, together with the Reorganization Merger, the “Mergers”), with the Company continuing as the surviving corporation (the “Surviving Corporation”). Prior to or simultaneously with the consummation of the Recapitalization Merger, the Issuer entered into a new senior secured credit facility (the “New Credit Facility”) providing for $20.0 million of Term Loans (as defined therein) and up to $30.0 million of Revolving Loans (as defined therein), and all indebtedness of PII except $3.7 million of notes payable was repaid (the “Refinancing”). Following the consummation of the Mergers, the Company changed its corporate name to “Penhall International Corp.” and PII changed its corporate name to “Penhall Rental Corp.”

     The aggregate consideration paid upon consummation of the Recapitalization Merger (the “Merger Consideration”) was approximately $136.2 million. Pursuant to the Merger Agreement, (i) certain management stockholders of PII (the “Existing Management Stockholders”) agreed to convert a portion of the common equity in the Company received by them pursuant to the Reorganization Merger into $8.7 million of common and preferred equity of the Surviving Corporation (the “Equity Rollover”), (ii) the National Christian Charitable Foundation, Inc., a foundation formed by the Company’s former majority shareholder received $10.0 million of preferred equity of the Surviving Corporation in lieu of $10.0 million of cash Merger Consideration otherwise payable to it in the Recapitalization Merger, and (iii) BRS and certain persons affiliated with Bruckmann, Rosser and Sherrill & Co., L.P., (BRS), (together with BRS, the “BRS Entities”) and the New Management Stockholders (consisting of certain existing management and certain new management shareholders) purchased $21.1 million and $0.2 million, respectively, of common and preferred equity of the Surviving Corporation (the “Equity Contribution” and, together with the Mergers, the Refinancing and the Equity Rollover, the “Recapitalization”). Following the consummation of the Recapitalization, the BRS Entities held approximately 62.5% of the Common stock, par value $.01 per share, of the Surviving Corporation (“Common stock”), 100.0% of the Series A Preferred stock, par value $.01 per share, of the Surviving Corporation (“Series A Preferred stock”) and 43.3% of the Series B Preferred stock, par value $.01 per share, of the Surviving Corporation (“Series B Preferred stock”), the Management Stockholders held approximately 37.5% of the Common stock and 38.6% of the Series B Preferred stock, the Foundation held 100% of the Senior Exchangeable Preferred stock and PII held approximately 18.1% of the Series B Preferred stock.

     In connection with the Recapitalization in August of 1998, the Issuer issued $100,000,000 of 12% Senior Notes due 2006 (the “Existing Notes”). As part of the Recapitalization, the Company became the successor obligor under the Exiting Notes. In order to satisfy certain obligations of the Company and the Guarantors (consisting of the Company’s wholly-owned subsidiaries) contained in the Registration Rights Agreement, dated August 4, 1998 (the “Registration Rights Agreement”) by and among the Issuer, the Company, the Guarantors, BT Alex. Brown Incorporated (“BTAB”) and Credit Suisse First Boston (collectively with BTAB, the “Initial Purchasers”) with respect to the initial sale of the Existing Notes, the Company offered to exchange an aggregate principal amount of up to $100,000,000 of its 12% Senior Notes due 2006 (the “New Notes”) for a like principal amount of the Existing Notes outstanding in December 1998. The New Notes and the Existing Notes are hereinafter collectively referred to as the “Notes.” The terms of the New Notes are identical in all material respects to those of the Existing Notes, except for certain transfer restrictions and registration rights relating to the Existing Notes. The New Notes were issued pursuant to, and are entitled to the benefits of, the Indenture (as defined) governing the Existing Notes.

     The foregoing transactions, the application of the proceeds therefrom and the payment of related fees and expenses, are collectively referred to herein as the “Transactions.”

     Penhall was obligated to make approximately $3 million of tax gross-up payments to certain members of Management on or before September 15, 1998. The Company made such payments out of working capital on September 15, 1998. During the fiscal years ended June 30, 1998 and 1999, Penhall realized tax benefits of approximately $3 million in the form of reduced tax payment

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obligations or refunds of tax overpayments as a result of deductions for certain of such tax gross-up payments and deductions with respect to employee stock options.

EQUIPMENT RENTAL FLEET

     Penhall owns and operates a well-maintained fleet of 761 units of operated equipment, including excavators, stompers, backhoes, compressors, “bobcats,” crushing equipment, saws, drills and grinding, asphalt milling, and grooving equipment. Penhall also carries state-of-the-art manually-operated and remote-controlled breakers, which provide access to contaminated, hazardous or limited access areas and which have been used for hazardous projects such as the demolition of decommissioned nuclear power plants. The Company employs skilled operators, including trainees, for each piece of equipment it operates. The following table is a summary of Penhall’s operated equipment rental fleet as of June 30, 2002:

DESCRIPTION	QUANTITY
Diamonds		401
Compressors		107
Excavators		28
Grinders		21
Backhoes		52
Bobcats		61
Tankers		27
Stompers		9
Loaders		3
Milling		17
Miscellaneous		35
Total Units		761

     In addition to its 761-unit operated equipment rental fleet, Penhall maintains an additional fleet of 37 tankers, 19 Grinders, and 11 miscellaneous pieces of equipment, which are used exclusively on fixed-price contracts. Also, Penhall has an inventory of approximately 536 Bare Equipment Rentals, which are rented out on an hourly, daily, weekly or monthly basis without skilled operators. Bare Equipment Rentals include personnel lifts, forklifts, front-end loaders and light towers. Each Penhall location has it’s own shop and repair and maintenance staff that routinely maintains and repairs the equipment rental fleet.

SERVICES

     Penhall, through its operated equipment rental fleet and skilled operators, serves its customer base in a wide variety of infrastructure projects, including new construction, rehabilitation and demolition projects, and provides specialized services such as highway and airport runway grooving, asphalt cutting, concrete coring and demolition work. These services are available singly but are more commonly provided by Penhall in conjunction with other services necessary to their application to a particular project, including breaking, excavating, removing and recycling of construction materials. Penhall also provides services in connection with earthquake retrofit projects, particularly in California, which include retrofitting of highways, buildings, bridges and tunnels in order to bring them in compliance with more stringent earthquake safety laws. Moreover, the Company is the largest provider of grinding services in the United States.

     Specialty Services:

• Cutting. Cutting is the use of diamond abrasive saws to cut concrete and asphalt. This service is frequently utilized in new construction to provide rectangular openings in walls or floors, and is generally more efficient than framing and forming the opening while the concrete is being poured. Flat sawing also is commonly used in modifying existing structures and road rehabilitation.

• Coring. Coring is the use of rotary drills to create holes ranging from less than one inch to 42 inches in diameter. This service is most frequently utilized both in new construction and in retrofit of existing facilities to create spaces needed for installation of ventilation ducts, conduits, electrical and other cables, and mechanical passageways. Coring is also used in the Company’s earthquake retrofit projects.

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• Grinding. Grinding is the use of diamond abrasive grinders to mill away excess material as necessary to attain a uniform, level finish on flat surfaces, such as highways, airport runways and industrial floors. Grinding is also utilized as a maintenance process to extend the useful life of highways by evening the wear patterns caused by years of heavy traffic, to prevent cracking and subsequent failure of the surface.

• Grooving. Grooving is the use of diamond abrasive groove cutting machines to provide safety grooving of flat services. This service is commonly provided in connection with the construction or modification of highways and airport runways and provides for better tire traction on these surfaces.

• Sawing and Sealing. Sawing and sealing is the cutting of concrete and the introduction of high-strength epoxy cement and sealant into cracks or spaces to avoid water intrusion into the surface and to provide additional structural strength.

• Asphalt Milling. Asphalt milling is the grinding of asphalt and concrete surfaces. This service uses equipment with carbide tools to change the elevation of existing roadways as part of highway rehabilitation projects. The work is performed using a fleet of various size machines, ranging from 200 horsepower, 48” wide machines to 800 horsepower, 8 1/2’ wide machines. This service may also involve road reclamation and asphalt recycling.

     Other Services:

• Breaking. Breaking is the use of manually-operated or, in hostile environments, remotely-controlled high-energy hydraulic breaking equipment to remove concrete. This service was most visibly utilized by Penhall in the removal of large sections of the Nimitz Freeway in Oakland, California, following the 1989 earthquake, and in the removal of damaged freeway bridges and overpasses in southern California following the 1994 earthquake. Breaking equipment is more commonly used in less dramatic settings, such as interior renovation of industrial buildings to adapt them to a new use, and in removal of existing structures in preparation for redevelopment of the real estate. The Company has designed and used remotely-controlled breakers for modification and removal of facilities contaminated with radioactive material, such as nuclear power stations and development laboratories.

• Clearing and Removal. Clearing and removal is the use of excavators and other heavy-duty equipment to remove broken concrete and other material from a site to a point of recycling or disposal.

• Crushing and Recycling. Crushing and recycling is the use of specialized equipment to reduce the size of the material to a consistent specification, separating out the steel reinforcing material for sale as scrap, and providing an aggregate material suitable for use as construction fill material and roadbase material. Such recycling provides a valuable environmental benefit by conserving solid waste landfill space, and converting a waste into a usable product.

• Compaction. Compaction is the preparation of subsoil base and fill materials to a specification suitable for new construction on the site. Compaction services typically are provided together with removal services in the site preparation process for new construction or redevelopment.

OPERATIONS

     Penhall provides the rental of operator assisted equipment through (i) Operated Equipment Rental Services, performed on an hourly as well as a fixed-price quote basis, and (ii) fixed-price contracts, in which Penhall is responsible for the completion of a particular project.

     Penhall’s Operated Equipment Rental Services involve short duration assignments lasting from several hours to a few weeks and typically generate revenues of less than $7,500. Services provided on this basis include specialized work such as highway and airport runway grooving, asphalt cutting, and demolition work such as concrete breaking, removal, and recycling. Although all lines of equipment are rented for these types of projects, a given project will typically use only one piece of equipment. Operated Equipment Rental Services are typically provided on an hourly basis or for a project with pre-determined specifications, and Penhall quotes a bid to perform and invoice the customer for the project.

     Penhall’s services are made available to customers through its 38 regional locations. Penhall maintains a basic equipment rental fleet and operators at each of its 38 locations. If necessary, equipment can be shipped from any of Penhall’s locations to projects at

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remote sites. Rental fees for Penhall’s equipment range from $80 to $430 per hour and encompass both the equipment and the operator’s time.

     Penhall solicits and receives business over the telephone, by facsimile, by written purchase order or through Penhall salesmen. Each day Penhall’s dispatcher at each location is responsible for the allocation of resources to meet the customer’s service and timing requirements. The dispatcher matches all of the work requests for that day to available equipment and operators. Each of Penhall’s skilled operators has an expertise with a particular piece of equipment. Depending on the requirements for that day, an operator may be assigned from one to four jobs on a given day. An operator’s time is allocated by job through job tickets, which generate both payroll and customer billing data.

     Historically, Penhall rented its equipment only in conjunction with the services of a Penhall employee as the operator. However, in 1996, Penhall started operating rental yards and offering Bare Equipment Rentals, or renting equipment without operators. To date, such Bare Equipment Rentals have not yet constituted a significant part of Penhall’s revenues.

     Contract pricing utilizes the same equipment and services provided through its Operated Equipment Rental Services; however, these services involve longer duration assignments lasting from a few days to several years and may generates revenues of between $7,500 and $10,000,000. Services provided on this basis include work for highway, airport and building general contractors, federal, state and municipal agencies and for property owners. Fixed-price contract projects typically use multiple types of equipment concurrently and require a Penhall supervisor to coordinate the safe and efficient function of Penhall’s workmen and equipment. For fixed-price contract projects, Penhall typically employs the use of its Operated Equipment Rental Services as well as outside rental equipment and sub-contractors. Although Penhall has obtained contractor’s licenses in 26 states (not including 24 states, which do not require licensing), it typically provides its services in the capacity of a subcontractor under prime or general contracts in approximately half of its fixed-price contract projects.

     The majority of Penhall’s fixed-price contracts are obtained through competitive bidding for general contractors. Penhall determines whether to bid on a project primarily on the basis of the type of work involved. Other factors, including the time of the project, Penhall’s ongoing project schedule and any particular risks involved also affect Penhall’s determination whether to bid on a project. In preparing a bid, Penhall’s estimators analyze material, labor and all other cost components of the proposed project. Penhall also will make its own determination of the quantity of items needed for the project and assess any special risks involved. Penhall must specify in its bid a fixed-price per unit within the range of the estimated quantity to be provided under the contract. Generally, within this range, no adjustments in unit prices are made and Penhall is committed to provide the items at the fixed unit prices specified in its bid, and any unforeseen increase in the cost of the items over the prices bid is borne by Penhall. Penhall has not borne a significant amount of cost increases in connection with its fixed-price contracting services.

     Penhall sometimes contracts directly with Federal, state or local governments or agencies, and in addition some of its work performed for general contractors may relate to a general or prime contract with a governmental entity. Generally the contracting agency reserves the right to terminate the contract with the general contractor, without cause, for its own convenience. In that event, Penhall generally is entitled to be paid its costs for the work performed to the date of termination. Penhall has not historically experienced any material contract cancellations.

SALES AND MARKETING

     Penhall maintains a sales and estimating force of approximately 120 people, with at least two salespersons based at each of Penhall’s operating locations calling on both new and existing customers. These salespeople provide estimates and prepare bids for projects. Management believes that its fixed-price contract services serve as a unique marketing tool for its Operated Equipment Rental Services and help to increase the utilization of Penhall’s operated equipment rental fleet. Penhall also regularly participates in industry trade shows and conferences, and advertises in trade journals.

PURCHASING AND SUPPLIERS

     Penhall’s size, status in the industry and relationships enable it to purchase equipment directly from manufacturers at prices and on terms that Penhall believes to be more favorable than are available to its smaller competitors. Penhall’s procurement of equipment for its rental fleet is generally coordinated through its headquarters in Anaheim, California, while smaller inventory items are typically purchased at the divisional level. Penhall’s suppliers must meet specified standards of quality and experience, and include well-known equipment manufacturers such as Caterpillar, John Deere, Ingersoll-Rand, Kenworth, General Motors Company and Ford Motor Company. The favorable pricing, service, training and information that Penhall receives from its suppliers represent what Penhall

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believes to be a significant competitive advantage. Management continually analyzes the effectiveness, quality and profitability of Penhall’s equipment and addresses equipment procurement issues. Penhall maintains no long-term supply or purchasing contracts and believes that it could readily replace any of its existing suppliers if it were no longer advantageous to purchase equipment from such suppliers.

CUSTOMERS

     Most of Penhall’s customers consist of highway, airport and building general contractors and subcontractors, and Federal, state and municipal agencies in various construction, industrial, manufacturing, governmental and residential markets. Some of Penhall’s major customers include the Mississippi Department of Transportation, Granite Construction, All American Asphalt, and Denver International Airport. During fiscal 2002, Penhall served over 11,000 customers and no one customer has accounted for more than 2% of Penhall’s revenues. Management believes that a significant percent of Penhall’s revenues represented repeat business from existing customers.

COMPETITION

     The operated equipment rental industry is a specialized niche of the overall equipment rental industry and is highly competitive. Penhall’s competitors include large national rental companies, regional companies, smaller independent businesses and equipment vendors, which sell and rent equipment to customers. The industry is also highly fragmented, and primarily consists of many relatively small, independent businesses typically serving discrete local markets within 30 to 50 miles of the equipment rental location, with few multi-location regional or national operators. Traditionally, large Operated Equipment Rental Services companies have focused their operations on providing a broad array of services to relatively large customers, primarily in medium to large metropolitan markets, while generally serving smaller markets through delivery from distant major markets.

     Competitive factors in the operated equipment rental industry include breadth of product lines, the availability of equipment and skilled operators, the condition of equipment, service, name recognition, proximity to customers and price. Penhall believes that it is able to successfully compete in the markets that it serves because of its reputation and large fleet of equipment. In addition, certain of the services provided by Penhall, such as diamond saw cutting services, are highly specialized and therefore not widely available; the market for these services therefore tends to be somewhat less competitive. Management does not believe that Penhall faces any significant competitor on a national scale, as the operated equipment rental industry is characterized primarily by local providers offering a limited array of services.

     Management believes the operated equipment rental industry benefits from the continuing trend among businesses to outsource non-core operations to reduce capital investment, convert costs from fixed to variable and minimize the downtime, maintenance, repair and storage associated with equipment ownership. Customers are increasingly using Operated Equipment Rental Services companies to provide a comprehensive supply of equipment and operators.

     Penhall’s fixed-price contract projects are obtained through competitive bidding. In many cases, a performance bond is required by a customer before a contract is awarded. Penhall believes that its bonding capacity is a competitive advantage over smaller, less financially stable competitors. Moreover, Penhall believes that it is able to compete effectively for fixed-price contract jobs because of its extensive resources and relationships with general contractors.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

     Penhall currently holds a United States trademark and service mark with respect to the “Penhall” name and logo, which it believes are of particular importance to Penhall’s business. Except with respect to the “Penhall” name and logo, Penhall is not dependent on any intellectual property rights.

MANAGEMENT INFORMATION SYSTEM

     Penhall utilizes a management information system, which was implemented in fiscal 1997 and subsequently upgraded. The management information system gives management the ability to analyze certain cost results by line of equipment and location. This information network is used to make decisions with respect to investments in new equipment as well as certain other competitive decisions. In addition, the system provides information with respect to contract work in progress, which is used by project managers and contract division management to monitor the status of jobs in progress.

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RADIO COMMUNICATIONS

     Penhall licenses from Motorola and, in one case, from an individual, the right to operate and install certain radio repeater equipment at a number of sites in the State of California. This equipment allows Penhall and its operators in the field to communicate with each other by radio.

     In connection with the radio communications referred to above, Penhall holds several licenses from the Federal Communications Commission (“FCC”) that allow it to broadcast over certain designated radio frequencies. These licenses may not be assigned without the FCC’s consent.

LABOR RELATIONS

     As of June 30, 2002 Penhall Company had approximately 1,500 full-time employees. The Company also hires, on an as-needed basis, equipment operators when work in progress necessitates additional personnel.

     Approximately, 600 of Penhall’s employees are represented by various labor unions. The Company’s unionized work force is divided into approximately 30 certified or lawfully recognized bargaining units.

     With the exception of eight agreements, all agreements expiring during Fiscal 2002 have been renewed or extended. The eight pending agreements represent only approximately sixty employees. It is anticipated that all eight agreements will be renewed without any disruption to operations. There are seven agreements expiring during fiscal 2003, all at the very end of the fiscal year. No discussions have begun on those agreements. There is no reason to believe that any expiration will have a material effect on Fiscal 2003 operations. There are currently no unfair labor practice charges pending against Penhall either before the National Labor Relations’ Board or the courts.

ITEM 2. PROPERTIES

     Penhall is headquartered in Anaheim, California. As of June 30, 2002 Penhall owned or leased 38 facilities which are used for equipment yards and accompanying office space. The following table sets forth the location and square footage of each of such facilities.

LOCATION	APPROX. SQUARE FEET
Anaheim, California		18,300
Gardena, California		3,850
Camarillo, California		3,600
San Leandro, California		6,000
Sacramento, California		8,000
San Diego, California		5,600
Riverside, California (1)		9,000
Santa Clara, California (1)		9,950
Irvine, California (1)		9,500
Bakersfield, California (1)		4,000
Burbank, California		6,200
Phoenix, Arizona		12,900
Austin, Texas		6,100
Grapevine, Texas (1)		11,000
Denver, Colorado		15,100
Austell, Georgia (1)		8,000
Las Vegas, Nevada		11,000
Portland, Oregon (1)		24,000
Salt Lake City, Utah (1)		10,500
Rogers, Minnesota (1)		11,000
Birmingham, Alabama (1)		2,000
Golden Valley, Minnesota (1)		24,000
Superior, Wisconsin (1)		4,000
Morrisville, North Carolina (1)		15,000
Charlotte, North Carolina (1)		6,000

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LOCATION	APPROX. SQUARE FEET
Greensboro, North Carolina (1)		5,184
Wilmington, North Carolina (1)		2,000
Greenville, South Carolina (1)		3,500
Columbia, South Carolina (1)		3,500
Charleston, South Carolina (1)		5,000
Buffalo, New York (1)		3,000
Kansas City, Missouri (1)		5,000
Seattle, Washington (1)		2,000
Fresno, California (1)		4,500
Richmond, Virginia (1)		1,000
Reno, Nevada (1)		900
Tucson, Arizona (1)		1,500
Visalia, California (1)		13,600

(1) Leased property.

Penhall presently leases 27 sites in 16 states (collectively, the “Leased Sites”). The average remaining term of the leases under which the Leased Sites are held (collectively, the “Real Property Leases”) is approximately 5 years (assuming the exercise of all option periods). The Real Property Leases for the following four Leased sites have remaining terms of less than three years: (i) Santa Clara, California — October 31, 2002 (ii) Buffalo, New York — November 30, 2003, Seattle, Washington — January 31, 2003 (iii) Riverside, California — June 30, 2005 (iv) Columbia, South Carolina — month to month, (v) Greenville, South Carolina — month to month.

ITEM 3. LEGAL PROCEEDINGS

     Penhall is from time to time involved in legal proceedings arising in the ordinary course of business. Penhall believes there is no outstanding litigation, which could have a material impact on its financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth quarter ended June 30, 2002.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company’s common equity is not publicly traded and, accordingly, an established market does not exist for such common equity. The Company did not pay any dividends in fiscal 2001 or 2002. The Indenture contains covenants that restrict, among other things, the ability of the Company to incur additional indebtedness, pay dividends or make certain other Restricted Payments (as defined therein), enter into transactions with affiliates, allow its subsidiaries to make certain payments, create liens, make certain asset dispositions and merge or consolidate with, or transfer substantially all of it’s assets to another person, or engage in certain change of control transactions. As part of the Recapitalization, the Issuer issued the Existing Notes in accordance with Rule 144A of the Securities Act of 1933, as amended. In December 1998, the Company filed a registration statement and the Existing Notes were exchanged for registered notes. As part of the Recapitalization, the Company became the successor obligor under the Existing Notes. See “Business — the Reorganization”.

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ITEM 6. SELECTED FINANCIAL DATA

		FISCAL YEAR ENDED JUNE 30,
		1998			1999			2000			2001			2002
		(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues		$	101,170		$	143,446		$	173,060		$	175,769		$	161,242
Cost of revenues			72,395			101,389			119,854			124,408			122,418
Gross profit			28,775			42,057			53,206			51,361			38,824
General and administrative expenses			18,673			32,570			28,474			28,347			28,364
Reorganization expenses			1,207			3,501			43			—			—
Other compensation			3,271			—			—			—			—
Other operating income			644			1,121			1,228			1,408			1,360
Earnings before interest expense and income taxes			6,268			7,107			25,917			24,422			11,820
Interest expense			1,036			14,334			15,591			15,263			14,293
Earnings (loss) before income taxes			5,232			(7,227	)		10,326			9,159			(2,473	)
Income tax expense (benefit)			2,531			(1,388	)		4,376			3,900			(856	)
Net earnings (loss)			2,701			(5,839	)		5,950			5,259			(1,617	)
Accretion of preferred stock to redemption value			—			(2,304	)		(2,854	)		(3,207	)		(3,615	)
Accrual of cumulative dividends on preferred stock			—			(2,323	)		(2,946	)		(3,263	)		(3,794	)
Net earnings (loss) available to common stockholders		$	2,701		$	(10,466	)	$	150		$	(1,211	)	$	(9,026	)
EARNINGS (LOSS) PER SHARE:
	Basic	$	.63		$	(8.16	)	$	.15		$	(1.22	)	$	(9.16	)
	Diluted		.62			(8.16	)	$	.15		$	(1.22	)	$	(9.16	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
	Basic		4,277,888			1,282,996			1,000,953			995,747			985,345
	Diluted		4,355,303			1,282,996			1,000,953			995,747			985,345
OTHER DATA:
Adjusted EBITDA (1)		$	20,931		$	31,129		$	40,481		$	40,676		$	29,005
Adjusted EBITDA margin (2)			20.7	%		21.7	%		23.4	%		23.1	%		18.0	%
Net cash provided by (used in) operating activities		$	16,628		$	(487	)	$	20,282		$	15,732		$	17,609
Net cash used in investing activities		$	(17,047	)	$	(21,188	)	$	(17,228	)	$	(17,697	)	$	(12,482	)
Net cash provided by (used in) financing activities		$	(23	)	$	24,526		$	(4,030	)	$	886		$	48
Depreciation and amortization		$	8,870		$	11,652		$	14,521		$	16,254		$	17,185
Capital expenditures		$	12,287		$	14,456		$	18,093		$	18,469		$	9,495
Units of operated equipment rentals at end of period			497			623			664			747			761
Number of locations at end of period			22			32			31			37			38
Ratio of earnings to fixed charges (3)			5.3x			—			1.6x			1.6x			—
CONSOLIDATED BALANCE SHEET DATA AT PERIOD END:
Total assets		$	88,323		$	114,163		$	122,162		$	126,962		$	132,915
Long-term obligations, including current maturities			18,564			131,324			125,235			125,208			128,970
Stockholders’ equity (deficit)			43,606			(66,965	)		(62,787	)		(61,075	)		(65,990	)

(1) Adjusted EBITDA represents earnings before interest expense, income taxes, depreciation and amortization, adjusted to exclude stock-related compensation expense, reorganization costs and other compensation (for discussion of the Company’s stock-related compensation expense and reorganization costs and other compensation, see notes 8 and 1, respectively, to the Company’s consolidated financial statements). Adjusted EBITDA is presented because Management believes it provides useful information regarding a company’s ability to incur and/or service debt. Adjusted EBITDA should not be considered in isolation or as a substitute

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for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with accounting principles generally accepted in the United States of America or as a measure of a company’s profitability or liquidity.

     The following chart depicts the components of Adjusted EBITDA:

		FISCAL YEAR ENDED JUNE 30,
		1998		1999			2000		2001		2002
Net earnings (loss)		$	2,701	$	(5,839	)	$	5,950	$	5,259	$	(1,617	)
Interest expense			1,036		14,334			15,591		15,263		14,293
Income tax expense (benefit)			2,531		(1,388	)		4,376		3,900		(856	)
Depreciation and amortization			8,870		11,652			14,521		16,254		17,185
Stock related compensation expense			1,315		8,869			—		—		—
Reorganization costs			1,207		3,501			43		—		—
Other compensation			3,271		—			—		—		—
	Adjusted EBITDA	$	20,931	$	31,129		$	40,481	$	40,676	$	29,005

(2)

Adjusted EBITDA margin is defined as Adjusted EBITDA divided by total revenues.

(3)

For the purpose of computing the ratio of earnings to fixed charges, “earnings” consists of earnings before income taxes and fixed charges. “Fixed Charges” consist of interest expense, which includes amortization of debt issuance costs and the interest portion of the Company’s rent expense. Earnings were insufficient to cover fixed charges by $7,337,000 and $2,473,000 for 1999 and 2002, respectively

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

     The following discussion of the results of operations and financial condition of Penhall should be read in conjunction with the consolidated financial statements of the Company, including the notes thereto, included in Part II of this report.

GENERAL

     Penhall was founded in 1957 in Anaheim, California with one piece of equipment, and today is one of the largest Operated Equipment Rental Services companies in the United States. Penhall differentiates itself from other equipment rental companies by providing specialized services in connection with infrastructure projects through renting equipment along with skilled operators to serve customers in the construction, industrial, manufacturing, governmental and residential markets. In addition, Penhall complements its Operated Equipment Rental Services with fixed-price contracts, which serve to market its Operated Equipment Rental Services business and increase utilization of its operated equipment rental fleet. Penhall provides its services from 38 locations in 17 states, with a presence in some of the fastest growing states in terms of construction spending and population growth.

     From fiscal 1998 to fiscal 2002, revenue and Adjusted EBITDA have grown at a CAGR of 12.3% and 8.6%, respectively, due primarily to management’s successful implementation of a strategy focused on (i) maximizing high-margin Operated Equipment Rental Services revenues through increased equipment rental fleet utilization, (ii) controlling overhead and (iii) successfully integrating Penhall’s acquisitions and start-up locations.

     The operated equipment rental industry is a specialized niche of the highly fragmented United States equipment rental industry, in which there are approximately 17,000 companies. Penhall has taken advantage of consolidation opportunities by acquiring small companies in targeted markets as well as by establishing new offices in those markets. Since 1998, Penhall has effected eight strategic acquisitions, including:

1.	HSI, a Minnesota-based firm acquired in April 1998,
2.	Daley Concrete Cutting, a South Carolina-based division of U.S. Rentals acquired in October 1998,
3.	Lipscomb Concrete Cutting, a North Carolina-based company acquired in November 1998,
4.	Prospect Drilling and Sawing, a Minnesota-based company acquired in June 1999,
5.	Advance Concrete Sawing and Drilling, Inc., a California-based company acquired in September 2000,
6.	H&P Sawing and Drilling, a Kansas City, Missouri-based Company acquired in March 2002,
7.	Bob Mack Company, California based company acquired in March 2002, and
8.	Arizona Curb Cut Company, an Arizona based company acquired in April 2002.

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     During the same period, Penhall established operations in six new markets by opening offices in Dallas, Richmond, Fresno, Buffalo, Reno, and Seattle.

     Penhall derives its revenues primarily from services provided for infrastructure related jobs. Penhall’s Operated Equipment Rental Services are provided primarily under hourly rentals, which are complemented by long-term fixed-price contracts. The following table shows the breakdown of the components of revenue for the periods indicated:

		FISCAL YEAR ENDED JUNE 30,
		2000					2001					2002
		$		% OF TOTAL			$		% OF TOTAL			$		% OF TOTAL
				(DOLLARS IN THOUSANDS)
Hourly Service Rentals		$	121,256		70.1	%	$	126,068		71.7	%	$	118,058		73.2	%
Long Term Service Contracts(1)			51,804		29.9			49,701		28.3			43,184		26.8
	Total Revenues	$	173,060		100.0	%	$	175,769		100.0	%	$	161,242		100.0	%

(1) Excludes services performed by the operated equipment rental divisions on long-term contracts.

     Revenue growth is influenced by infrastructure change, including new construction, modification, and regulatory changes. Penhall’s revenues are also impacted positively after the occurrence of natural disasters, such as the 1989 and 1994 earthquakes in Northern and Southern California. Other factors that influence Penhall’s operations are demand for operated rental equipment, the amount and quality of equipment available for rent, rental rates and general economic conditions. Historically, revenues have been seasonal, as weather conditions in the spring and summer months result in stronger performance in the first and fourth fiscal quarters than in the second and third fiscal quarters.

     The principal components of Penhall’s operating costs include the cost of labor, equipment rental fleet maintenance costs including parts and service, equipment rental fleet depreciation, insurance and other direct operating costs. Given the varied, and in some cases specialized, nature of its rental equipment, Penhall utilizes a range of periods over which it depreciates its equipment on a straight-line basis. On average, Penhall depreciates its equipment over an estimated useful life of six years with a 10% residual value.

     Penhall invests in and maintains a large and versatile fleet of rental equipment ranging from relatively small items such as diamond abrasive saws and coring units to larger equipment, including backhoes, excavators, water trucks and concrete grinders. Used equipment is sometimes sold in the ordinary course of business, and gains on sales of assets, net are recognized in “Other Operating Income” in Penhall’s consolidated statements of operations. In fiscal 2000, 2001 and 2002, gains on sales of assets from such equipment sales were $305,000, $422,000 and $300,000 respectively.

     The following table shows the number of units in Penhall’s operated equipment rental fleet for the following periods:

	FISCAL YEAR ENDED JUNE 30,
	2000			2001			2002
Beginning of Period		623			664			747
# Units Purchased		75			135			60
# Units Disposed		(34	)		(52	)		(46	)
End of Period		664			747			761

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to long-term construction contracts, accounts receivable, goodwill, long-lived assets, self-insurance, contingencies and litigation. The Company bases its estimates on current information, historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recognition of revenue that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policy affects its more significant judgments and estimates used in the preparation of its consolidated financial statements:

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Revenue Recognition on Long-Term Construction Contracts

     Income from construction operations is recorded using the percentage-of-completion method of accounting. The Company has two types of contracts. The first type of contract is fixed unit in which the percentage of completion is determined based on the units completed as a percentage of estimated total units. The second type of contract is lump sum in which percentage of completion is determined based on costs incurred to date as compared to total estimated costs at completion. If estimated total costs on any contract indicate a loss, the Company provides currently for the total loss anticipated on the contract. For long-term contracts, which extend beyond fiscal year ends, revisions in cost and profit estimates during the course of the work are reflected in the accounting period in which facts requiring the revision become known. All remaining revenue and costs are recognized as work is performed.

RESULTS OF OPERATIONS

Results of Operations

Year Ended June 30, 2002 Compared to Year Ended June 30, 2001

     Revenues. Revenues for fiscal 2002 were $161.2 million, compared to revenues of $175.8 million for the prior year, a decrease of $14.5 million or 8.3%. Lower revenues in 2002 were primarily a result of a weaker economy, a significant downturn in commercial building construction, and increased competition.

     Penhall operated through 38 locations in 17 states at June 30, 2002, compared to 37 locations in 17 states at June 30, 2001. At June 30, 2002, Penhall’s operated rental fleet consisted of 761 units compared to 747 units at June 30, 2001, an increase of 1.9%. A majority of the additional units in fiscal 2002 were acquired during the later part of the fiscal year as part of the Bob Mack Company and Arizona Curb Cut acquisitions.

     Gross Profit. For fiscal year 2002, gross profit was $38.8 million compared to gross profit of $51.4 million for fiscal year 2001, a decrease of $12.5 million, or 24.4%. As a percent of revenue, gross profit was 24.1% in fiscal year 2002 compared to 29.2% in fiscal year 2001. The decrease in gross profit in 2002 was due primarily to the decrease in utilization of the equipment rental fleet in fiscal 2002 and an increase of $3.6 million in the cost of insurance. Utilization rates were lower due to the softening of the commercial construction market and increased competition in most of the Company’s markets. The increased cost of insurance in 2002 is a result of Penhall renewing its insurance near the end of fiscal 2001 in an adverse insurance market after emerging from a three year policy which was purchased during a favorable insurance market.

     General and Administrative Expenses. General and administrative expenses were $28.4 million in fiscal year 2002 compared to $28.3 million in fiscal year 2001, an increase of $0.0 million or 0%, which is primarily attributable to a $1.1 million decrease in wages, primarily incentive compensation, offset by operating increases mainly attributable to a full year of costs associated with new offices and additional partial year operating costs associated with the Bob Mack Company and Arizona Curb Cut acquisitions. As a percentage of revenues, general and administrative expenses were 17.6% in fiscal 2002 compared to 16.1% in fiscal 2001. The increase in general and administrative expenses as a percent of revenues occurred because many of these types of expenses remain somewhat constant, and do not increase or decrease in proportion to the increases or decreases in revenues.

     Other Operating Income. Other operating income, consists primarily of gains and losses on the sale of fixed assets, interest income, and discounts earned. Other operating income in both fiscal 2002 and 2001 was $1.4 million.

     Interest Expense. Interest expense was $14.3 million in fiscal 2002 compared to $15.3 million in fiscal 2001, a decrease of 6.4%. The decrease is attributable to the lower borrowings and lower interest rates during fiscal 2002.

     Income Tax Expense (Benefit). The Company recorded an income tax benefit of $0.9 million, or 34.6% of losses before taxes in fiscal 2002 as compared to an income tax expense of $3.9 million, or 42.6% of earnings before income taxes in fiscal 2001. The lower effective tax rate on the loss in fiscal 2002 is due to unconsolidated state tax liabilities of Penhall Company and a 45% reduction of the California net operating loss.

Year Ended June 30, 2001 Compared to Year Ended June 30, 2000

     Revenues. Revenues for fiscal 2001 were $175.8 million, compared to revenues of $173.1 million for the prior year, an increase of $2.7 million or 1.6%. The increase was due primarily to the opening of new offices in Reno, Nevada, Seattle, Washington, Buffalo,

13

New York, and Richmond, Virginia, as well as the acquisition of Advance Concrete Sawing & Drilling, Inc. in Bakersfield, California and H&P Sawing & Drilling in Kansas City, Missouri. The increased revenue from the new offices and acquisitions was partially offset by lower revenues in Southern California and Highway Services. The Company faced increased competition in most of its markets, particularly those served by the divisions in Southern California and Minnesota.

     Penhall operated through 37 locations in 17 states at June 30, 2001, compared to 31 locations in 13 states at June 30, 2000. At June 30, 2001, Penhall’s operating fleet consisted of 747 units compared to 644 units at June 30, 2000, an increase of 16.0%. A majority of these new units were put in place during the later part of the fiscal year.

     Gross Profit. For fiscal year 2001, gross profit was $51.4 million compared to gross profit of $53.2 million for fiscal year 2000, a decrease of $1.8 million, or 3.4%. As a percent of revenue, gross profit was 29.2% in fiscal year 2001 compared to 30.7% in fiscal year 2000. The decrease in gross profit in 2001 was due primarily to the decrease in utilization of the equipment rental fleet in fiscal 2001. Utilization rates were lower due to the softening of the commercial construction market and increased competition in most of the Company’s markets, particularly those markets serviced by the Minnesota and the Southern California divisions.

     General and Administrative Expenses. General and administrative expenses were $28.3 million in fiscal year 2001 compared to $28.5 million in fiscal year 2000, a decrease of $0.2 million or .7%. As a percentage of revenues, general and administrative expenses were 16.1% in fiscal 2001 compared to 16.5% in fiscal 2000, a decrease of 0.4%. The reduction in general and administrative expenses as a percent of revenues occurred because many of these types of expenses remain somewhat constant, and do not increase or decrease in proportion to the increases or decreases in revenues.

     Reorganization Expenses. Reorganization expenses, consisting primarily of closing fees and legal expenses, were $0 in fiscal 2001 and $43,000 in fiscal 2000. These expenses were associated with the reorganization of the Company, which occurred in August 1998, and are non-recurring expenses.

     Other Operating Income. Other operating income, consists primarily of gains and losses on the sale of fixed assets, interest income, and discounts earned. Other operating income in fiscal 2001 of $1.4 million is only slightly higher than the $1.2 million in fiscal 2000. Most of the fiscal 2001 increase is due to increases in gains on sales of assets.

     Interest Expense. Interest expense was $15.3 million in fiscal 2001 compared to $15.6 million in fiscal 2000, a decrease of 2.1%. The decrease is attributable to the lower interest rates during fiscal 2001.

     Income Tax Expense. The Company recorded income tax expense of $3.9 million, or 42.6% of earnings before income taxes in fiscal 2001, compared to an income tax expense of $4.4 million, or 42.4% of earnings before taxes in fiscal 2000.

LIQUIDITY AND CAPITAL RESOURCES

     It is anticipated that the Company’s principal uses of liquidity will be to fund working capital, meet debt service requirements and finance the Company’s strategy of pursuing strategic acquisitions and expanding through internal growth. The Company’s principal sources of liquidity are expected to be cash flow from operations and borrowings under the New Credit Facility. The New Credit Facility consists of two facilities: (i) a six-year senior secured term loan facility in an aggregate principal amount equal to $20.0 million (the “Term Loan Facility”); and (ii) a six-year revolving credit facility in an aggregate principal amount not to exceed $30.0 million (the “Revolving Credit Facility”). The Company drew $20.0 million of loans under the Term Loan Facility (“Term Loans”) on the closing date of the New Credit Facility in connection with the Recapitalization. The Term Loans began amortizing on a quarterly basis commencing in September 2000 and are payable in installments under a schedule set forth in the New Credit Facility. Advances made under the Revolving Credit Facility (“Revolving Loans”) are due and payable in full on June 15, 2004. The Term Loans and the Revolving Loans are subject to mandatory prepayments and reductions in the event of certain extraordinary transactions or issuances of debt and equity by the Company or any subsidiary of the Company that guarantees amounts under the New Credit Facility. Such loans are also required to be prepaid with 75% of the Excess Cash Flow (as such term is defined in the New Credit Facility) of the Company or, if the Company’s Leverage Ratio (as such term is defined in the New Credit Facility) is less than 4.75 to 1.0, 50% of such Excess Cash Flow. For fiscal 2002 and 2001, no prepayments resulted from Excess Cash Flow as defined above.

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Summary Cash Flow Data (000’s) for
the periods ending June 30,		2000			2001			2002
Cash and cash equivalents		$	2,109		$	1,030		$	6,205
Net cash provided by (used in):
	Operating activities	$	20,282		$	15,732		$	17,609
	Investing activities	$	(17,228	)	$	(17,697	)	$	(12,482	)
	Financing activities	$	(4,030	)	$	886		$	48
Capital expenditures		$	18,093		$	18,469		$	9,495

     Cash provided by operating activities during fiscal 2000, 2001 and 2002 was $20.3 million, $15.7 million, and $17.6 million respectively. In fiscal 2002, the Company’s depreciation and amortization, a decrease in receivables and an increase in accounts payable and accrued liabilities was partially offset by it’s net loss, a decrease in billings in excess of costs and estimated earnings on uncompleted contracts and an increase in deferred taxes which resulted in net cash provided by operating activities of $17.6 million.

     In fiscal 2001, the Company’s net earnings plus depreciation, amortization and provision for deferred income tax and decreases in cost and estimated earnings in excess of billings on uncompleted contracts were partially offset by increases in receivables and inventories, prepaid expenses and other assets and decreases in accounts payable and billings in excess of costs and estimated earnings on uncompleted contracts which resulted in net cash provided by operating activities of $15.7 million.

     In fiscal 2000, the Company’s net earnings plus depreciation and amortization and increases in accounts payable and billings in excess of costs and estimated earnings on uncompleted contracts were partially offset by increases in receivables and inventories and costs and estimated earnings in excess of billings on uncompleted contracts, resulting in net cash provided by operating activities of $20.3 million.

     Management estimates that Penhall’s annual capital expenditures will be approximately $10.0 million for fiscal 2003, including replacement and maintenance of equipment, purchases of new equipment, and purchases of real property improvements.

     Net cash used in investing activities during fiscal 2000, 2001 and 2002 was $17.2 million, $17.7 million and $12.5 million, respectively. Such cash was primarily used for capital expenditures of $18.1 million in fiscal 2000, $18.5 million in fiscal 2001, and $9.5 million in fiscal 2002. In fiscal 2001, $0.5 million was used for the acquisition of Advance Concrete Sawing & Drilling, Inc. and H&P Sawing & Drilling. In fiscal 2002, $3.8 million was used for the acquisition of Bob Mack Company and Arizona Curb Cut.

     Net cash provided by (used in) financing activities during fiscal 2000, 2001 and 2002 was ($4.0) million, $0.9 million and $0 million respectively.

     Historically, Penhall has funded its working capital requirements, capital expenditures and other needs principally from operating cash flows. As a result of the Transactions, however, the Company has substantial indebtedness and debt service obligations. As of June 30, 2002, the Company and its subsidiaries had approximately $129.0 million of total indebtedness outstanding (including the Notes) and a stockholders’ deficit of approximately $66.0 million. As of June 30, 2002 approximately $16.2 million of additional borrowing was available under the Company’s New Credit Facility.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 2001, the FASB issued Statement No. 141, “Business Combinations,” and Statement No. 142, “Goodwill and Other Intangible Assets.” Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

15

     The Company was required to adopt the provisions of Statement 141 in June 2001, except with regard to business combinations initiated prior to July 1, 2001, which have been accounted for using the pooling-of-interests method, and is required to adopt Statement 142 effective July 1, 2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Under the provisions for the statement we did not record amortization for the two current year acquisitions. Such amortization would have amounted to $53,000. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of Statement 142.

     Statement 141 will require upon adoption of Statement 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

     In connection with the transitional goodwill impairment evaluation, Statement 142 will require the Company to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this, the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company will then have up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting unit’s carrying amount. To the extent a reporting unit’s carrying amount exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of it assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company’s statement of operations.

     And finally, any unamortized negative goodwill existing at the date Statement 142 is adopted must be written off as the cumulative effect of a change in accounting principle.

     The Company will adopt Statement 142 effective July 1, 2002. The adoption of Statement 142 may have a significant effect on the Company’s results from operations. For the years ended June 30, 2000, 2001 and 2002, the Company amortized $689,000, $687,000 and $609,000 related to goodwill. For the year ending June 30, 2003 the Company will not record $768,000 of amortization related to goodwill. Because of the extensive effort needed to comply with adopting Statement 142, it is not practicable to reasonably estimate the impact of adopting this statement on the Company’s consolidated financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle.

     On August 16, 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. The statement requires entities to record the fair value of a liability for legal obligations associated with the retirement obligations of tangible long-lived assets in the period in which it is incurred. When the liability is initially recorded, the entity increases the carrying amount of the related long-lived asset. Over time, accretion of the liability is recognized each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. The Company does not expect that the adoption of SFAS No. 143 will have a material impact on the Company’s financial position or results from operations.

     In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets,” which supercedes SFAS No. 121 and certain sections of APB Opinion No. 30. SFAS No. 144 classifies long-lived assets as either (1) to be held and used, (2) to be disposed of by other than sale, or (3) to be disposed of by sale. This standard introduces a probability-weighted cash flow estimation approach to deal with situations in which alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or a range is estimated for the amount of possible future cash flows. The Company will

16

adopt this statement beginning July 1, 2002. The Company does not expect the adoption of this standard to have a material impact on the Company’s financial position or results of operations.

     In April 2002, the Financial Accounting Standards Board, (“FASB”), issued Statement of Financial Accounting Standards No. 145, “Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” which among other things provides guidance in reporting gains and losses from extinguishments of debt and accounting for leases. The Company will adopt this statement in 2003 and is currently reviewing this statement to determine its impact. However, the Company does not expect the adoption of this standard to have a material impact on its financial position or its results of operations.

     On July 30, 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” It requires that a liability be recognized for those costs only when the liability is incurred, that is, when it meets the definition of a liability in the FASB’s conceptual framework. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with earlier adoption encouraged. The Company does not expect that the adoption of SFAS 146 will have a material impact on its financial position or results from operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     The Company is exposed to interest rate changes primarily as a result of its notes payable, including Senior Notes, Term Loan and Revolving Loan which are used to maintain liquidity and fund capital expenditures and expansion of the Company’s operations. The Company’s interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Company borrows primarily at fixed rates and has the ability to choose interest rates under the Term Loan and Revolving Loan. The Company does not enter into derivative or interest rate transactions for speculative purposes.

     There are no derivative transactions during the years ended June 30, 2001 and 2002.

     At June 30, 2002, the annual maturities of long-term debt and senior notes are as follows:

	YEARS ENDING JUNE 30,
																FAIR
	2003		2004		2005		2006		2007		THEREAFTER		TOTAL			VALUE
	(IN THOUSANDS)
Fixed rate debt	$	3,217	$	2,518	$	739	$	101,035	$	5	$	166	$	107,680		$	102,680
Average interest rate														11.30	%
Variable rate LIBOR debt (1)		6,000		15,290		0		0		0		0		21,290			21,290
Weighted average current interest rate (1)														4.11	%

     At June 30, 2001, the annual maturities of long-term debt and senior notes are as follows:

	YEARS ENDING JUNE 30,
																FAIR
	2002		2003		2004		2005		2006		THEREAFTER		TOTAL			VALUE
	(IN THOUSANDS)
Fixed rate debt	$	1,436	$	571	$	17	$	4	$	100,004	$	171	$	102,203		$	100,203
Average interest rate														11.89	%
Variable rate LIBOR debt (1)		5,000		6,000		12,005		0		0		0		23,005			23,005
Weighted average current interest rate (1)														6.23	%

(1) The Company has different interest rate options for its variable rate debt. See note 5 in the consolidated financial statements for additional information.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The Consolidated Financial Statements of the Company filed as part of this report on Form 10-K are listed in Item 14(a).

17

INDEPENDENT AUDITORS’ REPORT

The Board of Directors
Penhall International Corp. and Subsidiaries:

     We have audited the accompanying consolidated balance sheets of Penhall International Corp. and subsidiaries (“the Company”) as of June 30, 2001 and 2002, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the three-year period ended June 30, 2002. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Penhall International Corp. and subsidiaries as of June 30, 2001 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2002, in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP
KPMG LLP

September 6, 2002
Orange County, California

18

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,

				2001		2002
ASSETS
Current assets:
	Cash and cash equivalents			$	1,030,000	$	6,205,000
	Receivables:
		Contract and trade receivables			35,257,000		31,361,000
		Contract retentions, due upon completion and acceptance of work (note 2)			5,328,000		4,756,000
		Income taxes			1,084,000		1,990,000
					41,669,000		38,107,000
		Less allowance for doubtful receivables (note 2)			1,763,000		1,421,000
			Net receivables		39,906,000		36,686,000
	Costs and estimated earnings in excess of billings on uncompleted contracts (note 11)				1,856,000		2,514,000
	Deferred tax assets (note 6)				2,329,000		3,133,000
	Inventories				2,273,000		1,895,000
	Prepaid expenses and other current assets				1,417,000		2,375,000
			Total current assets		48,811,000		52,808,000
Property, plant and equipment, at cost:
	Land				5,004,000		5,004,000
	Buildings and leasehold improvements				9,417,000		8,822,000
	Construction and other equipment				115,670,000		121,890,000
					130,091,000		135,716,000
	Less accumulated depreciation and amortization				63,888,000		69,449,000
			Net property, plant and equipment		66,203,000		66,267,000
Goodwill, net of accumulated amortization of $2,551,000 and $3,159,000, respectively					7,263,000		9,053,000
Debt issuance costs net of accumulated amortization of $2,580,000 and $3,465,000, respectively (note 5)					4,062,000		3,177,000
Other assets, net (note 3)					623,000		1,610,000
				$	126,962,000	$	132,915,000

See accompanying notes to consolidated financial statements.

19

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF JUNE 30,

			2001			2002
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
	Current installments of long-term debt (note 5)		$	6,436,000		$	9,217,000
	Trade accounts payable			9,976,000			9,726,000
	Accrued liabilities (note 4)			15,061,000			17,783,000
	Billings in excess of costs and estimated earnings on uncompleted contracts (note 11)			1,688,000			680,000
		Total current liabilities		33,161,000			37,406,000
Long-term debt, excluding current installments (note 5)				18,772,000			19,753,000
Senior Notes (note 5)				100,000,000			100,000,000
Deferred tax liabilities (note 6)				7,312,000			9,339,000
Senior Exchangeable Preferred stock, redemption value $13,573,000 and $15,075,000 at June 30, 2001 and 2002, respectively. Authorized, issued and outstanding 10,000 shares (note 9)				13,573,000			15,075,000
Series A Preferred stock, redemption value $15,219,000 and $17,332,000 at June 30, 2001 and 2002, respectively. Authorized 25,000 shares; issued and outstanding 10,428 shares (note 9)				15,219,000			17,332,000
Stockholders’ deficit:
Series B Preferred stock, par value $.01 per share. Authorized 50,000 shares; issued and outstanding 18,701 and 18,791 shares at June 30, 2001 and June 30, 2002, respectively (note 9)				27,273,000			31,200,000
Common stock, $.01 par value. Authorized 5,000,000 shares; issued and outstanding 1,017,480 and 1,021,127 at June 30, 2001 and June 30, 2002, respectively				10,000			10,000
Additional paid-in capital				1,831,000			2,044,000
Treasury stock, at cost, 34,173 and 34,796 common shares at June 30, 2001 and June 30, 2002, respectively				(288,000	)		(317,000	)
Accumulated deficit				(89,901,000	)		(98,927,000	)
		Total stockholders’ deficit		(61,075,000	)		(65,990,000	)
Commitments and contingencies (notes 7, 8 and 10)
Subsequent event (note 16)
			$	126,962,000		$	132,915,000

See accompanying notes to consolidated financial statements.

20

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,

		2000			2001			2002
Revenues		$	173,060,000		$	175,769,000		$	161,242,000
Cost of revenues			119,854,000			124,408,000			122,418,000
	Gross profit		53,206,000			51,361,000			38,824,000
General and administrative expenses (note 8)			28,474,000			28,347,000			28,364,000
Reorganization expenses			43,000			—			—
Other operating income			1,228,000			1,408,000			1,360,000
	Earnings before interest expense and income taxes		25,917,000			24,422,000			11,820,000
Interest expense			15,591,000			15,263,000			14,293,000
	Earnings (loss) before income taxes		10,326,000			9,159,000			(2,473,000	)
Income tax expense (benefit) (note 6)			4,376,000			3,900,000			(856,000	)
Net earnings (loss)			5,950,000			5,259,000			(1,617,000	)
Accretion of preferred stock to redemption value			(2,854,000	)		(3,207,000	)		(3,615,000	)
Accrual of cumulative dividends on preferred stock			(2,946,000	)		(3,263,000	)		(3,794,000	)
Net earnings (loss) available to common stockholders		$	150,000		$	(1,211,000	)	$	(9,026,000	)
Earnings (loss) per share basic and diluted		$	.15		$	(1.22	)	$	(9.16	)
Weighted average number of shares outstanding basic and diluted			1,000,953			995,747			985,345

See accompanying notes to consolidated financial statements.

21

PENHALL INTERNATIONAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED JUNE 30, 2000, 2001 AND 2002

	SERIES B PREFERRED STOCK						COMMON STOCK
	SHARES						SHARES
	OUTSTANDING			AMOUNT			OUTSTANDING		AMOUNT
Balance at June 30, 1999		18,556		$	20,880,000			995,000	$	10,000
Shares issued		511			574,000			17,513		—
Accretion of redeemable preferred stock		—			—			—		—
Accrual of cumulative dividends		—			2,946,000			—		—
Repurchase of shares		(15	)		(15,000	)		—		—
Net earnings		—			—			—		—
Balance at June 30, 2000		19,052			24,385,000			1,012,513		10,000
Shares issued		146			186,000			4,967		—
Accretion of redeemable preferred stock		—			—			—		—
Accrual of cumulative dividends		—			3,263,000			—		—
Repurchase of shares		(497	)		(561,000	)		—		—
Net earnings		—			—			—		—
Balance at June 30, 2001		18,701			27,273,000			1,017,480		10,000
Shares issued		108			158,000			3,647		—
Accretion of redeemable preferred stock		—			—			—		—
Accrual of cumulative dividends		—			3,794,000			—		—
Repurchase of shares		(18	)		(25,000	)		—		—
Net loss		—			—			—		—
Balance at June 30, 2002		18,791		$	31,200,000			1,021,127	$	10,000

[Additional columns below]

[Continued from above table, first column(s) repeated]

			TREASURY STOCK
												TOTAL
	ADDITIONAL		SHARES						ACCUMULATED			STOCKHOLDERS'
	PAID-IN CAPITAL		OUTSTANDING			AMOUNT			DEFICIT			DEFICIT
Balance at June 30, 1999	$	985,000		(523	)	$	—		$	(88,840,000	)	$	(66,965,000	)
Shares issued		537,000		—			—			—			1,111,000
Accretion of redeemable preferred stock		—		—			—			(2,854,000	)		(2,854,000	)
Accrual of cumulative dividends		—		—			—			(2,946,000	)		—
Repurchase of shares		—		(5,491	)		(14,000	)		—			(29,000	)
Net earnings		—		—			—			5,950,000			5,950,000
Balance at June 30, 2000		1,522,000		(6,014	)		(14,000	)		(88,690,000	)		(62,787,000	)
Shares issued		309,000		—			—			—			495,000
Accretion of redeemable preferred stock		—		—			—			(3,207,000	)		(3,207,000	)
Accrual of cumulative dividends		—		—			—			(3,263,000	)		—
Repurchase of shares		—		(28,159	)		(274,000	)		—			(835,000	)
Net earnings		—		—			—			5,259,000			5,259,000
Balance at June 30, 2001		1,831,000		(34,173	)		(288,000	)		(89,901,000	)		(61,075,000	)
Shares issued		213,000		—			—			—			371,000
Accretion of redeemable preferred stock		—		—			—			(3,615,000	)		(3,615,000	)
Accrual of cumulative dividends		—		—			—			(3,794,000	)		—
Repurchase of shares		—		(623	)		(29,000	)		—			(54,000	)
Net loss		—		—			—			(1,617,000	)		(1,617,000	)
Balance at June 30, 2002	$	2,044,000		(34,796	)	$	(317,000	)	$	(98,927,000	)	$	(65,990,000	)

See accompanying notes to consolidated financial statements.

22

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30,

				2000			2001			2002
Cash flows from operating activities:
Net earnings (loss)				$	5,950,000		$	5,259,000		$	(1,617,000	)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
	Depreciation and amortization				14,521,000			16,254,000			17,185,000
	Amortization of debt issuance costs				885,000			884,000			885,000
	Provision for doubtful receivables				340,000			146,000			340,000
	Provision for (benefit from) deferred income taxes				2,397,000			1,256,000			(736,000	)
	Gains on sale of assets, net				(305,000	)		(422,000	)		(300,000	)
	Changes in operating assets and liabilities, net of effects of acquisitions:
		Receivables			(4,793,000	)		(4,111,000	)		2,880,000
		Inventories, prepaid expenses and other assets			(780,000	)		(1,074,000	)		(372,000	)
		Costs and estimated earnings in excess of billings on uncompleted contracts			(972,000	)		2,270,000			(658,000	)
		Trade accounts payable, accrued liabilities and income taxes payable			1,454,000			(3,783,000	)		1,010,000
		Billings in excess of costs and estimated earnings on uncompleted contracts			1,585,000			(947,000	)		(1,008,000	)
			Net cash provided by operating activities		20,282,000			15,732,000			17,609,000
Cash flows from investing activities:
	Proceeds from sale of assets				865,000			1,292,000			832,000
	Capital expenditures				(18,093,000	)		(18,469,000	)		(9,495,000	)
	Acquisition of companies, net of cash acquired				—			(520,000	)		(3,819,000	)
			Net cash used in investing activities		(17,228,000	)		(17,697,000	)		(12,482,000	)
Cash flows from financing activities:
	Borrowings under long-term debt				28,726,000			71,824,000			85,823,000
	Repayments of long-term debt				(36,796,000	)		(73,803,000	)		(86,288,000	)
	Book overdraft				2,965,000			2,891,000			196,000
	Debt issuance costs				(7,000	)		—			—
	Proceeds from issuance of common stock				537,000			309,000			213,000
	Repurchase of common stock and Series B preferred stock				(29,000	)		(521,000	)		(54,000	)
	Issuance of Series B preferred stock				574,000			186,000			158,000
			Net cash provided by (used in) financing activities		(4,030,000	)		886,000			48,000
			Net increase (decrease) in cash and cash equivalents		(976,000	)		(1,079,000	)		5,175,000
Cash and cash equivalents at beginning of year					3,085,000			2,109,000			1,030,000
Cash and cash equivalents at end of year				$	2,109,000		$	1,030,000		$	6,205,000

See note 15 for supplementary cash flow information.

See accompanying notes to consolidated financial statements.

23

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

COMPANY’S ACTIVITIES AND OPERATING CYCLE

     Penhall International, Inc. (“PII”) was founded in 1957 and was incorporated in the state of California on April 19, 1988. On August 4, 1998, $100,000,000 of 12% Senior Notes (the Senior Notes) were sold by Penhall Acquisition Corp., an Arizona corporation formed by an unrelated third party (the Third Party) to effect the recapitalization of PII. As part of the recapitalization, a series of mergers (the Recapitalization Mergers) were consummated pursuant to which Phoenix Concrete Cutting, Inc., a wholly-owned subsidiary of PII, became the corporate parent of PII, the Third Party acquired a 62.5% interest in Phoenix Concrete Cutting, Inc. and Phoenix Concrete Cutting, Inc. became the successor obligor of the Senior Notes. Following the consummation of the Recapitalization Mergers, Phoenix Concrete Cutting, Inc. changed its name to Penhall International Corp., and PII changed its name to Penhall Rental Corp. Under accounting principles generally accepted in the United States of America, the recapitalization mergers were accounted for as a leveraged recapitalization transaction in a manner similar to a pooling-of-interests. Under this method, the transfer of controlling interest in PII to a new investor did not change the accounting basis of the assets and liabilities in PII’s separate stand-alone financial statements.

     In connection with the recapitalization mergers, PII on June 30, 1998 entered into a certain Compensation Tax Consistency and Indemnification Agreement (the Agreement) with certain members of management. Under the Agreement, PII was obligated to make approximately $3,000,000 of tax gross-up payments to certain members of management. For the years ended June 30, 2000, 2001 and 2002, $43,000, $0 and $0, respectively, is included in reorganization expenses for the costs associated with the recapitalization mergers.

     Penhall International Corp. and its wholly-owned subsidiaries, Penhall Rental Corp. and Penhall Company (collectively, “the Company” or “Penhall”) serves customers in the industrial, construction, governmental, and residential markets, primarily through the performance of new construction, rehabilitation, and demolition services in connection with infrastructure projects. The Company’s revenues are generated through equipment rentals, both short-term and longer term under fixed price agreements. The length of the fixed price agreements (contracts) varies, but typically range from one to 12 months. In accordance with the operating cycle concept, the Company classifies all contract-related assets and liabilities as current items. The Company’s base of operations includes among others, the states of California, Arizona, Colorado, Nevada, Texas, Georgia, North Carolina, South Carolina and Utah. Additionally, through its purchase in April of 1998 of Highway Services, Inc., the Company’s operations were expanded to include the mid-western states of the United States and some provinces of Canada. The Company’s operations are primarily conducted through Penhall International Corp. and its wholly owned subsidiary, Penhall Company.

BASIS OF CONSOLIDATION

     The consolidated financial statements include the accounts of Penhall International Corp. and its wholly owned subsidiaries: Penhall Rental Corp. and Penhall Company. Penhall Company has three wholly owned subsidiaries, Penhall Investments, a California Corporation, Penhall Leasing, a California single member limited liability company and Bob Mack Company, Inc. a California Corporation. All significant intercompany transactions have been eliminated in consolidation.

24

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

REVENUE RECOGNITION ON LONG-TERM CONSTRUCTION CONTRACTS

     Income from construction operations is recorded using the percentage-of-completion method of accounting. The Company has two types of contracts. The first type of contract is fixed unit in which the percentage of completion is determined based on the units completed as a percentage of estimated total units. The second type of contract is lump sum in which percentage of completion is determined based on costs to date as compared to total estimated costs at completion. If estimated total costs on any contract indicate a loss, the Company provides currently for the total loss anticipated on the contract. For long-term contracts, which extend beyond fiscal year ends, revisions in cost and profit estimates during the course of the work are reflected in the accounting period in which facts requiring the revision become known. All remaining revenue and costs are recognized as work is performed.

     Contract costs include all direct material, equipment rentals, labor and subcontract costs and those indirect costs related to contract performance, such as indirect labor, tools, supplies, repairs and depreciation. General and administrative costs are charged to expense as incurred.

     The asset “costs and estimated earnings in excess of billings on uncompleted contracts” represents revenues recognized in excess of amounts billed. The liability “billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized.

     Income from claims for additional contract compensation is recorded upon settlement of the disputed amount.

CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of June 30, 2001 and 2002, cash equivalents were $0.0 and $4.7 million, respectively.

INVENTORIES

     Inventories, which consist primarily of diamond cutting blades and fuel, are stated at cost. Cost is determined using the purchase price of the assets and is expensed based on usage.

PROPERTY, PLANT AND EQUIPMENT

     The Company and its subsidiaries provide for depreciation of property, plant and equipment based on the following estimated useful lives of the assets, using the straight-line method and a residual value of approximately 10%:

     Buildings and leasehold improvements 15 to 39 years

     Construction and other equipment 3 to 8 years

     Leasehold improvements are amortized over the lesser of the life of the lease or useful life of the asset.

     The cost and accumulated depreciation applicable to assets sold or otherwise disposed of are eliminated from the asset and accumulated depreciation accounts. Gain or loss on disposition is reflected in other operating income.

25

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

GOODWILL

     Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, generally 15 years. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company’s average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. Amortization expense related to goodwill amounted to $689,000, $687,000 and $609,000 for the years ended June 30, 2000, 2001 and 2002, respectively.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

     Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future net cash flows (undiscounted and without interest) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

INCOME TAXES

     Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ENVIRONMENTAL REMEDIATION COSTS

     Losses associated with environmental remediation obligations are accrued for when such losses are probable and reasonably estimable. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value.

SELF-INSURANCE

     Effective May 2001, the Company increased its third-party insurance deductible to $250,000 per occurrence. Such self-insurance relates to losses and liabilities primarily associated with workers’ compensation claims and general and vehicle liability. Losses are accrued based upon the accumulation of estimates for reported losses and includes a provision, based on past experience and using actuarial assumptions, for losses incurred but not reported. The method of determining such estimates and establishing the resulting reserves is continually reviewed and updated. Any adjustments resulting therefrom are reflected in current operations. As of June 30, 2001 and June 30, 2002, the Company had recorded a discounted accrued liability for self-insurance of $1,038,000 and $5,071,000, respectively. The discount rate utilized as of June 30, 2002 was 5.0%. The accrued liability on an undiscounted basis at June 30, 2002 was $5,675,000. Management believes that the accrual is adequate to cover the losses incurred to date; however, this accrual is based on estimates and the ultimate liability may be more or less than the amount provided.

STOCK-BASED COMPENSATION

     Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123

26

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

also allows entities to continue to apply the provisions of APB Opinion No. 25 and to provide disclosures for employee stock-based compensation grants as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.

EARNINGS (LOSS) PER SHARE

     Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net earnings (loss) available to common stockholders by the weighted average number of common shares outstanding during the period plus the impact of assumed potential diluted securities. The dilutive effect of outstanding options is reflected in diluted earnings per share by application of the treasury stock method. For the years ended June 30, 2000 and 2001 diluted earnings (loss) per share is the same as basic earnings per share as there are no assumed potential dilutive securities. During the year ended June 30, 2002, diluted earnings (loss) per share is the same as basic earnings (loss) per share as options to purchase 9,260 shares of common stock were not included in the computation of diluted earnings (loss) per share for the year ended June 2002 as the effect would have been anti-dilutive.

MANAGEMENT’S ESTIMATES

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

COMPREHENSIVE INCOME

     In 1999, the Company adopted SFAS No. 130, “Reporting Comprehensive Income”, which established new rules for the reporting and display of comprehensive income and its components. Comprehensive income equals net income for each of the years in the three-year period ended June 30, 2002.

SEGMENT INFORMATION

     The Company’s only line of business is the rental of operator assisted equipment for use in infrastructure projects. This equipment is rented on an hourly basis (Services) and on a longer-term, fixed price basis (Contracts). In fiscal 2002, approximately 73% of revenues were generated from Services, and approximately 27% of revenues were generated from Contracts. The Company does not account for, or manage, the hourly or fixed-price rentals in a separate manner. Over the past 3 fiscal years, approximately 27% to 30% of Services revenues have been generated from Contracts.

     The Company has a non-operated assisted rental business (Bare Rentals). Bare Rentals were insignificant to the consolidated operations for each of the fiscal years ended June 30, 2000, 2001 and 2002.

RECLASSIFICATIONS

     Certain 2001 balances have been reclassified to conform to the presentation used in 2002.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 2001, the FASB issued Statement No. 141, “Business Combinations,” and Statement No. 142, “Goodwill and Other Intangible Assets.” Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from

27

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period.

     The Company was required to adopt the provisions of Statement 141 in June 2001, except with regard to business combinations initiated prior to July 1, 2001, which have been accounted for using the pooling-of-interests method, and is required to adopt Statement 142 effective July 1, 2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Under the provisions of Statement 141 we did not record amortization for the two current year acquisitions. Such amortization would have amounted to $53,000. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of Statement 142. For the year ending June 30, 2003 the Company will not record $768,000 of amortization related to goodwill.

(2) RECEIVABLES

     Contract receivables represent those amounts, which actually have been billed. Contract retentions are collectible upon completion or other milestones of contract performance. Based upon anticipated contract completion dates, these retainages are expected to be collected as follows:

	JUNE 30,		JUNE 30,
	2001		2002
Years ending June 30:
2002	$	4,209,000	$	—
2003		799,000		3,805,000
2004		320,000		594,000
2005		—		357,000
	$	5,328,000	$	4,756,000

     Transactions in the allowance for doubtful receivables are summarized as follows:

	YEARS ENDED JUNE 30,
	2000			2001		2002
Balance, beginning of year	$	1,277,000		$	1,617,000	$	1,763,000
Provision for doubtful accounts		1,818,000			84,000		340,000
Accounts (charged off) collected		(1,478,000	)		62,000		(682,000	)
Balance, end of year	$	1,617,000		$	1,763,000	$	1,421,000

(3) OTHER ASSETS:

     Other assets consist of the following:

	JUNE 30,			JUNE 30,
	2001			2002
Covenants not to compete	$	1,473,000		$	2,947,000
Accumulated amortization		(1,096,000	)		(1,382,000	)
Other		246,000			45,000
	$	623,000		$	1,610,000

28

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

     The covenants not to compete are amortized over the life of the agreements. Amortization expense related to the covenants not to compete amounted to $445,000, $418,000 and $286,000 for the years ended June 30, 2000, 2001 and 2002, respectively.

4) ACCRUED LIABILITIES:

     Accrued liabilities consist of the following:

	JUNE 30,		JUNE 30,
	2001		2002
Union benefits	$	1,013,000	$	675,000
Accrued bonuses		3,204,000		1,577,000
Accrued interest		5,253,000		5,179,000
Accrued insurance		1,726,000		5,779,000
Accrued vacation		421,000		531,000
Accrued payroll		2,443,000		2,134,000
Non-compete agreements		180,000		1,284,000
Other		821,000		624,000
	$	15,061,000	$	17,783,000

(5) SENIOR NOTES AND LONG-TERM DEBT

     Senior Notes

     On August 4, 1998, in connection with the Recapitalization Mergers, the Company issued $100,000,000 of Senior Notes guaranteed by the wholly-owned subsidiaries of Penhall International Corp. Interest at 12% is payable semiannually in arrears beginning February 1, 1999; all unpaid principal and interest is due August 1, 2006. In addition, the Senior Notes are redeemable at the Company’s option, in whole at any time or in part from time to time, on or after August 1, 2003, at certain redemption rates ranging from 106% to 102%. The Senior Notes contain certain financial and non-financial covenants. The Company was in compliance with all such covenants at June 30, 2002.

29

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

Long-term Debt

     Long-term debt consists of the following:

	JUNE 30,		JUNE 30,
	2001		2002
Note payable to former officer and shareholder, bearing interest at 8.0% per annum; principal and interest payable monthly until October 2002	$	233,000	$	61,000
Note payable secured by certain equipment, stated interest of 0%, imputed interest at 9.25% per annum which resulted in a discount of $200,000; payable $428,000 due and paid on June 1, 2002		400,000		—
Note payable secured by certain equipment, stated interest of 0%, imputed interest at 10.0% per annum which resulted in a discount of $61,000; $300,000 due September 30, 2002		365,000		295,000
Note payable secured by certain equipment, stated interest of 0%, imputed interest at 9.0% per annum which resulted in a discount of $51,000; payable $193,000 due March 31, 2003		346,000		181,000
Note payable secured by certain equipment, interest of 0%, imputed interest at 3.9% per annum which resulted in a discount of $24,000; payable $123,000 due December 31, 2002, 2003 and 2004		—		346,000
Note payable secured by certain equipment, interest of 2.7% per annum; principal and interest payable $200,000 due March 1, 2003 and 2004		—		388,000
Note payable secured by certain equipment, interest of 2.7% per annum; principal and interest payable $1,500,000 due March 1, 2003 and 2004		—		2,908,000
Revolving Loan in the maximum credit amount of $30,000,000 secured by certain assets of the Company. The Company may elect to maintain the Revolving Loan as a Base Rate Loan, which accrues interest quarterly at 1.25% to 2.00% (as defined) plus the higher of the Federal Funds Effective Rate (as defined) or the then current prime rate and is payable quarterly, and/or convert into a Eurodollar Loan, which accrues interest at 2.25% to 3.00% (as defined) plus the Eurodollar Rate (as defined) and is payable on the last day of each elected interest period, which shall range from one to six months, as elected by the Company. All unpaid principal and interest is due June 15, 2004. The effective interest rate at June 30, 2001 and 2002 was 6.23% and 4.59%, respectively		6,005,000		9,290,000
$20,000,000 Term Loan secured by certain assets of the Company; principal payments of $750,000 per quarter commencing September 15, 2000 through June 15, 2001, $1,250,000 per quarter through June 15, 2002, and $1,500,000 per quarter through June 15, 2004. The Company may elect to maintain the Term Loan as a Base Rate Loan, which accrues interest quarterly at 1.25% to 2.00% (as defined) plus the higher of the Federal Funds Effective Rate (as defined) or the current prime rate and is payable quarterly, and/or convert into a Eurodollar Loan, which accrues interest at 2.25% to 3.00% (as defined) plus the Eurodollar Rate (as defined) and is payable on the last day of each elected interest period, which shall range from one to six months, as elected by the Company. All unpaid principal and interest is due June 15, 2004. The effective interest rate at June 30, 2001 and 2002 was 5.69% and 3.67%, respectively		17,000,000		12,000,000
Various capital leases and equipment financing agreements due through October 2005 with interest ranging from 0% to 10.0% per annum		662,000		3,315,000
Other		197,000		186,000
		25,208,000		28,970,000
Less current installments of long-term debt		6,436,000		9,217,000
Long-term debt, excluding current installments	$	18,772,000	$	19,753,000

30

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

     As part of the Revolving Loan, the Company has a Swingline Loan in the maximum credit amount of $2,500,000 secured by certain assets of the Company; interest accrues quarterly at 1.25% and 2.00% plus the higher of the Federal Funds Effective Rate (as defined) or then current prime rate and is payable in quarterly installments, at June 30, 2001 and 2002 respectively. All unpaid principal and interest is due June 10, 2004.

     The Term Loan, Revolving Loan, and Swingline Loan (the “Credit Facility”) contain certain financial and non-financial covenants, including working capital, net worth, and debt to equity ratios. The Company is also required to make defined prepayments in the event cash flows from operations exceed specified amounts, as defined. The Company is required to be in compliance with certain covenants and ratios or to request a waiver if not in compliance. The Company received a waiver for each of the following covenants and/or ratios as of June 30, 2002: (1) Interest Coverage Ratio, (2) Leverage Ratio and (3) Minimum Consolidated EBITDA (all covenants/ratios as defined in the Credit Facility Agreement). No prepayments were required during the years ended June 30, 2001 and 2002. Additionally, under the terms of the Credit Facility, the Company had pledged all of the assets of its wholly owned subsidiaries as collateral.

     The Company had unused and available amounts under its Credit Facility in the amount of $16,230,000 at June 30, 2002.

     On March 18, 2002, Penhall Company entered into a Note and Security Agreement with a bank in the amount of $2,806,000 secured by certain equipment. Fifty (50) monthly payments of principal (as scheduled) and interest of 2.60% plus the rate of interest equal to LIBOR (as defined) are required with a final payment in the fifty first (51st) month of $472,000. The Company is required to be in compliance with certain covenants and ratios or to request a waiver if not in compliance. The Company received a waiver for each of the following covenants/ratios as of June 30, 2002: (1) Interest Coverage Ratio and (2) Leverage Ratio (all covenants/ratios as defined in the Note and Security Agreement).

     Annual maturities of long-term debt for the next five years are as follows:

	JUNE 30
2003	$	9,217,000
2004		17,808,000
2005		739,000
2006		1,035,000
2007		5,000
Thereafter		166,000
	$	28,970,000

(6) INCOME TAXES

     Income tax expense (benefit) is comprised of the following components for each fiscal year ended June 30:

		YEAR ENDED JUNE 30,
		2000			2001		2002
Current tax expense (benefit):
	Federal	$	1,506,000		$	2,345,000	$	(180,000	)
	State		473,000			299,000		60,000
			1,979,000			2,644,000		(120,000	)
Deferred tax expense (benefit):
	Federal		2,490,000			490,000		(589,000	)
	State		(93,000	)		766,000		(147,000	)
			2,397,000			1,256,000		(736,000	)
		$	4,376,000		$	3,900,000	$	(856,000	)

31

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

     As of June 30, 2001 and 2002, the Company has a current net deferred tax asset of $2,329,000 and $3,133,000, respectively, and a net non-current deferred tax liability of $7,312,000 and $9,339,000, respectively.

     Significant components of the Company’s deferred income tax assets and liabilities are as follows:

				JUNE 30,			JUNE 30,
				2001			2002
Deferred tax assets:
	Allowance for doubtful receivables			$	709,000		$	571,000
	Accruals not currently deductible				1,620,000			2,536,000
	Net operating loss carryforwards				—			26,000
		Total deferred tax assets		$	2,329,000		$	3,133,000
Deferred tax liabilities — Depreciation and amortization					(7,312,000	)		(9,339,000	)
			Net deferred tax liability	$	(4,983,000	)	$	(6,206,000	)

     In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences.

     Deferred income tax expense (benefit) consists of the following:

	YEARS ENDED JUNE 30
	2000			2001			2002
Allowance for doubtful receivables	$	(97,000	)	$	(103,000	)	$	138,000
Accruals not currently deductible and other		(958,000	)		166,000			(916,000	)
Depreciation and amortization		1,239,000			1,193,000			68,000
Net operating loss carryforwards		2,213,000			—			(26,000	)
	$	2,397,000		$	1,256,000		$	(736,000	)

     Income tax expense (benefit) for each fiscal year ended June 30 differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to earnings (loss) before income taxes as follows:

	YEARS ENDED JUNE 30
	2000		2001		2002
Computed “expected” tax expense (benefit)	$	3,614,000	$	3,206,000	$	(865,000	)
Increase (decrease) in taxes resulting from:
State income tax expense (benefit), net of Federal income tax deduction		250,000		692,000		(57,000	)
Other, net		512,000		2,000		66,000
	$	4,376,000	$	3,900,000	$	(856,000	)

32

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

(7) EMPLOYEE RETIREMENT PLANS

     The Company and its subsidiaries contribute to multi-employer pension plans, primarily defined benefit plans, as required by collective bargaining agreements. Contributions to such plans are determined in accordance with the provisions of negotiated labor contracts and are generally based on the number of hours worked. Amounts contributed to these plans in fiscal 2000, 2001 and 2002 aggregated $2,475,000, $3,035,000 and $2,589,000 respectively. In the event of the Company’s partial or total withdrawal from such plans, it may be liable for its share of any unfunded vested benefits thereunder. The Company may also be assessed for its share of any unfunded vested benefits resulting from partial or total withdrawal from such plans and any non-payment by other employer participants. Less than 10% of the Company’s employees are covered by a collective bargaining agreement that will expire within one year.

     The Company sponsors a defined contribution 401(k) plan. Subject to certain terms and conditions of the plan, substantially all of the Company’s non-union employees are eligible to participate in the plan. The Company may, but is not required to, make matching contributions to the plan each year, which are allocated to each participant’s account in proportion to the amount that he or she has contributed to the plan during the applicable plan year. All Company and employee contributions to the plan plus the earnings thereon are 100% vested. Costs incurred under the plan were $349,000, $376,000 and $515,000 related to the plan for the years ended June 30, 2000, 2001 and 2002, respectively.

(8) STOCK COMPENSATION PLANS

     Stock Incentive Plan

     On October 7, 1999, the Company’s Board of Directors approved a stock incentive plan (the “Plan”) under which employees, officers, directors or consultants (“Eligible Participants”) may be granted stock options and restricted stock awards. The Board authorized the issuance of up to 50,000 shares of common stock and 2,500 shares of Series B Preferred Stock under the Plan. The Plan is administered by the Board of Directors or an appointed committee (Administrator). The exercise price for stock options or restricted stock awards shall not be less than the Fair Market Value (as defined) of the stock on the grant date subject to restrictions and conditions, including the Company’s option to repurchase, as determined by the Administrator at the time of the grant. The term of each stock option shall be fixed, and not exceeding 10 years from the grant date of the stock option. In addition, stock options may be subject to specific vesting and acceleration provisions as determined by the Administrator at or after the grant date. On November 12, 1999, the Company issued 17,513 shares of common stock for an aggregate purchase price of $537,000 and 511 shares of Series B Preferred Stock for an aggregate purchase price of $574,000 to Eligible Participants under the Plan. On October 20, 2000, the Company issued 4,967 shares of common stock for an aggregate purchase price of $309,000 and 146 shares of Series B Preferred Stock for an aggregate purchase price of $186,000 to Eligible Participants under the Plan. On November 16, 2001, the Company issued 3,647 shares of common stock for an aggregate purchase price of $213,000 and 108 shares of Series B Preferred Stock for an aggregate purchase price of $158,000 to Eligible Participants under the Plan. On November 16, 2001, 9,420 stock options were granted to Eligible Participants under the Plan at an exercise price of $58.51. These options vest ratably over 5 years and are exercisable up to ten years from date of grant.

     Stock option activity during the periods indicated is as follows:

		Number of shares			Weighted-average
		underlying options			exercise price
Balance at June 30, 2001			—
	Granted		9,420		$	58.51
	Forfeited		(160	)	$	58.51
Balance at June 30, 2002			9,260		$	58.51

     At June 30, 2002 there were no exercisable options. The weighted average price and the weighted average remaining life of outstanding options was $58.51 and 9.4 years, respectively.

33

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

     In accounting for its Plan, the Company has elected the pro forma disclosure option under SFAS No. 123. Accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company’s basic and diluted net loss available to common stockholders per share would have been adjusted to the pro forma amounts as indicated below:

	Net Loss Available to Common Stockholders			Loss Per Share
As reported		($9,026,000	)		($9.16	)
Pro forma		($9,118,000	)		($9.25	)

     At the grant date, the weighted average fair value of options granted was $14.71, this was determined using the Black-Scholes option pricing model with the following assumptions used for calculation: risk-free interest rate of 4.8%, volatility of 6.1%, dividend rate of 0% and an expected life of 10 years.

     Stockholders Agreement

     Upon consummation of the Recapitalization Mergers, an affiliate, the management stockholders and Penhall International Corp. entered into a Securities Holders Agreement (the “Stockholders Agreement”) containing certain agreements among such stockholders with respect to the capital stock and corporate governance of the Company and its subsidiaries.

     The Stockholders Agreement contains certain provisions, which, with certain exceptions, restrict the ability of the management stockholders from transferring any common stock or Series B preferred stock except pursuant to the terms of the Stockholders Agreement. If the Board of Directors of Penhall International Corp. and holders of at least a majority of the common stock of Penhall International Corp. then outstanding shall approve the sale of Penhall International Corp. or any of its subsidiaries to an unaffiliated third person (an “Approved Sale”), each stockholder of the Company shall consent to, vote for and raise no objections against, and waive dissenters and appraisal rights (if any) with respect to, the Approved Sale and, if such sale shall include the sale of capital stock, each stockholder shall sell such stockholder’s capital stock on the terms and conditions approved by the Board of Directors of Penhall International Corp. and the holders of a majority of the common stock of Penhall International Corp. then outstanding. The Stockholders Agreement also provides for certain additional restrictions on transfer of Penhall International Corp.’s common stock and Series B preferred stock by the management stockholders, including the right of Penhall International Corp. to purchase certain common stock and Series B preferred stock of Penhall International Corp. held by a management stockholder upon termination of such management stockholder’s employment on or prior to the later of the fifth anniversary of the consummation of the Recapitalization Mergers and the 180th day following an Initial Public Offering (as defined below), at its original issuance price, and the grant of a right of first refusal in favor of Penhall International Corp. in the event a management stockholder elects to transfer such common stock or Series B preferred stock. Under the Stockholders Agreement, a management stockholder has the right, subject to the restrictions set forth in agreements relating to indebtedness of the Company, to require Penhall International Corp. to purchase certain common stock and Series B preferred stock of the Company held by such management stockholder upon termination of such management stockholder’s employment on or prior to the later of the fifth anniversary of the consummation of the Recapitalization Mergers and the 180th day following an Initial Public Offering, at its original issuance price. “Initial Public Offering” means the sale by the Company in an underwritten public offering made pursuant to an effective registration statement under the Securities Act of common stock for gross offering proceeds of at least $30 million. The Stockholders Agreement also contains certain provisions that provide the management stockholders with a termination benefit upon termination of employment without cause, death or disability. The amount of the termination benefit is based upon the book value of the common stock and Series B preferred stock, as defined in the Stockholders Agreement. However, if Penhall International Corp. does not meet certain EBITDA growth criteria, the amount that a management stockholder will receive for outstanding common stock or Series B preferred stock under any form of termination is the lower of the original issuance price or book value.

     Shares outstanding that are subject to the buy-out provisions of the Stockholders Agreement are 358,389 and 359,840 shares of common stock and 8,552 and 8,729 shares of Series B preferred stock at June 30, 2001 and 2002, respectively.

34

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

(9) REDEEMABLE PREFERRED STOCK

     Senior Exchangeable Preferred Stock

     Penhall International Corp. is authorized to issue up to 250,000 shares of preferred stock, par value $.01 per share (“Preferred stock”), of which 10,000 shares have been designated as Senior Exchangeable Preferred stock. With respect to dividend rights and rights on liquidation, winding up and dissolution of Penhall International Corp., the Senior Exchangeable Preferred stock ranks senior to the Common stock, the Series A preferred stock and the Series B Preferred stock. Holders of Senior Exchangeable Preferred stock are entitled to receive, when, as and if declared by the Board of Directors of Penhall International Corp., out of funds legally available for payment thereof, cash dividends on each share of Senior Exchangeable Preferred stock at a rate per annum equal to 10.5% of the Senior Exchangeable Preferred Liquidation Preference (as defined below) of such share before any dividends are declared and paid, or set apart for payment, on any shares of capital stock junior to the Senior Exchangeable Preferred stock (“Senior Exchangeable Junior Stock”) with respect to the same dividend period. All dividends shall be cumulative without interest, whether or not earned or declared. “Senior Exchangeable Preferred Liquidation Preference” means, on any specific date, with respect to each share of Senior Exchangeable Preferred stock, the sum of (i) $1,000 per share plus (ii) the accumulated unpaid dividends with respect to such share.

     Penhall International Corp. may, at its option, redeem at any time, from any source of funds legally available therefore, in whole or in part, any or all of the shares of Senior Exchangeable Preferred stock, at a redemption price per share equal to 100% of the then effective Senior Exchangeable Preferred Liquidation Preference per share, plus an amount equal to a prorated dividend for the period from the dividend payment date immediately prior to the redemption date to the redemption date. On February 1, 2007, Penhall International Corp. shall redeem, from any source of funds legally available therefore, all of the then outstanding shares of Senior Exchangeable Preferred stock at a redemption price per share equal to 100% of the then effective Senior Exchangeable Preferred Liquidation Preference per share, plus an amount equal to a prorated dividend for the period from the dividend payment date immediately prior to the redemption date to the redemption date.

     The Senior Exchangeable Preferred stock is exchangeable by Penhall International Corp. at any time and from time to time for junior subordinated notes (the “Junior Subordinated Notes”) in an amount equal to the Senior Exchangeable Preferred Liquidation Preference plus an amount equal to a prorated dividend for the period from the dividend payment date immediately prior to the exchange date to the exchange date. The Junior Subordinated Notes will pay interest from the date of exchange at the rate of 10.5% per annum in cash; provided, however, that Penhall International Corp. shall be prohibited from paying interest on the Junior Subordinated Notes in cash for so long as the such notes shall remain outstanding. In such event, interest shall be deemed to be paid by such amount being added to the outstanding principal amount of the Junior Subordinated Notes and shall accrue interest as a portion of the principal amount of the Junior Subordinated Notes to the maximum extent permitted by law. If issued, the Junior Subordinated Notes will mature on February 1, 2007.

     In the event of a voluntary or involuntary liquidation, dissolution or winding up of Penhall International Corp., holders of Senior Exchangeable preferred stock shall be entitled to be paid out of the assets of Penhall International Corp. available for distribution to its stockholders an amount in cash equal to the Senior Exchangeable Preferred Liquidation Preference per share, plus an amount equal to a prorated dividend from the last dividend payment date to the date fixed for liquidation, dissolution or winding up, before any distribution is made on any shares of Senior Exchangeable Junior Stock. If such available assets are insufficient to pay the holders of the outstanding shares of Senior Exchangeable preferred stock in full, such assets, or the proceeds thereof, shall be distributed ratably among such holders. Except as otherwise required by law, the holders of Senior Exchangeable preferred stock have no voting rights and are not entitled to any notice of meeting of stockholders.

35

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

     Series A Preferred Stock

     Penhall International Corp. has designated 25,000 shares of preferred stock as Series A preferred stock. With respect to dividend rights and rights on liquidation, winding up and dissolution of Penhall International Corp., the Series A preferred stock ranks senior to the common stock and on a parity with the Series B preferred stock. Holders of Series A preferred stock are entitled to receive, when, as and if declared by the Board of Directors of Penhall International Corp., out of funds legally available for payment thereof, cash dividends on each share of Series A preferred stock at a rate per annum equal to 13% of the Liquidation Preference (as defined below) of such share before any dividends are declared and paid, or set apart for payment, on any shares of capital stock junior to the Series A preferred stock (“Junior Stock”) with respect to the same dividend period. All dividends shall be cumulative without interest, whether or not earned or declared. “Liquidation Preference” means, on any specific date, with respect to each share of Series A preferred stock, the sum of (i) $1,000 per share plus (ii) the accumulated dividends with respect to such share.

     Penhall International Corp. may, at its option, redeem at any time, from any source of funds legally available therefore, in whole or in part, any or all of the shares of Series A preferred stock, at a redemption price per share equal to 100% of the then effective Liquidation Preference per share, plus an amount equal to a prorated dividend for the period from the dividend payment date immediately prior to the redemption date to the redemption date. On August 1, 2007, Penhall International Corp. shall redeem, from any source of funds legally available therefore, all of the then outstanding shares of Series A preferred stock at a redemption price per share equal to 100% of the then effective Liquidation Preference per share, plus an amount equal to a prorated dividend for the period from the dividend payment date immediately prior to the redemption date to the redemption date.

     In the event of a voluntary or involuntary liquidation, dissolution or winding up of Penhall International Corp., holders of Series A preferred stock shall be entitled to be paid out of the assets of Penhall International Corp. available for distribution to its stockholders an amount in cash equal to the Liquidation Preference per share, plus an amount equal to a prorated dividend from the last dividend payment date to the date fixed for liquidation, dissolution or winding up, before any distribution is made on any shares of junior stock. If such available assets are insufficient to pay the holders of the outstanding shares of Series A preferred stock in full, such assets, or the proceeds thereof, shall be distributed ratably among such holders. Except as otherwise required by law, the holders of Series A preferred stock have no voting rights and are not entitled to any notice of meeting of stockholders.

     Series B Preferred Stock

     The Company has designated 50,000 shares of preferred stock as Series B preferred stock. The preferences and relative, participating, optional and other special rights and qualifications, limitations and restrictions (including, without limitation, dividend rights and rights on liquidation, winding up and dissolution of the Company) of the Series B preferred stock are identical to those of the Series A preferred stock, except that the Series B preferred stock is not subject to any mandatory or optional redemption by the Company.

(10) COMMITMENTS AND CONTINGENCIES

     Leases

     (a)  Capital Leases

     The Company is obligated under various capital leases for certain construction equipment that expire at various dates through October 2005. At June 30, 2001 and 2002, the cost of construction equipment and the related depreciation recorded for equipment under capital leases were as follows:

	2001		2002
Construction Equipment	$	—	$	340,000
Less accumulated amortization		—		67,000
	$	—	$	273,000

36

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

     The present value of the minimum lease payments as of June 30, 2002 is $292,000 (note 5).

     (b)  Operating Leases

     The Company and its subsidiaries lease various properties and equipment under long-term agreements, which expire at varying dates through October 2008. Certain of these leases provide for renegotiation of annual rentals at specified dates. Rent expense was $1,098,000, $1,203,000 and $1,513,000 for the years ended June 30, 2000, 2001 and 2002, respectively.

     Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of June 30, 2002 are as follows:

YEARS ENDING JUNE 30:
2003	$	1,526,000
2004		1,281,000
2005		918,000
2006		755,000
2007		556,000
Thereafter		1,532,000
	$	6,568,000

     Concentration of Credit Risk

     Financial instruments that potentially subject the Company to credit risk consist primarily of cash and cash equivalent accounts, and contract and trade receivables.

     The California Department of Transportation accounted for approximately 6% of consolidated revenues of the Company for the years ended June 30, 2000 and 2001 and less than 1% for the year ended June 30, 2002. No other customer accounted for 5% or more of consolidated revenues for the years ended June 30, 2000, 2001 or 2002. No customers accounted for over 5% of outstanding accounts receivable as of June 30, 2001 or 2002.

     Risks and Uncertainties

     The Company is required to meet certain financial and operating criteria as established by respective Department of Transportation agencies to bid and work in certain states. There is no assurance that state regulatory agencies will not change the established criteria or that the Company will continue to comply with the established criteria. Should the Company lose its ability to bid and work in certain states, the operations and the financial position of the Company could be adversely effected.

     Cash and Cash Equivalents

     At June 30, 2001 and 2002, the Company had approximately $995,000 and $1,472,000, respectively, on deposit at one financial institution. At June 30, 2002, the Company also had approximately $4,700,000 on deposit at a second financial institution.

37

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

     Letters of Credit

     As of June 30, 2002, the Company had an outstanding standby letter of credit of $4,480,000 with a financial institution for the benefit of an insurance carrier of the Company. The standby letter of credit, which reduces the amount of borrowing available under the Company’s Credit Facility (note 5), expires on June 15, 2003.

     Litigation

     There are various lawsuits and claims pending against and claims being pursued by the Company and its subsidiaries arising out of the normal course of business. It is management’s present opinion based in part upon the advise of legal counsel that the outcome of these proceedings will not have a material effect on the Company’s consolidated financial statements taken as a whole.

     Certain Fees Payable to BRS; BRS Management Agreement

     Upon consummation of the Recapitalization Mergers (note 1), the Company entered into a management services agreement (the “Management Agreement”) with the Third Party pursuant to which the Third Party will be paid $300,000 per year for certain management, business and organizational strategy, and merchant and investment banking services rendered to the Company. The fees payable pursuant to the Management Agreement were negotiated on an arm’s-length basis by representatives of the Third Party and the Company. The amount of the annual management fee may be increased under certain circumstances based upon performance or other criteria to be established by the Board of Directors of the Company.

(11) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

     Cost and estimated earnings on uncompleted contracts consists of the following:

		JUNE 30,			JUNE 30,
		2001			2002
Costs incurred on uncompleted contracts		$	82,727,000		$	87,013,000
Estimated earnings to date			16,072,000			14,039,000
			98,799,000			101,052,000
Less billings to date			98,631,000			99,218,000
		$	168,000		$	1,834,000
Included in accompanying consolidated balance sheets under the following captions:
	Costs and estimated earnings in excess of billings on uncompleted contracts	$	1,856,000		$	2,514,000
	Billings in excess of costs and estimated earnings on uncompleted contracts		(1,688,000	)		(680,000	)
		$	168,000		$	1,834,000

(12) FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. SFAS No. 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

38

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

     The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at June 30, 2001 and 2002.

		2001				2002
		CARRYING		FAIR		CARRYING		FAIR
		AMOUNT		VALUE		AMOUNT		VALUE
Financial assets:
	Cash and cash equivalents	$	1,030,000	$	1,030,000	$	6,205,000	$	6,205,000
	Net receivables		39,906,000		39,906,000		36,686,000		36,686,000
Financial liabilities:
	Current installments of long-term debt		6,436,000		6,436,000		9,217,000		9,217,000
	Trade accounts payable		9,976,000		9,976,000		9,726,000		9,726,000
	Accrued liabilities and income taxes payable		15,061,000		15,061,000		17,783,000		17,783,000
	Long-term debt, excluding current installments		18,772,000		18,772,000		19,753,000		19,753,000
	Senior Notes		100,000,000		98,000,000		100,000,000		95,000,000

     The carrying amounts shown in the table are included in the consolidated balance sheets under the indicated captions. The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

     Cash and cash equivalents, net receivables, current installments of long-term debt, trade accounts payables and accrued liabilities and income taxes payable: The carrying amounts approximate fair value because of the short maturity of these instruments.

     Long-term debt, excluding current installments, and Senior Notes: The fair value of the Company’s long-term debt and Senior Notes is estimated by discounting the future cash flows of each instrument at rates currently offered to the Company as of the date of the consolidated balance sheets for similar debt instruments by the Company’s bankers.

(13) ACQUISITIONS

     The Company completed the following acquisitions during fiscal 2001 and 2002, which were accounted for as purchases:

     In September 2000, the Company purchased certain assets of Advance Concrete Sawing & Drilling for $1,096,000. The purchase price included a cash payment of $317,000, $40,000 of covenants not to compete and $400,000 of additional consideration payable in equal installments in October 2000 and September 2001, and a seller unsecured carryback note of $339,000 at 10.0% imputed interest, payable in installments of $100,000 due in September 2001 and $300,000 due in September 2002. The excess of the purchase price over the fair value of the net identifiable assets acquired of $384,000 has been recorded as goodwill and is being amortized on a straight-line basis over 15 years.

     In March 2001, the Company purchased certain assets of H&P Sawing and Drilling for $582,000. The purchase price included a cash payment of $193,000, $50,000 of covenants not to compete and a seller unsecured carryback note of $339,000 at 9.0% imputed interest, due in two annual installments of $193,000 through March 2003.

     In March 2002, the Company purchased 100% of the stock of Bob Mack Company, Inc (“Bob Mack”) and selected assets of Bobbie Mack Grinding, Inc (“Grinding”). Bob Mack and Grinding were related parties prior to the purchase. Total consideration for the purchase of Bob Mack stock was approximately $6.0 million, $3.0 million in cash and the remainder payable in equal installments in March 2003 and 2004. Total consideration for the purchase of selected assets from Grinding was $800,000, $400,000 in cash and the remainder payable in equal installments in March 2003 and 2004. In addition, the shareholders of Bob Mack signed 5 year non-compete agreements with Penhall which restrict the former shareholders of Bob Mack from competing with the acquired business and

39

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

requires Penhall to pay the former shareholders $1.4 million in 5 equal payments over a four year period. The Company recorded approximately $2.4 million of goodwill related to this transaction. Based in Visalia, California, Bob Mack primarily operates in central California and is a provider of asphalt removal, grinding and milling services. The acquisition of Bob Mack expands the range of services offered by Penhall.

     In April 2002, Penhall Company, purchased selected assets of Arizona Curb Cut for $553,000. The purchase price included a $73,000 loan assumption, a $69,000 lease assumption, $50,000 covenant not to compete, and a seller unsecured carryback note of $346,000 at 3.9% imputed interest, payable in installments of $123,000. The Company recorded approximately $56,000 of goodwill related to this transaction.

     Pro forma information has not been presented since the results of these operations did not have a significant effect on Penhall’s consolidated operations.

(14) GUARANTORS AND FINANCIAL INFORMATION

     The following consolidating financial information is presented for purposes of complying with the reporting requirements of the Guarantor Subsidiaries. Separate financial statements and other disclosures with respect to the Guarantor Subsidiaries are not presented because the Company believes that such financial statements and other information would not provide additional information that is material to investors.

     The condensed consolidating financial information presents condensed financial statements as of June 30, 2001 and 2002 and for the years ended June 30, 2000, 2001 and 2002 of:

a)	Penhall International Corp. on a parent company only basis (“Parent”) (carrying its investments in the subsidiaries under the equity method),
b)	the Guarantor Subsidiaries (Penhall Rental Corp. and Penhall Company and subsidiaries),
c)	elimination entries necessary to consolidate the parent company and its subsidiaries, and
d)	the Company on a consolidated basis.

40

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

CONDENSED CONSOLIDATING BALANCE SHEET

				JUNE 30, 2001
				PENHALL
				INTER-			PENHALL
				NATIONAL			RENTAL			PENHALL
				CORP.			CORP.			COMPANY		ELIMINATIONS			CONSOLIDATED
Assets
	Current assets:
		Receivables, net		$	1,082,000		$	—		$	38,824,000	$	—		$	39,906,000
		Inventories			—			—			2,273,000		—			2,273,000
		Costs and estimated earnings in excess of billings on uncompleted contracts			—			—			1,856,000		—			1,856,000
		Intercompany assets			29,006,000			—			—		(29,006,000	)		—
		Other current assets			112,000			966,000			3,698,000		—			4,776,000
			Total current assets		30,200,000			966,000			46,651,000		(29,006,000	)		48,811,000
	Net property, plant and equipment				—			9,424,000			56,779,000		—			66,203,000
	Other assets, net				4,062,000			—			7,886,000		—			11,948,000
	Intercompany assets				10,000,000			—			—		(10,000,000	)		—
	Investment in parent				—			4,001,000			—		(4,001,000	)		—
	Investment in subsidiaries				55,992,000			—			—		(55,992,000	)		—
				$	100,254,000		$	14,391,000		$	111,316,000	$	(98,999,000	)	$	126,962,000
Liabilities and Stockholders’ Equity (Deficit):
	Current installments of long-term debt			$	5,173,000		$	10,000		$	1,253,000	$	—		$	6,436,000
	Trade accounts payable				3,000			—			9,973,000		—			9,976,000
	Accrued liabilities				5,295,000			(20,000	)		9,786,000		—			15,061,000
	Income taxes payable				—			—			—		—			—
	Billings in excess of costs and estimated earnings on uncompleted contracts				—			—			1,688,000		—			1,688,000
	Intercompany liabilities				—			28,346,000			660,000		(29,006,000	)		—
			Total current liabilities		10,471,000			28,336,000			23,360,000		(29,006,000	)		33,161,000
	Intercompany liabilities				—			—			10,000,000		(10,000,000	)		—
	Long-term debt, excluding current installments				18,066,000			186,000			520,000		—			18,772,000
	Senior notes				100,000,000			—			—		—			100,000,000
	Deferred tax liabilities				—			(143,000	)		7,455,000		—			7,312,000
	Senior Exchangeable Preferred stock				13,573,000			—			—		—			13,573,000
	Series A Preferred stock				15,219,000			—			—		—			15,219,000
	Stockholders’ equity (deficit)				(57,075,000	)		(13,988,000	)		69,981,000		(59,993,000	)		(61,075,000	)
				$	100,254,000		$	14,391,000		$	111,316,000	$	(98,999,000	)	$	126,962,000

41

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

CONDENSED CONSOLIDATING BALANCE SHEET

				JUNE 30, 2002
				PENHALL
				INTER-			PENHALL
				NATIONAL			RENTAL			PENHALL
				CORP.			CORP.			COMPANY		ELIMINATIONS			CONSOLIDATED
Assets
	Current assets:
		Receivables, net		$	1,990,000		$	—		$	34,696,000	$	—		$	36,686,000
		Inventories			—			—			1,895,000		—			1,895,000
		Costs and estimated earnings in excess of billings on uncompleted contracts			—			—			2,514,000		—			2,514,000
		Intercompany assets			28,303,000			—			—		(28,303,000	)		—
		Other current assets			242,000			6,143,000			5,328,000		—			11,713,000
			Total current assets		30,535,000			6,143,000			44,433,000		(28,303,000	)		52,808,000
	Net property, plant and equipment				—			9,078,000			57,189,000		—			66,267,000
	Other assets, net				3,177,000			—			10,663,000		—			13,840,000
	Investment in parent				—			4,001,000			—		(4,001,000	)		—
	Investment in subsidiaries				63,239,000			—			—		(63,239,000	)		—
				$	96,951,000		$	19,222,000		$	112,285,000	$	(95,543,000	)	$	132,915,000
Liabilities and Stockholders’ Equity (Deficit):
	Current installments of long-term debt			$	6,061,000		$	3,000		$	3,153,000	$	—		$	9,217,000
	Trade accounts payable				4,000			—			9,722,000		—			9,726,000
	Accrued liabilities				5,178,000			2,000			12,603,000		—			17,783,000
	Billings in excess of costs and estimated earnings on uncompleted contracts				—			—			680,000		—			680,000
	Intercompany liabilities				—			26,245,000			2,058,000		(28,303,000	)		—
			Total current liabilities		11,243,000			26,250,000			28,216,000		(28,303,000	)		37,406,000
	Long-term debt, excluding current installments				15,290,000			183,000			4,280,000		—			19,753,000
	Senior notes				100,000,000			—			—		—			100,000,000
	Deferred tax liabilities				—			(157,000	)		9,496,000		—			9,339,000
	Senior Exchangeable Preferred stock				15,075,000			—			—		—			15,075,000
	Series A Preferred stock				17,332,000			—			—		—			17,332,000
	Stockholders’ equity (deficit)				(61,989,000	)		(7,054,000	)		70,293,000		(67,240,000	)		(65,990,000	)
				$	96,951,000		$	19,222,000		$	112,285,000	$	(95,543,000	)	$	132,915,000

42

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

		YEAR ENDED JUNE 30, 2000
		PENHALL
		INTER-			PENHALL
		NATIONAL			RENTAL		PENHALL
		CORP.			CORP.		COMPANY		ELIMINATIONS			CONSOLIDATED
Revenues		$	—		$	1,318,000	$	173,060,000	$	(1,318,000	)	$	173,060,000
Cost of revenues			—			—		119,854,000		—			119,854,000
	Gross profit		—			1,318,000		53,206,000		(1,318,000	)		53,206,000
General and administrative expenses			444,000			410,000		28,938,000		(1,318,000	)		28,474,000
Reorganization expenses			—			43,000		—		—			43,000
Other operating income			64,000			—		1,164,000		—			1,228,000
Equity in earnings of subsidiaries			15,233,000			—		—		(15,233,000	)		—
	Earnings before interest expense and income taxes		14,853,000			865,000		25,432,000		(15,233,000	)		25,917,000
Interest expense			15,115,000			28,000		448,000		—			15,591,000
	Earnings (loss) before income taxes		(262,000	)		837,000		24,984,000		(15,233,000	)		10,326,000
Income tax expense (benefit)			(6,212,000	)		311,000		10,277,000		—			4,376,000
Net earnings		$	5,950,000		$	526,000	$	14,707,000	$	(15,233,000	)	$	5,950,000

43

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

		YEAR ENDED JUNE 30, 2001
		PENHALL
		INTER-			PENHALL
		NATIONAL			RENTAL		PENHALL
		CORP.			CORP.		COMPANY		ELIMINATIONS			CONSOLIDATED
Revenues		$	—		$	12,005,000	$	176,893,000	$	(13,129,000	)	$	175,769,000
Cost of revenues			—			—		124,408,000		—			124,408,000
	Gross profit		—			12,005,000		52,485,000		(13,129,000	)		51,361,000
General and administrative expenses			397,000			454,000		30,011,000		(2,515,000	)		28,347,000
Royalties			—			—		10,614,000		(10,614,000	)		—
Other operating income			8,000			53,000		1,347,000		—			1,408,000
Equity in earnings of subsidiaries			14,770,000			—		—		(14,770,000	)		—
	Earnings before interest expense and income taxes		14,381,000			11,604,000		13,207,000		(14,770,000	)		24,422,000
Interest expense			15,095,000			5,000		163,000		—			15,263,000
	Earnings (loss) before income taxes		(714,000	)		11,599,000		13,044,000		(14,770,000	)		9,159,000
Income tax expense (benefit)			(5,974,000	)		4,510,000		5,364,000		—			3,900,000
Net earnings		$	5,260,000		$	7,089,000	$	7,680,000	$	(14,770,000	)	$	5,259,000

44

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

		YEAR ENDED JUNE 30, 2002
		PENHALL
		INTER-			PENHALL
		NATIONAL			RENTAL		PENHALL
		CORP.			CORP.		COMPANY		ELIMINATIONS			CONSOLIDATED
Revenues		$	—		$	11,664,000	$	161,242,000	$	(11,664,000	)	$	161,242,000
Cost of revenues			—			—		122,418,000		—			122,418,000
	Gross profit		—			11,664,000		38,824,000		(11,664,000	)		38,824,000
General and administrative expenses			411,000			352,000		29,119,000		(1,518,000	)		28,364,000
Royalties			—			—		10,146,000		(10,146,000	)		—
Other operating income			81,000			45,000		1,234,000		—			1,360,000
Equity in earnings of subsidiaries			7,247,000			—		—		(7,247,000	)		—
	Earnings before interest expense and income taxes		6,917,000			11,357,000		793,000		(7,247,000	)		11,820,000
Interest expense			14,062,000			19,000		212,000		—			14,293,000
	Earnings (loss) before income taxes		(7,145,000	)		11,338,000		581,000		(7,247,000	)		(2,473,000	)
Income tax expense (benefit)			(5,528,000	)		4,403,000		269,000		—			(856,000	)
Net earnings (loss)		$	(1,617,000	)	$	6,935,000	$	312,000	$	(7,247,000	)	$	(1,617,000	)

45

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

			YEAR ENDED JUNE 30, 2000
			PENHALL
			INTER-			PENHALL
			NATIONAL			RENTAL			PENHALL
			CORP.			CORP.			COMPANY			ELIMINATIONS			CONSOLIDATED
Net cash provided by (used in) operating activities			$	(4,676,000	)	$	5,723,000		$	25,678,000		$	(6,443,000	)	$	20,282,000
Cash flows from investing activities:
	Proceeds from sale of assets			—			—			865,000			—			865,000
	Capital expenditures			—			(102,000	)		(17,991,000	)		—			(18,093,000	)
		Net cash used in investing activities		—			(102,000	)		(17,126,000	)		—			(17,228,000	)
Cash flows from financing activities:
	Due to (from) affiliates			7,350,000			(6,094,000	)		(7,699,000	)		6,443,000			—
	Borrowings under long-term debt			28,726,000			—			—			—			28,726,000
	Repayments of long-term debt			(32,375,000	)		(10,000	)		(4,411,000	)		—			(36,796,000	)
	Book overdraft			—			—			2,965,000			—			2,965,000
	Debt issuance costs			(7,000	)		—			—			—			(7,000	)
	Proceeds from issuance of common stock			537,000			—			—			—			537,000
	Repurchase of common stock and Series B preferred stock			(29,000	)		—			—			—			(29,000	)
	Issuance of Series B preferred stock			574,000			—			—			—			574,000
		Net cash provided by (used in) financing activities		4,776,000			(6,104,000	)		(9,145,000	)		6,443,000			(4,030,000	)
		Net change in cash and cash equivalents		100,000			(483,000	)		(593,000	)		—			(976,000	)
Cash and cash equivalents at beginning of year				—			1,853,000			1,232,000			—			3,085,000
Cash and cash equivalents at end of year			$	100,000		$	1,370,000		$	639,000		$	—		$	2,109,000

46

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

			YEAR ENDED JUNE 30, 2001
			PENHALL
			INTER-			PENHALL
			NATIONAL			RENTAL			PENHALL
			CORP.			CORP.			COMPANY			ELIMINATIONS			CONSOLIDATED
Net cash provided by (used in) operating activities			$	(9,922,000	)	$	12,256,000		$	17,957,000		$	(4,559,000	)	$	15,732,000
Cash flows from investing activities:
	Proceeds from sale of assets			—			278,000			1,014,000			—			1,292,000
	Capital Expenditures			—			(1,175,000	)		(17,294,000	)		—			(18,469,000	)
	Acquisition of companies, net of cash acquired			—			—			(520,000	)		—			(520,000	)
		Net cash used in investing activities		—			(897,000	)		(16,800,000	)		—			(17,697,000	)
Cash flows from financing activities:
	Due to (from) affiliates			9,773,000			(11,798,000	)		(2,534,000	)		4,559,000			—
	Borrowings under long-term debt			71,824,000			—			—			—			71,824,000
	Repayments of long-term debt			(71,749,000	)		(10,000	)		(2,044,000	)		—			(73,803,000	)
	Book overdraft			—			—			2,891,000			—			2,891,000
	Debt issuance costs			—			—			—			—			—
	Proceeds from issuance of common stock			309,000			—			—			—			309,000
	Repurchase of common stock and Series B preferred stock			(521,000	)		—			—			—			(521,000	)
	Issuance of Series B preferred stock			186,000			—			—			—			186,000
		Net cash provided by (used in) financing activities		9,822,000			(11,808,000	)		(1,687,000	)		4,559,000			886,000
		Net change in cash and cash equivalents		(100,000	)		(449,000	)		(530,000	)		—			(1,079,000	)
Cash and cash equivalents at beginning of year				100,000			1,370,000			639,000			—			2,109,000
Cash and cash equivalents at end of year			$	—		$	921,000		$	109,000			—		$	1,030,000

47

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

			YEAR ENDED JUNE 30, 2002
			PENHALL
			INTER-			PENHALL
			NATIONAL			RENTAL			PENHALL
			CORP.			CORP.			COMPANY			ELIMINATIONS			CONSOLIDATED
Net cash provided by (used in) operating activities			$	(1,886,000	)	$	7,308,000		$	19,434,000		$	(7,247,000	)	$	17,609,000
Cash flows from investing activities:
	Proceeds from sale of assets			—			—			832,000			—			832,000
	Capital expenditures			—			26,000			(9,521,000	)		—			(9,495,000	)
	Acquisition of companies, net of cash acquired			—			—			(3,819,000	)		—			(3,819,000	)
		Net cash provided by (used) in investing activities		—			26,000			(12,508,000	)		—			(12,482,000	)
Cash flows from financing activities:
	Due to (from) affiliates			3,456,000			(2,101,000	)		(8,602,000	)		7,247,000			—
	Borrowings under long-term debt			82,900,000			—			2,923,000			—			85,823,000
	Repayments of long-term debt			(84,787,000	)		(11,000	)		(1,490,000	)		—			(86,288,000	)
	Book overdraft			—			—			196,000			—			196,000
	Debt issuance costs			—			—			—			—			—
	Proceeds from issuance of common stock			213,000			—			—			—			213,000
	Repurchase of common stock and Series B preferred stock			(54,000	)		—			—			—			(54,000	)
	Issuance of Series B preferred stock			158,000			—			—			—			158,000
		Net cash provided by (used in) financing activities		1,886,000			(2,112,000	)		(6,973,000	)		7,247,000			48,000
		Net change in cash and cash equivalents		—			5,222,000			(47,000	)		—			5,175,000
Cash and cash equivalents at beginning of year				—			921,000			109,000			—			1,030,000
Cash and cash equivalents at end of year			$	—		$	6,143,000		$	62,000			—		$	6,205,000

48

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

(15) SUPPLEMENTARY CASH FLOW INFORMATION

     The following supplemental cash flow information is provided with respect to interest and tax payments as well as certain non-cash investing and financing activities for the years ended June 30:

			2000		2001		2002
Cash paid (received) during the year for:
	Income taxes		$	1,822,000	$	4,604,000	$	787,000
	Interest			14,891,000		14,105,000		13,427,000
Noncash investing and financing activities -
		Borrowings related to the acquisition of assets	$	1,981,000	$	963,000	$	547,000
		Borrowings related to the repurchase of common stock and Series B preferred		—		314,000		—
		Accretion of preferred stock to redemption value		2,854,000		3,207,000		3,615,000
		Accrual of cumulative dividends on preferred stock		2,946,000		3,263,000		3,794,000

     The following table details the fiscal 2001 and 2002 acquisitions:

	2001		2002
Inventory	$	125,000	$	6,000
Property, plant and equipment		1,066,000		6,859,000
Goodwill		384,000		2,385,000
Other assets		100,000		1,474,000
Accrued liabilities		480,000		1,266,000
Income taxes payable		—		227,000
Deferred tax liability		—		1,959,000
Long-term debt		675,000		3,680,000

(16) SUBSEQUENT EVENT

     On August 16, 2002, the Company established a $2,175,000 letter of credit for the benefit of the Company’s third party insurance carrier (note 1). This letter of credit, which reduces the amount of borrowings available under the Company’s Credit Facility, (note 5), expires on August 18, 2003. The amount of the letter of credit is to automatically increase as follows:

November 1, 2002	$	3,262,500
February 1, 2003	$	4,350,000

49

PENHALL INTERNATIONAL CORP.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2002

(17) SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)

     The following is unaudited supplementary financial information for 2001 and 2002:

	FOR THE QUARTERS ENDED 2001
	SEPTEMBER 30,		DECEMBER 31,			MARCH 31,			JUNE 30,
Revenue	$	53,346,000	$	41,565,000		$	33,619,000		$	47,239,000
Gross profit		16,551,000		12,446,000			8,715,000			13,649,000
Earnings (loss) before income taxes		5,524,000		1,708,000			(785,000	)		2,712,000
Net earnings (loss)		3,259,000		1,007,000			(463,000	)		1,456,000
Net earnings (loss) available to common shareholders		1,674,000		(634,000	)		(2,005,000	)		(246,000	)
Basic and diluted earnings (loss) per share		1.65		(0.62	)		(1.97	)		(0.28	)

	FOR THE QUARTERS ENDED 2002
	SEPTEMBER 30,		DECEMBER 31,			MARCH 31,			JUNE 30,
Revenue	$	49,157,000	$	37,674,000		$	30,010,000		$	44,401,000
Gross profit		14,604,000		9,906,000			6,045,000			8,269,000
Earnings (loss) before income taxes		3,104,000		(294,000	)		(3,578,000	)		(1,705,000	)
Net earnings (loss)		1,831,000		(171,000	)		(2,113,000	)		(1,164,000	)
Net earnings (loss) available to common shareholders		51,000		(2,010,000	)		(3,971,000	)		(3,096,000	)
Basic and diluted earnings (loss) per share		.05		(2.04	)		(4.02	)		(3.14	)

50

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

     None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth certain information with respect to the directors and executive officers of the Company. Directors of the Company hold their offices for a term of one year or until their successors are elected and qualified; executive officers of the Company serve at the discretion of the Board of Directors. For information concerning certain arrangements with respect to the election of directors.

NAME	AGE		TITLE
John T. Sawyer		58	Chairman of the Board of Directors, President and
			Chief Executive Officer
Clark George Bush		47	Vice President and Regional Manager, Southern
			California Region
Bruce F. Varney		50	Vice President and Regional Manager, Southwest Region
Jeffrey E. Platt		51	Vice President-Finance and Chief Financial Officer
Gary Aamold		52	Vice President and Regional Manager, Highway
			Services Division
Bruce C. Bruckmann		48	Director
Harold O. Rosser II		53	Director
Paul N. Arnold		56	Director

     JOHN T. SAWYER, Chairman of the Board of Directors, President and Chief Executive Officer, joined Penhall in 1978 as the Estimating Manager of the Anaheim Division. In 1980, Mr. Sawyer was appointed Manager of Penhall’s National Contracting Division, and in 1984, he assumed the position of Vice President and became responsible for managing all construction services divisions. Mr. Sawyer has been President of the Company since 1989.

     CLARK GEORGE BUSH, Vice President and Regional Manager, Southern California Region, joined Penhall in 1980 as an Estimator and Jobsite Manager and became a Division Manager in 1984. Mr. Bush was promoted to Regional Manager of Southern California in 1986. In 1990, Mr. Bush was appointed as President of Penhall Company, where he served until his recent appointment as Vice President of Penhall with responsibility for the Southern California region.

     BRUCE F. VARNEY, Vice President and Regional Manager, Southwest Region, began his employment with Penhall in 1977, and in 1981 was named Manager of the San Diego Division. From 1991 to 1993, Mr. Varney served as Regional Manager for Southern California, and in 1993 he was appointed as Southwest Regional Manager. In April 1998, Mr. Varney was promoted to Vice President.

     JEFFREY E. PLATT, Vice President-Finance and Chief Financial Officer, joined Penhall in July 2000 as Chief Financial Officer. From 1987 to 2000, Mr. Platt was Vice President-Finance and Chief Financial Officer for Nielsen Dillingham Builders Inc. He received his BA and MBA from the University of California at Los Angeles. Mr. Platt is a Certified Public Accountant.

     GARY AAMOLD, Vice President and Regional Manager, Highway Services Division, joined Penhall in April 1998 as part of the Highway Services acquisition. Since 1989, Mr. Aamold has served in various managerial capacities for Highway Services.

     BRUCE C. BRUCKMANN is a founder and Managing Director of BRS. Previously, he was an officer of CVC from 1983 through 1994. Prior to joining CVC, Mr. Bruckmann was an associate at the New York law firm of Patterson, Belknap, Webb & Tyler. He received his AB from Harvard College and his JD from Harvard Law School. Mr. Bruckmann is a director of Mohawk Industries, Inc., Town Sports International, Inc., Anvil Knitwear, Inc., MWI Veterinary Supply, HealthPlus Corporation, HealthEssentials, Inc., Penhall International, Corp., and H&E Equipment Services, L.L.C.

51

     HAROLD O. ROSSER is a founder and Managing Director of BRS. Previously, he was an officer of CVC from 1987 through 1994. Prior to joining CVC, he spent 12 years with Citicorp/Citibank in various management and corporate finance positions. Mr. Rosser earned his BS from Clarkson University and attended Management Development Programs at Carnegie-Mellon University and the Stanford University Business School. Mr. Rosser is a director of California Pizza Kitchen, Inc., American Paper Group, Inc., Acapulco Restaurants, Inc., Penhall International, Corp., H&E Equipment Services, L.L.C., O’Sullivan Industries, Il Fornaio (America) Corporation, and McCormick & Schmick Restaurant Corporation.

     PAUL N. ARNOLD, Director, is Chairman and Chief Executive Officer of CORT Business Services Corporation. Mr. Arnold has been with CORT for over 30 years, holding Group Management positions and Regional Management positions within CORT since 1976. Mr. Arnold served as President and Chief Executive Officer from 1992 to 2000. Mr. Arnold is a director of Town Sports International, Inc.

ITEM 11. EXECUTIVE COMPENSATION.

     The following table summarizes the compensation paid or accrued for fiscal 2002 to the Chief Executive Officer of Penhall and to each of the four other most highly compensated executive officers of Penhall.

SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION

					OTHER ANNUAL		ALL OTHER
NAME AND PRINCIPAL POSITION	SALARY(1)		BONUS		COMPENSATION(2)		COMPENSATION(3)
John T. Sawyer	$	274,520	$	163,237	$	11,898	$	8,912	(4)
Chief Executive Officer and President-Penhall Company
C. George Bush		190,885		103,090		8,750		8,644	(5)
Vice President-Penhall
Jeffrey E. Platt		207,879		69,138		8,750		4,632	(6)
Vice President-Penhall
Bruce F. Varney		180,884		108,138		8,750		8,744	(7)
Vice President-Penhall
Gary L. Aamold		170,417		92,000		8,750		12,807	(8)

(1)	Includes amounts contributed as salary deferral contributions in fiscal 2002 under the Penhall International Corp. and Affiliated Companies Employees’ Profit Sharing (401(k)) Plan (the “Plan”), as follows: $11,277 for Mr. Sawyer; $10,500 for Mr. Bush; $22,150 for Mr Platt; $11,210 for Mr. Varney and $11,277 for Mr. Aamold.
(2)	Includes the amount attributable to the use of an automobile furnished by Penhall.
(3)	Includes Penhall matching contributions under the Plan, premiums for group term insurance, premiums for health care insurance and long-term disability insurance premiums.
(4)	Includes $1,400 of Penhall matching contributions under the Plan, approximately $258 of premiums for group term life insurance, approximately $6,824 of premiums for health care insurance and approximately $430 for long-term disability insurance premiums.
(5)	Includes $1,400 of Penhall matching contributions under the Plan, approximately $90 of premiums for group term life insurance, approximately $6,724 of premiums for health care insurance and approximately $430 for long-term disability insurance premiums.
(6)	Includes $1,400 of Penhall matching contributions under the Plan, approximately $138 of premiums for group term life insurance, approximately $2,664 of premiums for health care insurance and approximately $430 for long-term disability insurance premiums.
(7)	Includes $1,400 of Penhall matching contributions under the Plan, approximately $90 of premiums for group term life insurance, approximately $6,824 of premiums for health care insurance and approximately $430 for long-term disability insurance premiums.

52

(8) Includes $2,000 of Penhall matching contributions under the Plan, approximately $83 of premium for group term life insurance, approximately $10,294 of premium health care insurance and approximately $430 for disability insurance premiums.

EMPLOYMENT AGREEMENTS

     Upon consummation of the Transactions, the Company entered into a five-year employment agreement with John T. Sawyer pursuant to which Mr. Sawyer is employed as President and Chief Executive Officer of the Company; the Company also entered into three-year employment agreements with Messrs. Bush and Varney pursuant to which each of such executives is employed as a Vice President of the Company. The agreements provide for a base salary (approximately $246,000 for Mr. Sawyer, $134,000 for C. George Bush and $119,000 for Bruce F. Varney), which will be subject to annual merit increases and an annual performance bonus. In addition, the agreements provide for the receipt by the executives of standard company benefits. The agreements are terminable by the Company with or without cause. In the event an agreement is terminated without cause, the executive will be entitled to continue to receive his base salary and, for certain executives, bonus, and certain other benefits, for specified periods. Following any termination of employment of an executive, it is expected that the executive will be subject to a non-competition covenant with a duration of two years pursuant to the terms of the Stockholders Agreement (as defined).

401(k) PLAN

     Penhall sponsors the Penhall International, Inc. and Affiliated Companies Employees’ Profit Sharing (401(k)) Plan (the “Plan”), which is intended to satisfy the tax qualification requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Subject to certain terms and conditions of the Plan, substantially all of Penhall’s non-union employees are eligible to participate in the Plan. Eligible employees may contribute between 1% and 15% of their compensation to the Plan on a pre-tax basis.

     Penhall may, but is not required, to make matching contributions to the Plan each year. Any matching contributions will be allocated to each participant’s account under the Plan proportionate to the amount that he or she has contributed to the Plan during the applicable Plan year. All Penhall and employee contributions to the Plan are allocated to a participant’s individual account. Penhall charged $349,000, $376,000 and $515,000 to general and administrative expense related to contributions to and expenses of the Plan for the years ended June 30, 2000, 2001 and 2002, respectively.

     All Penhall and employee contributions to the Plan plus the earnings thereon are 100% vested. Employees may direct the investment of their accounts to various investment funds. The Plan provides for hardship withdrawals and loans to participants.

STOCK OPTION PLAN

     On October 7, 1999, the Company’s Board of Directors approved a Stock Incentive Plan (the “Plan”) under which employees, officers, directors or consultants (“Eligible Participants”) may be granted stock options and restricted stock awards. The Board authorized the sale of up to 50,000 shares of common stock and 2,500 shares of Series B Preferred Stock under the Plan. The Plan is administered by the Board of Directors or an appointed committee (Administrator). The exercise price for stock options or restricted stock awards shall not be less than the Fair Market Value (as defined) of the stock on the grant date subject to restrictions and conditions, including the Company’s option to repurchase, as determined by the Administrator at the time of the grant. The term of each stock option shall be fixed, and not exceeding 10 years from the grant date of the stock option. In addition, stock options may be subject to specific vesting and acceleration provisions as determined by the Administrator at or after the grant date. On November 12, 1999, the Company issued 17,513 shares of common stock for an aggregate purchase price of $537,000 and 511 shares of Series B Preferred Stock for an aggregate purchase price of $574,000 to Eligible Participants under the Plan. On October 20, 2000, the Company issued 4,967 shares of common stock for an aggregate purchase price of $309,000 and 146 shares of Series B Preferred Stock for an aggregate purchase price of $186,000 to Eligible Participants under the Plan. On November 16, 2001, the Company issued 3,647 shares of common stock for an aggregate purchase price of $213,399 and 108 shares of Series B Preferred Stock for an aggregate purchase price of $157,597 to Eligible Participants under the Plan. On November 16, 2001, 9,316 stock options were granted to Eligible Participants under the Plan. No options have been exercised under the plan as of June 30, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth certain information with respect to (i) the beneficial ownership of the common stock of the Company by each person or entity who owns five percent or more thereof and (ii) the beneficial ownership of each class of equity securities of the Company by each director of the Company who is a shareholder, the Chief Executive Officer of the Company and the other executive officers named in the “Summary Compensation Table” above who are shareholders, and all directors and officers of the

53

Company as a group. The table also sets forth certain information with respect to the ownership of the Senior Exchangeable Preferred stock, Series A Preferred stock and Series B Preferred stock of the Company by BRS, the Foundation and Penhall. Unless otherwise specified, all shares are directly held. Except as otherwise noted below, the address of the following beneficial owners is 1801 Penhall Way, Anaheim, CA 92803

NUMBER AND PERCENT OF SHARES

COMMON

SENIOR EXCHANGEABLE

SERIES A

SERIES B

NAME OF BENEFICIAL OWNER

STOCK (1)

PREFERRED STOCK

PREFERRED STOCK

PREFERRED STOCK

Bruckmann, Rosser, Sherrill & Co., L.P (2)

582,312/59.04

%

—

9,717/93.18

%

9,333/40.95

%

Two Greenwich Plaza Suite 100 Greenwich, CT 06830

The National Christian Charitable Foundation Inc.

—

10,000/100.0

%

—

—

Penhall Rental Corp. (Penhall)

—

—

—

4,000/17.55

%

John T. Sawyer

110,113/11.16

%

—

—

2,465/10.82

%

C. George Bush

41,168/4.17

%

—

—

896.21/3.93

%

Bruce F. Varney

36,554/3.71

%

—

—

755/3.31

%

Bruce C. Bruckmann (3)

624,915/63.36

%

—

10,428/100.0

%

10,016/43.95

%

Harold O. Rosser II (3)

624,915/63.36

%

—

10,428/100.0

%

10,016/43.95

%

All directors and officers as a group (9 persons)

838,559/85.05

%

—

10,428/100.0

%

14,827/65.07

%

(1)	The Company has granted and expects to grant options to acquire Common stock to certain employees to be designated. The shares of Common stock issuable upon the exercise of such options would equal, in the aggregate, up to an additional 5.0% of the Common stock on a fully-diluted basis. The table does not include any such shares.
(2)	BRS is a limited partnership, the sole general partner of which is BRS Partners, Limited Partnership (“BRS Partners”) and the manager of which is the Sponsor. The sole general partner of BRS Partners is BRSE Associates, Inc. (“BRSE Associates”). Bruce C. Bruckmann, Harold O. Rosser II, Stephen C. Sherrill and Stephen F. Edwards are the only stockholders of the Sponsor and BRSE Associates and may be deemed to share beneficial ownership of the shares shown as beneficially owned by BRS. Such individuals disclaim beneficial ownership of any such shares.
(3)	Includes shares of Common stock, Series A Preferred stock and Series B Preferred stock, which are owned by BRS and certain other entities and individuals affiliated with BRS. Although Messrs. Bruckmann and Rosser may be deemed to share beneficial ownership of such shares, such individuals disclaim beneficial ownership thereof. See Note 2 above.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CERTAIN FEES PAYABLE TO BRS; BRS MANAGEMENT AGREEMENT

     Upon consummation of the Transactions, the Company paid the Sponsor a closing fee of $2.0 million (the “Closing Fee”). In addition, the Company entered into a management services agreement (the “Management Agreement”) with the Sponsor pursuant to which the Sponsor will be paid $300,000 per year for certain management, business and organizational strategy, and merchant and investment banking services rendered to the Company. The Closing Fee and the fees payable pursuant to the Management Agreement were negotiated on an arm’s-length basis by representatives of the Sponsor and the Company. The amount of the annual management fee may be increased under certain circumstances based upon performance or other criteria to be established by the Board of Directors of the Company.

54

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) LIST OF FINANCIAL STATEMENTS.

     The following Consolidated Financial Statements of the Company and the Report of Independent Auditors set forth on pages 17 through 48 are incorporated by reference into this item 14 of Form 10-K by item 8 hereof:

• Independent Auditors’ Report

• Consolidated Balance Sheets as of June 30, 2001 and 2002.

• Consolidated Statements of Operations for the Years Ended June 30, 2000, 2001 and 2002.

• Consolidated Statements of Stockholders’ Deficit for the years ended June 30, 2000, 2001 and 2002.

• Consolidated Statements of Cash Flows for the Years Ended June 30, 2000, 2001 and 2002

• Notes to Consolidated Financial Statements.

(a)(2) FINANCIAL STATEMENT SCHEDULE.

No financial statement schedules have been filed herewith since they are either not required, are not applicable, or the required information is shown in the consolidated financial statements or related notes.

(a)(3) EXHIBITS.

EXHIBIT NO.	DESCRIPTION
2	Agreement and Plan of Merger, dated as of June 30, 1998 (as amended pursuant to letter agreements executed in connection therewith), by and among Penhall International, Inc., the stockholders of Penhall International, Inc., Phoenix Concrete Cutting, Inc., Bruckmann, Rosser, Sherrill & Co., L.P. and Penhall Acquisition Corp. (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
3.1	Amended and Restated Articles of Incorporation of the Company (formerly known as Phoenix Concrete Cutting, Inc.) (incorporated herein by this reference to Exhibit 3.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.2	Bylaws of the Company (incorporated herein by this reference to Exhibit 3.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.3	Restated Articles of Incorporation of Penhall Rental Corp. (formerly known as Penhall International, Inc.) (incorporated herein by this reference to Exhibit 3.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.4	Bylaws of Penhall Rental Corp. (formerly known as Penhall International, Inc.) (incorporated herein by this reference to Exhibit 3.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.5	Articles of Incorporation of Penhall Company (incorporated herein by this reference to Exhibit 3.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.6	Bylaws of Penhall Company (incorporated herein by this reference to Exhibit 3.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.1	Indenture dated as of August 1, 1998, between Penhall Acquisition Corp. and United States Trust Company of New York, as Trustee (incorporated herein by this reference to Exhibit 4.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)

55

EXHIBIT NO.	DESCRIPTION
4.2	First Supplemental Indenture dated as of August 4, 1998, by and among the Company, Penhall Rental Corp., Penhall Company and United States Trust Company of New York (incorporated herein by this reference to Exhibit 4.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.3	Assumption Agreement dated as of August 4, 1998 among the Company, Penhall Rental Corp. and Penhall Company (incorporated herein by this reference to Exhibit 4.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.4	Registration Rights Agreement dated as of August 4, 1998, by and among Penhall Acquisition Corp., BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation (incorporated herein by this reference to Exhibit 4.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.5	Form of the Company’s 12% Senior Notes due 2006 (included in Exhibit 4.1) (incorporated herein by this reference to Exhibit 4.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.7	Securities Holders Agreement dated August 4, 1998, by and among the Company, Bruckmann, Rosser, Sherrill & Co., L.P. and the Management Stockholders named therein (incorporated herein by this reference to Exhibit 4.7 to the registrant’s registration statement of Form S-3, registration number 333-64745)
5	Opinion of Dechert Price & Rhoads (incorporated herein by this reference to Exhibit 5 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
10.1	Purchase Agreement dated July 28, 1998, among Penhall Acquisition Corp., BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation with respect to the 12% Senior Notes due 2006 (incorporated herein by this reference to Exhibit 10.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.2	Management Agreement dated August 4, 1998, by and between the Company and Bruckmann, Rosser, Sherrill & Co., Inc. (incorporated herein by this reference to Exhibit 10.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.3	Employment Agreement dated as of August 4, 1998, by and between the Company and C. George Bush (incorporated herein by this reference to Exhibit 10.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.4	Employment Agreement dated as of August 4, 1998, by and between the Company and Bruce Varney (incorporated herein by this reference to Exhibit 10.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.5	Employment Agreement dated as of August 4, 1998, by and between the Company and Scott E. Campbell (incorporated herein by this reference to Exhibit 10.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.6	Employment Agreement dated as of August 4, 1998, by and between the Company and Jack S. Hobbs (incorporated herein by this reference to Exhibit 10.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.7	Employment Agreement dated as of August 4, 1998, by and between the Company and Vincent M. Gutierrez (incorporated herein by this reference to Exhibit 10.7 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.8	Employment Agreement dated as of August 4, 1998, by and between the Company and Leif McAfee (incorporated herein by this reference to Exhibit 10.8 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.9	Penhall International, Inc. and Affiliated Companies Employees’ Profit Sharing (401(k)) Plan (incorporated herein by this reference to Exhibit 10.9 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
10.10	Form of Penhall International Corp. 1998 Stock Option Plan (incorporated herein by this reference to Exhibit 10.10 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
10.11	Credit Agreement dated August 4, 1998, by and among the Company, Penhall Acquisition Corp., Bankers Trust Company, as administrative agent, Credit Suisse First Boston, as syndication agent, and various lending institutions named therein (incorporated herein by this reference to Exhibit 4.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.12	Amendment #1 to Credit Agreement dated November 10, 1999*

56

EXHIBIT NO.	DESCRIPTION
10.13	Amendment #2 to Credit Agreement dated May 8, 2000*
10.14	Amendment #3 to Credit Agreement dated February 15, 2002*
10.15	Amendment #4 to Credit Agreement dated July 19, 2002*
10.20	Note and Security Agreement between Banc of America Leasing & Capital and Penhall Company for Agreement Number 02973-00701*
10.21	Guarantee related to Banc of America Note and Security Agreement Number 02973-00701*
10.22	Amendment #1 to Banc of America Note and Security Agreement*
12	Statement of Ratio of Earnings to Fixed Charges *
21	Subsidiaries of the Company (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
23.1	Consent of Dechert Price & Rhoads (included in Exhibit 5) (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
23.2	Consent of KPMG Peat Marwick LLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
23.3	Consent of Moss Adams LLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
23.4	Consent of John A. Knutson & Co. PLLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
24	Power of Attorney (included on signature page) (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
25	Statement of Eligibility and Qualification, Form T-1, of United States Trust Company of New York, as Trustee under the Indenture filed as Exhibit 4.1 (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
99.1	Form of Letter of Transmittal (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
99.2	Form of Notice of Guaranteed Delivery (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)

* Filed herewith.

     (b)  REPORTS ON FORM 8-K

     None

57

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PENHALL INTERNATIONAL CORP.
By:	/s/ JOHN T. SAWYER
	John T. Sawyer Chairman of the Board, President and Chief Executive Officer

September 26, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on September 26, 2002.

SIGNATURE	TITLE
/s/ JOHN T. SAWYER John T. Sawyer	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)
/s/ JEFFREY E. PLATT Jeffrey E. Platt	Vice President-Finance and Chief Financial Officer (Principal Accounting Officer)

58

CERTIFICATIONS

I, John T. Sawyer, certify that:

1.	I have reviewed this annual report on Form 10-K of Penhall International Corp;
2.	Based on my knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this annual report.

/s/ JOHN T. SAWYER
John T. Sawyer Chairman of the Board, President and Chief
Executive Officer (Principal Executive Officer)

I, Jeffrey E. Platt, certify that:

1.	I have reviewed this annual report on Form 10-K of Penhall International Corp;
2.	Based on my knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this annual report.

/s/ JEFFREY E. PLATT
Jeffrey E. Platt Vice President-Finance and Chief Financial
Jeffrey E. Platt Officer (Principal Accounting Officer)

59

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.

     The registrant has not sent the following to security holders: (i) any annual report to security holders covering the registrant’s last fiscal year; or (ii) any proxy statements, forms of proxy or other proxy soliciting material wither respect to any annual or other meeting of security holders.

EXHIBIT INDEX

EXHIBIT NO.	DESCRIPTION
2	Agreement and Plan of Merger, dated as of June 30, 1998 (as amended pursuant to letter agreements executed in connection therewith), by and among Penhall International, Inc., the stockholders of Penhall International, Inc., Phoenix Concrete Cutting, Inc., Bruckmann, Rosser, Sherrill & Co., L.P. and Penhall Acquisition Corp. (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
3.1	Amended and Restated Articles of Incorporation of the Company (formerly known as Phoenix Concrete Cutting, Inc.) (incorporated herein by this reference to Exhibit 3.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.2	Bylaws of the Company (incorporated herein by this reference to Exhibit 3.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.3	Restated Articles of Incorporation of Penhall Rental Corp. (formerly known as Penhall International, Inc.) (incorporated herein by this reference to Exhibit 3.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.4	Bylaws of Penhall Rental Corp. (formerly known as Penhall International, Inc.) (incorporated herein by this reference to Exhibit 3.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.5	Articles of Incorporation of Penhall Company (incorporated herein by this reference to Exhibit 3.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
3.6	Bylaws of Penhall Company (incorporated herein by this reference to Exhibit 3.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.1	Indenture dated as of August 1, 1998, between Penhall Acquisition Corp. and United States Trust Company of New York, as Trustee (incorporated herein by this reference to Exhibit 4.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.2	First Supplemental Indenture dated as of August 4, 1998, by and among the Company, Penhall Rental Corp., Penhall Company and United States Trust Company of New York (incorporated herein by this reference to Exhibit 4.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.3	Assumption Agreement dated as of August 4, 1998 among the Company, Penhall Rental Corp. and Penhall Company (incorporated herein by this reference to Exhibit 4.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.4	Registration Rights Agreement dated as of August 4, 1998, by and among Penhall Acquisition Corp., BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation (incorporated herein by this reference to Exhibit 4.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.5	Form of the Company’s 12% Senior Notes due 2006 (included in Exhibit 4.1) (incorporated herein by this reference to Exhibit 4.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
4.7	Securities Holders Agreement dated August 4, 1998, by and among the Company, Bruckmann, Rosser, Sherrill & Co., L.P. and the Management Stockholders named therein (incorporated herein by this reference to Exhibit 4.7 to the registrant’s registration statement of Form S-3, registration number 333-64745)
5	Opinion of Dechert Price & Rhoads (incorporated herein by this reference to Exhibit 5 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)

60

EXHIBIT NO.	DESCRIPTION
10.1	Purchase Agreement dated July 28, 1998, among Penhall Acquisition Corp., BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation with respect to the 12% Senior Notes due 2006 (incorporated herein by this reference to Exhibit 10.1 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.2	Management Agreement dated August 4, 1998, by and between the Company and Bruckmann, Rosser, Sherrill & Co., Inc. (incorporated herein by this reference to Exhibit 10.2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.3	Employment Agreement dated as of August 4, 1998, by and between the Company and C. George Bush (incorporated herein by this reference to Exhibit 10.3 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.4	Employment Agreement dated as of August 4, 1998, by and between the Company and Bruce Varney (incorporated herein by this reference to Exhibit 10.4 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.5	Employment Agreement dated as of August 4, 1998, by and between the Company and Scott E. Campbell (incorporated herein by this reference to Exhibit 10.5 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.6	Employment Agreement dated as of August 4, 1998, by and between the Company and Jack S. Hobbs (incorporated herein by this reference to Exhibit 10.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.7	Employment Agreement dated as of August 4, 1998, by and between the Company and Vincent M. Gutierrez (incorporated herein by this reference to Exhibit 10.7 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.8	Employment Agreement dated as of August 4, 1998, by and between the Company and Leif McAfee (incorporated herein by this reference to Exhibit 10.8 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.9	Penhall International, Inc. and Affiliated Companies Employees’ Profit Sharing (401(k)) Plan (incorporated herein by this reference to Exhibit 10.9 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
10.10	Form of Penhall International Corp. 1998 Stock Option Plan (incorporated herein by this reference to Exhibit 10.10 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
10.11	Credit Agreement dated August 4, 1998, by and among the Company, Penhall Acquisition Corp., Bankers Trust Company, as administrative agent, Credit Suisse First Boston, as syndication agent, and various lending institutions named therein (incorporated herein by this reference to Exhibit 4.6 to the registrant’s registration statement of Form S-3, registration number 333-64745)
10.12	Amendment #1 to Credit Agreement dated November 10, 1999*
10.13	Amendment #2 to Credit Agreement dated May 8, 2000*
10.14	Amendment #3 to Credit Agreement dated February 15, 2002*
10.15	Amendment #4 to Credit Agreement dated July 19, 2002*
10.20	Note and Security Agreement between Banc of America Leasing & Capital and Penhall Company for Agreement Number 02973-00701*
10.21	Guarantee related to Banc of America Note and Security Agreement Number 02973-00701*
10.22	Amendment #1 to Banc of America Note and Security Agreement*
12	Statement of Ratio of Earnings to Fixed Charges *
21	Subsidiaries of the Company (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
23.1	Consent of Dechert Price & Rhoads (included in Exhibit 5) (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
23.2	Consent of KPMG Peat Marwick LLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
23.3	Consent of Moss Adams LLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)

61

EXHIBIT NO.	DESCRIPTION
23.4	Consent of John A. Knutson & Co. PLLP (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-02)
24	Power of Attorney (included on signature page) (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
25	Statement of Eligibility and Qualification, Form T-1, of United States Trust Company of New York, as Trustee under the Indenture filed as Exhibit 4.1 (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745)
99.1	Form of Letter of Transmittal (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)
99.2	Form of Notice of Guaranteed Delivery (incorporated herein by this reference to Exhibit 2 to the registrant’s registration statement of Form S-3, registration number 333-64745-01)

* Filed herewith.

62 EX-10.12 3 a84597exv10w12.txt EXHIBIT 10.12 EXHIBIT NO. 10.12 FIRST AMENDMENT FIRST AMENDMENT (this "Amendment"), dated as of November 10, 1999, among PENHALL INTERNATIONAL CORP., an Arizona corporation (the "Borrower"), the lending institutions party to the Credit Agreement referred to below (each a "Bank" and, collectively, the "Banks"), BANKERS TRUST COMPANY as administrative agent (the "Administrative Agent") and CREDIT SUISSE FIRST BOSTON as syndication agent (the "Syndication Agent"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, the Borrower, the Banks, the Issuing Banks and the Administrative Agent are parties to a Credit Agreement, dated as of August 4, 1998 (as amended, modified or supplemented through the date hereof, the "Credit Agreement"); WHEREAS, the parties hereto wish to amend certain provisions of the Credit Agreement as herein provided, subject to and on the terms and conditions set forth herein; NOW, THEREFORE, it is agreed: 1. Section 8.02(k)(iv) of the Credit Agreement is hereby amended by deleting "$25,000,000" and inserting "$50,000,000 in total and $15,000,000 per year". 2. Section 8.02(k)(v) of the Credit Agreement is hereby amended by inserting the phrase "have provided documentation to the Administrative Agent showing that the Borrower will" after the phase "the Borrower shall". 3. Section 8.05(a) of the Credit Agreement is hereby amended by deleting the chart contained therein and inserting the following new chart in lieu thereof:

Fiscal Year Ending Amount ------------------ ----------- June 30, 1999 $13,500,000 June 30, 2000 $22,500,000 June 30, 2001 $22,500,000 June 30, 2002 $19,000,000 June 30, 2003 $16,000,000 June 30, 2004 $16,500,000

4. Section 8.05(b)of the Credit Agreement is hereby amended by (i) adding the text "(starting with the fiscal year ending June 30, 2000)" immediately following the text "In the event that the maximum amount which is permitted to be expended in respect of Consolidated Capital Expenditures during any fiscal year of the Borrower" and (ii) deleting the "25%" following "such increase shall not exceed the amount otherwise permitted by more than" and inserting "$2,000,000" in lieu thereof. 5. Section 8.05(c) of the Credit Agreement is hereby deleted in its entirety, and Sections 8.05(d), (e), (f) and (g) are hereby renamed Sections 8.05(c), (d), (e) and (f), respectively. 6. Section 8.05(f) (to be referred to as Section 8.05(e) after the Amendment Effective Date, as defined below in Section 12 of this Amendment) is hereby amended by deleting the "(g)" after "provided that any proceeds that are so used to make Consolidated Capital Expenditures pursuant to this clause" and inserting "(e)" in lieu thereof. 7. Section 8.12 of the Credit Agreement is hereby amended by deleting the reference to "Section 8.05(e)" and inserting "Section 8.05(d)" in lieu thereof. 8. Section 8.14 of the Credit Agreement is hereby amended by deleting the chart contained therein and inserting the following new chart in lieu thereof:

Date Amount ---- ------ September 30, 1998 $6,900,000 December 31, 1998 $5,800,000 March 31, 1999 $4,700,000 June 30, 1999 $23,000,000 September 30, 1999 $24,000,000 December 31, 1999 $26,000,000 March 31, 2000 $27,000,000 June 30, 2000 $28,700,000 September 30, 2000 $28,700,000 December 31, 2000 $30,700,000 March 31, 2001 $30,700,000 June 30, 2001 $31,800,000 September 30, 2001 $31,800,000 December 31, 2001 $32,800,000

-2- March 31, 2002 $32,800,000 June 30, 2002 $34,300,000 September 30, 2002 $34,300,000 December 31, 2002 $35,300,000 March 31, 2003 $35,300,000 June 30, 2003 $36,000,000 September 30, 2003 $36,000,000 December 31, 2003 $37,000,000 March 31, 2004 $37,000,000 June 30, 2004 $38,000,000 9. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that (i) the representations, warranties and agreements contained in Article 6 of the Credit Agreement are true and correct in all material respects on and as of the Amendment Effective Date (as defined in Section 12 of this Amendment and after giving effect thereto) (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date) and (ii) there exists no Default or Event of Default on the Amendment Effective Date, after giving effect to this Amendment. 10. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 11. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower, the Administrative Agent and each Bank. 12. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 13. This Amendment shall become effective on the date (the "Amendment Effective Date") when (i) the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent at its address for notice provided for in the Credit Agreement and (ii) the Borrower pays a fee to each Bank which executes and delivers a counterpart to this Amendment prior to the Amendment Effective Date equal to 0.1% of such Bank's total outstanding Term Loan and/or Revolving Commitment; * * * -3- IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. 1801 Penhall Way PENHALL INTERNATIONAL CORP., PO Box 4609 as Borrower Anaheim, CA 92803 Attention: John Sawyer Tel: (714) 772-6450 Fax: (714) 778-8437 By _________________________________ Title: BANKERS TRUST COMPANY, Individually and as Administrative Agent By _____________________________________ Title: CREDIT SUISSE FIRST BOSTON Individually and as Syndication Agent By _____________________________________ Title: By _____________________________________ Title: FLEET CAPITAL CORPORATION By _____________________________________ Title: UNION BANK OF CALIFORNIA, N.A. By _____________________________________ Title: U.S. BANK NATIONAL ASSOCIATION By _____________________________________ Title: EX-10.13 4 a84597exv10w13.txt EXHIBIT 10.13 EXHIBIT NO. 10.13 SECOND AMENDMENT SECOND AMENDMENT (this "Amendment"), dated as of May 8, 2000, among PENHALL INTERNATIONAL CORP., an Arizona corporation (the "Borrower"), the lending institutions party to the Credit Agreement referred to below (each a "Bank" and, collectively, the "Banks"), BANKERS TRUST COMPANY as administrative agent (the "Administrative Agent") and CREDIT SUISSE FIRST BOSTON as syndication agent (the "Syndication Agent"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, the Borrower, the Banks, the Issuing Banks and the Administrative Agent are parties to a Credit Agreement, dated as of August 4, 1998 (as amended, modified or supplemented through the date hereof, the "Credit Agreement"); WHEREAS, the parties hereto wish to amend certain provisions of the Credit Agreement as herein provided, subject to and on the terms and conditions set forth herein; NOW, THEREFORE, it is agreed: 1. Section 4.02(A)(e) of the Credit Agreement is hereby amended by deleting the dollar amount "1,500,000" appearing in clause (z) therein and inserting the dollar amount "6,000,000" in lieu thereof. 2. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that (i) the representations, warranties and agreements contained in Article 6 of the Credit Agreement are true and correct in all material respects on and as of the Second Amendment Effective Date (as defined in Section 6 of this Amendment and after giving effect thereto) (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date) and (ii) there exists no Default or Event of Default on the Second Amendment Effective Date, after giving effect to this Amendment. 3. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 4. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower, the Administrative Agent and each Bank. 5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 6. This Amendment shall become effective on the date (the "Second Amendment Effective Date") when the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent at its address for notice provided for in the Credit Agreement. * * * -2- IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. 1801 Penhall Way PENHALL INTERNATIONAL CORP., PO Box 4609 as Borrower Anaheim, CA 92803 Attention: John Sawyer Tel: (714) 772-6450 Fax: (714) 778-8437 By _____________________________________ Title: BANKERS TRUST COMPANY, Individually and as Administrative Agent By _____________________________________ Title: CREDIT SUISSE FIRST BOSTON Individually and as Syndication Agent By _____________________________________ Title: By _____________________________________ Title: FLEET CAPITAL CORPORATION By _____________________________________ Title: UNION BANK OF CALIFORNIA, N.A. By _____________________________________ Title: U.S. BANK NATIONAL ASSOCIATION By _____________________________________ Title: EX-10.14 5 a84597exv10w14.txt EXHIBIT 10.14 EXHIBIT NO. 10.14 THIRD AMENDMENT THIRD AMENDMENT (this "Amendment"), dated as of February 15, 2002, among PENHALL INTERNATIONAL CORP., an Arizona corporation (the "Borrower"), the lending institutions party to the Credit Agreement referred to below (each a "Bank" and, collectively, the "Banks"), BANKERS TRUST COMPANY as administrative agent (the "Administrative Agent") and CREDIT SUISSE FIRST BOSTON as syndication agent (the "Syndication Agent"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, the Borrower, the Banks, the Issuing Banks and the Administrative Agent are parties to a Credit Agreement, dated as of August 4, 1998 (as amended, modified or supplemented through the date hereof, the "Credit Agreement"); WHEREAS, the parties hereto wish to amend certain provisions of the Credit Agreement as herein provided, subject to and on the terms and conditions set forth herein; NOW, THEREFORE, it is agreed: 1. Section 4.02(A)(c) is hereby amended by deleting the proviso appearing at the end of the first sentence appearing therein in its entirety and inserting the following new proviso in lieu thereof: "provided that (i) the Net Cash Proceeds from the Permitted Sale-Leaseback Transactions and (ii) up to an aggregate of $2,000,000 of Net Cash Proceeds from Asset Sales in any fiscal year of the Borrower, shall not give rise to a mandatory repayment (and/or commitment reduction, as the case may be) to the extent the Borrower elects, as hereinafter provided, to cause such Net Cash Proceeds to be reinvested in Reinvestment Assets (a "Reinvestment Election")." 2. Section 8.02(f) of the Credit Agreement is hereby amended by deleting the text "$2,500,000" therein and inserting the text "2,000,000" in lieu thereof. 3. Section 8.02 of the Credit Agreement shall be further amended by inserting the following new sub-clause (l) immediately after sub-clause (k) appearing at the end thereof: "(l) each of the Borrower and its Subsidiaries may enter into sale-leaseback transactions with respect to their equipment and Real Property placed into service after August 1, 2001 (the "Permitted Sale-Leaseback Transactions"), so long as (i) no Default or Event of Default then exists or would result therefrom, (ii) each such sale-leaseback transaction is in an arm's-length transaction and the Borrower or Subsidiary, as the case may be, receives at least fair market value (as determined in good faith by the Borrower or such Subsidiary, as the case may be), (iii) the total consideration received by the Borrower or such Subsidiary is cash and is paid at the time of the closing of such sale, (iv) the Net Cash Proceeds therefrom are applied and/or reinvested as (and to the extent) required by Section 4.02(A)(c), (v) the Net Cash Proceeds shall not exceed $5,000,000 at any time and (vi) to the extent that any such sale-leaseback transaction results in a Capitalized Lease Obligation, such Capitalized Lease Obligation is permitted under Section 8.04(d)." 4. Section 8.03 of the Credit Agreement is hereby amended by inserting the following new sub-clause (r) immediately after sub-clause (q) appearing therein: "(r) Liens which may be deemed to exist as a result of the consummation of one or more sale-leaseback transactions effected in accordance with the law of Section 8.02 (l), which liens shall relate only to the assets subject to the respective sale-leaseback transaction." 5. Section 8.04(d) of the Credit Agreement is hereby amended by inserting immediately after the text "Capital Lease Obligations" appearing therein the text "(including Capital Lease Obligations resulting from sale-leaseback transactions permitted under Section 8.02(l))". 6. Section 8.05(a) of the Credit Agreement is hereby amended by deleting the chart contained therein and inserting the following chart in lieu thereof:

Fiscal Year Ending Amount ------------------ ----------- June 30, 1999 $13,500,000 June 30, 2000 $22,500,000 June 30, 2001 $22,500,000 June 30, 2002 $15,000,000 June 30, 2003 $16,000,000 June 30, 2004 $16,000,000

7. Section 10 of the Credit Agreement is hereby amended by inserting the following new defined term in appropriate alphabetical order: "Permitted Sale-Leaseback Transactions' shall have the meaning provided in Section 8.02(l)." 8. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that (i) the representations, warranties and agreements contained in Article 6 of the Credit Agreement are true and correct in all material respects on and as of the Third Amendment Effective Date (as defined in Section 6 of this Amendment and after giving effect thereto) (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date) and (ii) there exists no Default or Event of Default on the Third Amendment Effective Date, after giving effect to this Amendment. 9. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 10. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower, the Administrative Agent and each Bank. 11. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 12. This Amendment shall become effective on the date (the "Third Amendment Effective Date") when the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent at its address for notice provided for in the Credit Agreement. * * * -2- IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. 1801 Penhall Way PENHALL INTERNATIONAL CORP., PO Box 4609 as Borrower Anaheim, CA 92803 Attention: John Sawyer Tel: (714) 772-6450 Fax: (714) 778-8437 By _____________________________________ Title: BANKERS TRUST COMPANY, Individually and as Administrative Agent By _____________________________________ Title: CREDIT SUISSE FIRST BOSTON Individually and as Syndication Agent By _____________________________________ Title: By _____________________________________ Title: FLEET CAPITAL CORPORATION By _____________________________________ Title: UNION BANK OF CALIFORNIA, N.A. By _____________________________________ Title: U.S. BANK NATIONAL ASSOCIATION By _____________________________________ Title: EX-10.15 6 a84597exv10w15.txt EXHIBIT 10.15 EXHIBIT NO. 10.15 FOURTH AMENDMENT FOURTH AMENDMENT (this "Amendment"), dated as of July 19, 2002, among PENHALL INTERNATIONAL CORP., an Arizona corporation (the "Borrower"), the lending institutions party to the Credit Agreement referred to below (each a "Bank" and, collectively, the "Banks") and DEUTSCHE BANK TRUST COMPANY AMERICAS (f/k/a BANKERS TRUST COMPANY) as administrative agent (the "Administrative Agent"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, the Borrower, the Banks, Credit Suisse First Boston and the Administrative Agent are parties to a Credit Agreement, dated as of August 4, 1998 (as amended, modified or supplemented through the date hereof, the "Credit Agreement"); WHEREAS, the parties hereto wish to amend certain provisions of the Credit Agreement as herein provided, subject to and on the terms and conditions set forth herein; NOW, THEREFORE, it is agreed: 1. Section 2.01(b) of the Credit Agreement is hereby amended by deleting the text "15,000,000" appearing therein and inserting the text "$20,000,000" in lieu thereof. 2. Section 8.10 of the Credit Agreement is hereby amended by deleting the table contained therein in its entirety and inserting the following table in lieu thereof:

"Date Ratio ----- ----- June 30, 2002 2.00:1.00 September 30, 2002 1.80:1.00 December 31, 2002 1.80:1.00 March 31, 2003 1.80:1.00 June 30, 2003 1.80:1.00 September 30, 2003 1.85:1.00 December 31, 2003 1.85:1.00 March 31, 2004 1.90:1.00 June 30, 2004 1.95:1.00"

3. Section 8.11 of the Credit Agreement is hereby amended by deleting the table contained therein in its entirety and inserting the following table in lieu thereof:

"Date Ratio ----- ----- June 30, 2002 5.00:1.00

September 30, 2002 5.35:1.00 December 31, 2002 5.35:1.00 March 31, 2003 5.25:1.00 June 30, 2003 5.20:1.00 September 30, 2003 5.10:1.00 December 31, 2003 5.00:1.00 March 31, 2004 4.95:1.00 June 30, 2004 4.85:1.00" 4. Section 8.14 of the Credit Agreement is hereby amended by deleting the table contained therein in its entirety and inserting the following table in lieu thereof:

"Date Amount ----- ----------- June 30, 2002 $28,000,000 September 30, 2002 $25,200,000 December 31, 2002 $25,200,000 March 31, 2003 $25,600,000 June 30, 2003 $25,600,000 September 30, 2003 $27,100,000 December 31, 2003 $27,100,000 March 31, 2004 $28,100,000 June 30, 2004 $28,100,000"

5. Section 10 of the Credit Agreement is hereby amended by deleting the table appearing in the definition of `Applicable Margin' in its entirety and inserting the following table in lieu thereof:

"Base Rate Eurodollar Loans Rate Loans ---------- ---------- Level I Status 1.25% 2.25% Level II Status 1.50% 2.50% Level III Status 1.75% 2.75% Level IV Status 2.00% 3.00%"

6. In order to induce the Banks to enter into this Amendment, the Borrower hereby represents and warrants that (i) the representations, warranties and agreements contained in Section 6 of the Credit Agreement and in the other Credit Documents are true and correct in all material respects on and as of the Fourth Amendment Effective Date (as defined in Section 12 of this Amendment) (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date) and (ii) there exists no Default or Event of Default on the Fourth Amendment Effective Date. 7. For avoidance of doubt, each Credit Party hereby acknowledges and confirms its due authorization, execution and delivery of all Credit Documents to which it is a party (each Credit Document as amended, modified or supplemented through and including the date hereof), including all instruments, financing statements, agreements, certificates and documents executed and delivered in connection therewith, and hereby ratifies all actions heretofore taken in connection therewith. -2- 8. Each Credit Party, by its execution and delivery of a copy of this Amendment, hereby consents to the extensions of credit pursuant to the Credit Agreement (including, without limitation, as amended by this Amendment). Each Credit Party further acknowledges and agrees to the provisions of this Amendment and hereby agrees for the benefit of the Banks that all extensions of credit (including as contemplated by this Amendment) pursuant to the Credit Agreement (including, without limitation, as amended by this Amendment, and as same may be further amended, modified or supplemented from time to time) shall be fully entitled to all benefits of, and shall be fully guaranteed and secured pursuant to and in accordance with the terms of, each of the Credit Documents, as applicable. 9. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 10. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower, the Administrative Agent and each Bank. 11. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 12. This Amendment shall become effective on the date (the "Fourth Amendment Effective Date") when (i) the Borrower and each of the Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of facsimile transmission) the same to the Administrative Agent at its address for notice provided for in the Credit Agreement and (ii) the Borrower shall have paid all reasonable out-of-pocket costs and expenses of the Banks incurred prior to the Fourth Amendment Effective Date (including, without limitation, the fees and disbursements of White & Case LLP) and (iii) the Borrower shall have paid to the Administrative Agent for the account of each Bank which executes and delivers a counterpart hereof (including by way of facsimile transmission) to the Administrative Agent at the Notice Office on or prior to 5:00 P.M. (New York time) on July 19, 2002, an amendment fee equal to 0.25% of the sum of (a) the aggregate principal amount of each such Bank's outstanding Term Loans plus (b) such Bank's Revolving Loan Commitment as of the Fourth Amendment Effective Date. * * * -3- IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. 1801 Penhall Way PENHALL INTERNATIONAL CORP., PO Box 4609 as Borrower Anaheim, CA 92803 Attention: Jeff Platt Tel: (714) 772-6450 Fax: (714) 778-8437 By _____________________________________ Title: PENHALL LEASING LLC, as Guarantor By _____________________________________ Title: PENHALL INVESTMENTS, INC, as Guarantor By _____________________________________ Title: PENHALL COMPANY, as Guarantor By _____________________________________ Title: DEUTSCHE BANK TRUST COMPANY AMERICAS (f/k/a BANKERS TRUST COMPANY) Individually and as Administrative Agent By _____________________________________ Title: CREDIT SUISSE FIRST BOSTON Individually and as Syndication Agent By _____________________________________ Title: FLEET CAPITAL CORPORATION By _____________________________________ Title: UNION BANK OF CALIFORNIA, N.A. By _____________________________________ Title: U.S. BANK NATIONAL ASSOCIATION By _____________________________________ Title: EX-10.20 7 a84597exv10w20.txt EXHIBIT 10.20 EXHIBIT 10.20 BANC OF AMERICA LEASING & CAPITAL, LLC NOTE AND SECURITY AGREEMENT (VARIABLE RATE, LIBOR) ================================================================================ This Note and Security Agreement ("Agreement") made as of the date set forth below sets forth the terms and conditions governing the repayment of a loan made by Banc of America Leasing & Capital, LLC ("Secured Party") to the party identified below as "Debtor" for the purpose of financing the personal property identified below as the "Equipment", and the granting by Debtor to Secured Party of a security interest in the Equipment and certain related property to secure the repayment of all Debtor's obligations to Secured Party. DATE: MARCH 18, 2002 AGREEMENT NUMBER: 02973-00701 SECURED PARTY: Banc of America Leasing & Capital, LLC 2059 Northlake Parkway, 4 South Tucker, Georgia 30084-4007 DEBTOR: Penhall Company Equipment: See Exhibit A attached hereto and made a part hereof EQUIPMENT LOCATION: See Exhibit B attached hereto and made a part hereof PRINCIPAL AMOUNT OF LOAN: TWO MILLION EIGHT HUNDRED SIX THOUSAND THREE HUNDRED NINE AND 14/100 DOLLARS ($2,806,309.14) NUMBER OF PRINCIPAL REPAYMENT INSTALLMENTS (INCLUDING FINAL REPAYMENT INSTALLMENT): FIFTY-ONE (51) AMOUNT OF EACH PRINCIPAL REPAYMENT INSTALLMENT PRIOR TO FINAL REPAYMENT INSTALLMENT: SEE ANNEX I ATTACHED HERETO AND MADE A PART HEREOF. AMOUNT OF FINAL PRINCIPAL REPAYMENT INSTALLMENT: SEE ANNEX I ATTACHED HERETO AND MADE A PART HEREOF. DUE DATE OF FIRST PRINCIPAL REPAYMENT INSTALLMENT: THE THIRTIETH (30TH) DAY FOLLOWING THE DATE SECURED PARTY FUNDS THIS LOAN. DUE DATE OF FINAL PRINCIPAL REPAYMENT INSTALLMENT: the fifty first (51st) month following, and on the same day of the month as, the Due Date of the First Principal Repayment Installment VARIABLE INTEREST RATE. For any year or portion thereof, a per annum rate of interest equal to (i) Two and 60/100 percent (2.60%) plus the rate of interest equal to the "average of interbank offered rates for dollar deposits in the London Market based on quotations of sixteen (16) major banks" for a term of 30 days as published in the Wall Street Journal under a heading entitled "Money Rates, London Interbank Offered Rates (LIBOR)" or any future or substitute heading, on the first day of the month preceding the month in which a monthly anniversary of the date Secured Party funds this Loan occurs, or (ii) if less, the highest rate of interest permitted by applicable law. LOAN; TERMS OF REPAYMENT. In consideration of the making of a loan by Secured Party to Debtor for the purpose of financing the Equipment specified above (the "Loan"), Debtor promises and agrees to pay to the order of Secured Party, at Secured Party's address stated above or at such other places as Secured Party may from time to time designate in writing, the principal amount of the Loan, together with interest calculated as hereinafter provided. Subject to Debtor's right to prepay such principal amount in whole or in part as hereinafter provided, Debtor shall pay such principal amount in consecutive monthly installments of principal, each in the amount set forth above under the heading "Amount of Each Principal Repayment Installment Prior to Final Repayment Installment," due and payable on the "Due Date of First Principal Repayment Installment" set forth above and on a like date of each calendar month thereafter until the Loan is fully repaid; provided, however, that the last such installment shall be in the amount set forth above under the heading "Amount of Final Principal Repayment Installment" or (if greater) the amount of the then outstanding principal balance of the Loan. INTEREST. Interest shall be calculated on the basis of a year of three hundred sixty (360) days and shall, during each calendar month or portion thereof from and after the date on which funds are disburse by Secured Party, accrue on unmatured principal balances outstanding during such period at the "Variable Interest Rate" specified above for the week in which the first day of the month prior to such calendar month occurs. All interest accrued through the due date of a principal installment shall be due and payable simultaneously with such installment. PREPAYMENTS. After one (1) month from the date Secured Party funds this Loan, the outstanding principal balance of the Loan may be prepaid in whole or in part at any time, together with all interest and late charges accrued through the date of prepayment and a prepayment charge calculated as follows: two percent (2%) of the amount prepaid during months 2-12 of the applicable Base Term, one and one-half percent (1.5%) of the amount prepaid during months 13-24 of the applicable Base Term, one percent (1%) of the amount prepaid during months 25-36 of the applicable Base Term, and no prepayment charge thereafter. LATE CHARGES. To the extent permitted by applicable law, Debtor shall pay on demand, as a late charge, an amount equal to five percent (5%) of each installment or part thereof that is not paid within ten (10) days of the date when due, but nothing in this paragraph alters the definitions of events of default hereunder. Debtor shall pay the late charge, to the extent permitted by applicable law, regardless of whether or not Debtor's failure to pay such installment when due is or becomes a default hereunder and regardless of whether or not Secured Party proceeds under the "Remedies" provisions hereof or takes any other action, and demand for and collection of the late charge shall not be deemed a waiver of default or of any other remedies or rights. SECURITY INTEREST. Debtor hereby grants to Secured Party a security interest in and security title to the personal property described above as the "Equipment", together with all parts, additions, accessions, accessories, replacements and substitutions thereto or therefor, and all proceeds therefrom (including any proceeds of insurance against fire or other casualty whether or not the insurance policy contains an endorsement in favor of Secured Party), all of which is hereinafter called the "Collateral". This security interest is given to secure payment to Secured Party of all present and future obligations of Debtor to Secured Party, including without limitation the obligation of Debtor to repay the Loan and all other liabilities arising under or in connection with this Agreement; all future advances, if any, made by Secured Party to Debtor, whether or not made pursuant to any commitment of Secured Party (and nothing in this Agreement shall be construed to create or imply the existence of any such commitment); and all other liabilities of Debtor to Secured Party now existing or hereafter incurred, matured or unmatured, direct or contingent, whether or not evidenced by a promissory note, and whether owing originally to Secured Party or acquired by Secured Party from any other party, and any renewals and extension thereof and substitutions therefor. (All of the above obligations, including but not limited to obligations in respect of the Loan, are hereinafter called the "Indebtedness.") DEBTOR WARRANTS AND REPRESENTS THAT: GOOD STANDING. Debtor is organized and existing in good standing under the laws of the jurisdiction of its formation, has the power to own its property and to carry on its business as now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the character of the property owned by it therein or the transaction of its business makes such qualification necessary. AUTHORITY. Debtor has full power and authority to enter into this Agreement, to make the borrowing hereunder, and to incur the obligations provided for herein, all of which have been duly authorized by all proper and necessary action. No consent or approval of stockholders, partners, members or co-owners or of any public authority is required as a condition to the validity of this Agreement. Debtor represents and warrants to Secured Party that all Collateral financed and to be financed under this Agreement or any agreement shall be equipment operated exclusively by Debtor's or Debtor's affiliate's employees and shall remain under Debtors's or such affiliate's ownership and control at all times, notwithstanding any temporary location of the Collateral at Debtor's customer's site. Debtor represents and warrants to Secured Party that by entering into this Agreement and upon the execution of each agreement, there will be no violation of the terms and conditions of (i) the Credit Agreement among Penhall International Corp., Penhall Acquisition Corp., Bankers Trust Company, Credit Suisse First Boston, Fleet Capital Corporation and Union Bank of California dated as of August 4, 1998, as amended from time to time, or (ii) the Senior Note Indenture between Penhall Acquisition Corp. and United States Trust Company as Trustee dated as of August 1, 1998. BINDING AGREEMENT. This Agreement constitutes the valid and legally binding obligation of Debtor enforceable in accordance with its terms. LITIGATION. There are no proceedings pending or threatened before any court or administrative agency that might materially adversely affect the financial condition or operation of Debtor. NO CONFLICTING AGREEMENTS. There is no charter, by-law, preference stock or partnership agreement provision of Debtor and no provision of any other organizational documents or existing mortgage, indenture, contract or agreement binding on Debtor or affecting its property which would conflict with or in any way prevent the execution, delivery or performance of the terms of this Agreement. OWNERSHIP FREE OF ENCUMBRANCES. Except for the security interest granted hereby, Debtor now owns, or will use the proceeds hereof to become the owner of, the Collateral free from any prior lien, security interest or encumbrance. No financing statement covering the Collateral or any proceeds thereof is on file in any public office, except for financing statements showing Secured Party as the sole secured party thereunder. Debtor has a good right to grant a security interest in the Collateral to Secured Party. FIXTURES. None of the Collateral is now a part of or affixed to any real property. COLLATERAL LOCATION. Except for items of Collateral that constitute mobile goods and that are in fact in use by Debtor in the ordinary course of its business at other locations, all the Collateral comprising goods heretofore delivered to the Debtor by the seller thereof is located either at (i) Debtor's address set forth above or (ii) the "Equipment Location" set forth above. If at any time the Collateral, or any part thereof, is removed to a new location, Debtor shall notify the Secured Party in the manner outlined in the section below entitled "Location of Collateral". MERGER/NAME CHANGE. Within the five (5) years preceding the date hereof, Debtor has not changed its name or been party to any merger or other corporate reorganization. DEBTOR COVENANTS AND AGREES THAT UNTIL ALL THE INDEBTEDNESS IS FULLY SATISFIED: INSURANCE. Debtor shall maintain continuously, and pay when due all premiums for, fire and casualty insurance with extended coverage on the Collateral, insuring the same against loss by fire, explosion, theft and such other casualties as are usually insured against by companies engaged in the same or similar businesses with a responsible company or companies satisfactory to Secured Party, in an amount not less than the unpaid balance of the Loan. Each of such insurance policies shall have attached thereto a standard loss payable endorsement, without contribution, in favor of Secured Party as its interest may appear; shall provide that it may not be canceled without thirty (30) days' prior written notice to Secured Party; shall provide that, in respect of Secured Party's interest in such policy, the insurance shall not be invalidated by any action or inaction of Debtor or any other person (other than Secured Party); shall insure Secured Party's interest in the Collateral as it may appear, regardless of any breach or violation of any warranty, declaration or condition contained in such policy by Debtor or any other person (other than Secured Party); and shall otherwise be in form and substance acceptable to Secured Party. Debtor shall deliver forthwith to Secured Party each such policy (together with the loss payable endorsement), or certificates of insurance or other evidence satisfactory to Secured Party of the existence of all required insurance, its terms and conditions, and the payment of all applicable premiums. Similar evidence of renewal coverage, satisfactory to Secured Party, shall be delivered to Secured Party at least fifteen (15) days before the expiration of any initial insurance coverage. In addition, Debtor shall maintain, and pay when due all premiums for, liability and other insurance in such amounts and against such risks as is customarily carried by persons in similar businesses owning similar property. Debtor irrevocably appoints Secured Party as Debtor's attorney-in-fact, with full power of substitution, during the existence of any default under this Agreement, to execute loss claims and other applications for payment of benefits under any insurance policy in the name of Debtor or Secured Party, to receive all monies and to endorse drafts, checks and other instruments for the payment of any proceeds of any insurance. This appointment shall be deemed a power coupled with an interest and shall not be terminable by Debtor so long as Debtor remains indebted to Secured Party. MAINTENANCE AND CLEAR TITLE. Debtor shall keep the Collateral in good condition and free from liens and security interests, shall not sign or suffer to be filed any financing statements relating to the Collateral except those showing Secured Party as sole secured party shall not sell or lease or offer to sell or lease or otherwise encumber or dispose of any of the Collateral, shall defend the Collateral against all claims and demands of all persons at any time claiming any interest or right therein, and shall not use the Collateral illegally. Secured Party may examine and inspect the Collateral at any time, wherever located. CHANGE OF NAME, RESIDENCE OR PLACE OF BUSINESS. Debtor shall not change its name, residence or place of business or do business under any assumed or fictitious name without giving Secured Party written notice no later than thirty (30) days after the change has occurred. USE OF COLLATERAL. Debtor shall use the Collateral exclusively for business operations. INSPECTION: NON-INTERFERENCE. (a) Secured Party, its agents and employees shall have the right to enter any property where any Collateral is located and inspect any Collateral together with its related books and records, at any reasonable time. Such right shall not impose any obligation on Secured Party. FIXTURES. Debtor shall not permit any of the Collateral to become a part of or affixed to any real property. LOCATION OF COLLATERAL. Except for items of Collateral that constitute mobile goods and that are in fact in use by Debtor in the ordinary course of business at other locations, all the Collateral shall, from and after the moment that Debtor acquires possession or control of it, be kept either at (i) Debtor's address set forth above or (ii) the "Equipment Location" set forth above, and all records relating to the Collateral shall likewise be kept only at such location or locations. If at any time the Collateral, or any part thereof, is removed to a new location, Debtor: (a) shall provide written notice thereof to Secured Party within six (6) months after the funding of this Agreement and every six (6) months thereafter until the end of the term; and (b) either (i) the premises in which such Collateral will be installed will be owned by Debtor free of any liens or encumbrances, or (ii) if not owned by Debtor free of liens or encumbrances, the owner of such premises and/or the holder of any such liens or encumbrances on such premises shall have consented and acknowledge the superiority of Secured Party's interest in such Collateral. INDEMNIFICATION. Debtor shall indemnify Secured Party against all claims arising out of or connected with the ownership or use of the Collateral. MOTOR VEHICLES. If the Collateral consists of or includes motor vehicles or other equipment for which there is a certificate of title evidencing ownership thereof, Debtor shall forthwith cause each certificate to be endorsed over and the lien of Secured Party to be noted so as to show Secured Party's interest, and Debtor shall deliver forthwith each such certificate to Secured Party. TAXES. Debtor shall pay promptly when due all taxes, charges and assessments that are or may become a lien on the Collateral or any part thereof, except to the extent that the same are contested in good faith and by appropriate proceedings. FINANCIAL STATEMENTS. (a) During the term of this Agreement, Debtor shall (i) maintain books and records in accordance with generally accepted accounting principles ("GAAP") and prudent business practice, (ii) promptly and in no event later than 120 days after each fiscal year end furnish Secured Party annual audited consolidated and consolidating financial statements of Penhall International Corp. and subsidiaries, prepared in accordance with GAAP consistently applied, together with an unqualified opinion of an independent auditor, and (iii) at Secured Party's request, furnish Secured Party all other financial quarterly or other interim financial statements of Debtor and of any Guarantor. Debtor shall furnish such other information as Secured Party may reasonably request at any time concerning Debtor, Guarantor and their respective affairs, or any Collateral. Debtor shall promptly notify Secured Party of any event of default or event or circumstance which, with notice, lapse of time or both, would be an event of default. (b) Debtor represents and warrants that all information furnished and to be furnished by Debtor or any Guarantor to Secured Party is accurate, and that all financial statements Debtor or any Guarantor has furnished and hereafter may furnish to Secured Party reasonably reflect and will reflect, as of their respective dates, results of the operations and the financial condition of Debtor, such Guarantor or other entity they purport to cover. (c) Credit and other information regarding Debtor, any Guarantor or their affiliates may be shared by Secured Party with its affiliates and agents. REIMBURSEMENT FOR EXPENSES. At its option, and with no obligation to do so, Secured Party may (i) if an event of default exists, discharge taxes or other encumbrances on the Collateral, or pay for the repair, maintenance and preservation of the Collateral and (ii) ten (10) days after notifying Debtor of Secured Party's intent to do so, arrange and pay for insurance on the Collateral. Debtor agrees to reimburse Secured Party on demand for any payments so made; Debtor also agrees to reimburse and pay to Secured Party on demand all expenses incurred or paid by Secured Party in perfecting the security interest granted hereunder and in collecting the Indebtedness and in protecting or enforcing Secured Party's rights under this Agreement, including but not limited to reasonable attorney's fees and legal expenses. Until Debtor makes such reimbursement, the amount of all such payments and expenses, with interest at the rate then applicable to principal installments of the Loan not paid when due, from the date of payment until reimbursement, shall be added to the Indebtedness and shall be secured by the security interest granted by Debtor under this Agreement. Nothing in this paragraph relieves Debtor of the duty to care for, insure and protect the Collateral and Secured Party's interests therein and to pay tax on or related to the Collateral, or of any other duty. SALE OR REPLACEMENT OF COLLATERAL. Debtor shall not sell or replace any item or part of the Collateral without the prior written consent of Secured Party, except as noted in the section below entitled "Assignability" POST DEFAULT INTEREST. Any principal balance not paid when due (whether by acceleration or otherwise) shall accrue interest at the "Default Rate" until such principal balance is paid. "Default Rate" shall be a per annum rate of interest equal to (i) fifteen percent (15.0%) or (ii), if less, the highest rate of interest permitted by applicable law. Upon the occurrence of an Event of Default, Debtor shall also pay, in addition to and on the same date each principal installment is due, additional interest ("Daily Supplemental Interest") as reflected in Secured Party's invoice, which Secured Party shall calculate as follows: Daily Supplemental Interest shall be the amount obtained by multiplying the principal installment, determined as of the due date next preceding the occurrence of the Event of Default, by Three percent (3.00%) and dividing the product by 360 days; provided that any corresponding increase in the interest rate hereof shall be reduced, if necessary, so as not to exceed the maximum interest rate permitted by applicable law. Secured Party may, at its option, apply late payments (either in full or partial) in the following manner: first to interest, then to principal, and finally to late charges. To the extent permitted by applicable law, Debtor shall pay interest on delinquent principal installments on demand regardless of whether or not Secured Party proceeds under the "Remedies" provisions hereof or takes any other action, and demand for and collection of interest on such overdue installments at the Default Rate shall not be deemed a waiver of default or of any other remedies or rights. This paragraph shall not be construed to limit or waive any of Secured Party's rights and remedies otherwise available to Secured Party after the occurrence of any Event of Default EVENTS OF DEFAULT. Debtor shall be in default under this Agreement upon the happening of any of the following events or conditions, each of which is an event of default: (1) Debtor fails to pay within ten days of the day when due any installment of the Loan, or in the payment of any other Indebtedness, when and as the same becomes due and payable, whether at the stated maturity thereof or by acceleration or otherwise; (2) Debtor fails to maintain insurance in respect of any Collateral as required, or sells, leases, subleases, assigns, conveys, encumbers or suffers to exist any lien or charge against, any Collateral without Secured Party's prior consent, or any Collateral is subjected to levy, seizure or attachment; (3) Debtor or any guarantor under any guaranty providing a guaranty of Debtor's obligations hereunder ("Guarantor") fails to perform and comply with any covenant or obligation (other than, with respect to Debtor only, Debtor's breach of subsections (1) or (2) of this Section EVENTS OF DEFAULT) under any Agreement, guaranty, or any progress payment, assignment, security or other agreement related to any Agreement or Collateral (together, "Related Agreements") and, if curable, such failure continues for 30 days after written notice to Debtor or Guarantor, as applicable (4) any representation, warranty or other written statement made to Secured Party in connection with this Loan, or any guaranty, by Debtor or Guarantor, including financial statements, proves to have been incorrect in any material respect when made; (5) Debtor (x) enters into any merger or consolidation with, or sells or transfers all, substantially all or any substantial portion of its assets to, or enters into any partnership or joint venture other than in the ordinary course of business with, any entity, (y) dissolves, liquidates or ceases or suspends the conduct of business, or ceases to maintain its existence, or (z) enters into or suffers any transaction or series of transactions as a result of which Debtor is directly or indirectly controlled by persons or entities not affiliates of Debtor as of the date of this Agreement; (6) Debtor undertakes any general assignment for the benefit of creditors or commences any voluntary case or proceeding for relief under the Bankruptcy Code, or any other law for the relief of debtors, or takes any action to authorize or implement any of the foregoing; (7) the filing of any petition or application against Debtor under any law for the relief of debtors, including proceedings under the Bankruptcy Code, or for the subjection of property of Debtor to the control of any court, receiver or agency for the benefit of creditors if such petition or application is consented to by Debtor or not dismissed within 60 days from the date of filing; (8) any payment default or other event of default occurs under any other bilateral or multi-lateral loan, lease, or credit, or other agreement or instrument to which Debtor and Secured Party or any affiliate of Secured Party are now or hereafter party; (9) any payment default or other event of default occurs under any other lease, or credit, or other agreement or instrument or any combination thereof to which Debtor is now or hereafter party and under which there is outstanding (on a present value basis for all future rent, in the case of leases), owing or committed an aggregate amount greater than $100,000.00; (10) the repudiation of or breach or default under any guaranty relating to any Indebtedness; or (11) the occurrence of any event described in clauses (5), (6), (7), (8) or (9) of this Section with reference to "any Guarantor" in lieu of "Debtor", or any Guarantor dies. REMEDIES. Upon any event of default and at any time thereafter, Secured Party may declare all the Indebtedness immediately due and payable in full (unless such event of default comprises one or more of the events described in paragraphs 7 or 8 above, in which case all the Indebtedness shall become immediately due and payable in full without declaration, notice or other action on the part of Secured Party), and may proceed to enforce payment thereof and exercise any and all of the rights and remedies provided by the Uniform Commercial Code as well as all other rights and remedies of Secured Party hereunder or under other applicable law. Upon the occurrence of an event of default, Debtor shall, upon demand by Secured Party, assemble the Collateral and make it available to Secured Party at a place designated by Secured Party reasonably convenient to both parties. Secured Party may, at its election, enforce its rights under this Agreement by a suit in equity for specific performance. Debtor grants Secured Party the right to enter upon any premises of Debtor for the purpose of recovering possession of the Collateral or any part thereof after the occurrence of an event of default, or for the preservation or enforcement of Secured Party's other rights hereunder, all without demand or notice to Debtor and without judicial hearing or proceedings, which Debtor hereby expressly waives. The requirements of reasonable notice shall be deemed met if such notice is mailed to an address of Debtor shown at the beginning of this Agreement at least ten (10) days before the time of the sale or disposition, but nothing contained herein shall be construed to mean that other notice or a shorter period of time does not constitute reasonable notice of the sale or other disposition of the Collateral. Debtor shall reimburse Secured Party for all Secured Party's expenses of retaking, holding, preparing for sale, selling or otherwise dealing with or disposing of the Collateral, including attorney's fees in the amount of fifteen percent (15%) of the outstanding principal balance of and interest on the Indebtedness (but not to exceed the amount of attorneys' fees actually incurred) if collection is by or through an attorney at law. Subject to applicable law, Debtor shall pay any Indebtedness remaining unpaid after sale or other disposition of any or all of the Collateral. Any surplus proceeds from the sale or other disposition of the Collateral remaining after full satisfaction of the Indebtedness shall be paid to Debtor or to such other persons as may be entitled thereto under applicable law. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to Secured Party hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of Secured Party to exercise, and no delay in exercising, any right shall operate as a waiver thereof, nor shall any single or partial exercise by Secured Party of any right preclude any other or future exercise thereof or the exercise of any other right. FINANCING STATEMENTS. Debtor shall sign and deliver to Secured Party such financing statements and other documents as Secured Party may deem necessary to perfect, protect and continue its security interest in the Collateral, in form satisfactory to Secured Party. Debtor will reimburse Secured Party for all expenses incurred in the filing of financing statements, continuation statements, termination statements and any other documents relating to the perfection of Secured Party's security interest in the Collateral. A carbon, photographic or other reproduction of this Agreement or of a financing statement relating to the security interest herein granted is sufficient as a financing statement. Debtor authorizes Secured Party to file financing statements as to the Collateral signed only by Secured Party and not by Debtor. SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. ASSIGNABILITY. Debtor acknowledges that the rights of Secured Party may be assigned to any person in whole or in part at the sole discretion of Secured Party, and Debtor agrees that any defense it may have against Secured Party as to events occurring prior to any assignment shall not be asserted, and shall be void, against any assignee of the rights of Secured Party. Debtor shall not assign, pledge, hypothecate or in any way dispose of all or any part of its rights or obligations under any Agreement, or enter into any sublease of any Collateral, without Secured Party's prior consent; provided that Debtor may without Secured Party's prior written consent , but only after providing Secured Party at least 30 days' prior written notice, sell or otherwise dispose of one or more pieces of Collateral in an aggregate amount not to exceed $200,000 during the Base Term. In the absence of such prior written consent, no such assignment of any right or obligation of Debtor hereunder shall be binding on Secured Party. Subject to the foregoing limitations, the terms and conditions of this Agreement shall be binding on and shall inure to the benefit of the heirs, executors, administrators, successors, and assigns of the parties. MATERIAL ADVERSE CHANGE. There has been no material adverse change in the operations business, properties or condition (financial or otherwise ("Material Adverse Change") Of DEbtor or Any GUarantor Since June 30, 2001. THere is not pending against debtor any litigation, proceeding, dispute or claim that may result in a Material Adverse Change as to DEbtor or that may call into question or impair Debtor's legal or other ability to enter into and perform its obligations under this Agreement. WARRANTY DISCLAIMER. SECURED PARTY IS NOT A MANUFACTURER OR SELLER OF THE COLLATERAL AND MAKES NO WARRANTIES WHATSOEVER WITH RESPECT TO THE COLLATERAL, INCLUDING WITHOUT LIMITATION WARRANTIES OF TITLE, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. DEBTOR SHALL NOT ASSERT ANY BREACH OF ANY SUCH WARRANTY AS A DEFENSE TO ANY OF ITS OBLIGATIONS TO SECURED PARTY UNDER THIS AGREEMENT; HOWEVER, NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED TO IMPAIR ANY OF DEBTOR'S REMEDIES FOR BREACH OF WARRANTY AGAINST ANY SELLER OR MANUFACTURER OF THE COLLATERAL. GOVERNING LAW; CONSENT TO VENUE AND PERSONAL JURISDICTION. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA AS OF THE DATE HEREOF. IF THE ADDRESS OF DEBTOR'S RESIDENCE OR PRINCIPAL PLACE OF BUSINESS SHOWN HEREIN IS NOT IN THE STATE OF CALIFORNIA, DEBTOR CONSENTS TO THE EXERCISE OF PERSONAL JURISDICTION OVER DEBTOR BY ANY COURT OR RECORD SITTING IN THE STATE OF CALIFORNIA IN CONNECTION WITH ANY ACTION ARISING OUT OF THIS AGREEMENT, AND WAIVES ALL OBJECTIONS TO SERVICE OF PROCESS ON DEBTOR AT SUCH ADDRESS. WAIVER OF JURY TRIAL. SECURED PARTY AND DEBTOR EACH WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT. IN WITNESS WHEREOF, the parties have caused their names to be signed and their seals affixed as of the date first above written. By execution hereof, each party intends and agrees to be legally bound by all the provisions of this Agreement. BANC OF AMERICA LEASING & CAPITAL, LLC PENHALL COMPANY (Secured Party) (Debtor) By: ____________________________________ By: ____________________________________ Printed Name: __________________________ Printed Name: __________________________ Title: _________________________________ Title: _________________________________ EX-10.21 8 a84597exv10w21.txt EXHIBIT 10.21 EXHIBIT 10.21 GUARANTY 1. The Guaranty. For valuable consideration, the undersigned ("Guarantor") hereby unconditionally guarantees and promises to pay to Banc of America Leasing & Capital, LLC ("Secured Party"), or order, on demand, in lawful money of the United States, any and all payment and performance obligations, whether now existing or hereafter arising or matured or contingent (the "Obligations") of Penhall Company ("Debtor") to Secured Party under or in respect of that certain Note and Security Agreement No. 00701 dated March 18, 2002 executed by Debtor and Secured Party (together with all appendices and other attachments thereto, now existing or hereafter arising, and any renewals, amendments, or extensions thereof, the "Agreement") providing for the Agreement or financing of equipment or other personal or real property ("Collateral") by Secured Party to Debtor. The obligations of Guarantor hereunder are independent of the Obligations and exclusive of and in addition to liability under any other guaranty executed by Guarantor for the benefit of Secured Party or any company related to Secured Party, and a separate action or actions may be brought and prosecuted against Guarantor whether action is brought against Debtor or whether Debtor is joined in any such action or actions. 2. Authorization of Renewals, Etc. Guarantor authorizes Secured Party, without notice or demand and without affecting its liability hereunder, from time to time to: (a) renew, compromise, extend, accelerate, or otherwise change the time for or amount of any payment, or substitute or exchange Collateral, or otherwise change the terms of the Agreement or the Obligations or any other obligations of Debtor to Secured Party ("Other Obligations"); (b) receive and hold security for the payment of this Guaranty or the Obligations or any Other Obligations, and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of, any such security; (c) apply such security and direct the order or manner of sale thereof as Secured Party in its discretion may determine; and (d) release or substitute any one or more of any endorsers or guarantors of the Obligations. 3. Waiver of Certain Rights. Guarantor waives any right to require Secured Party to: (a) proceed against Debtor; (b) proceed against or exhaust any security for the Obligations or any other Obligations, or repossess, dispossess or remarket Collateral, or otherwise mitigate damages; or (c) exercise or pursue any other right or remedy in Secured Party's power whatsoever. 4. Waiver of Certain Defenses. Guarantor waives any defense arising by reason of any disability or other defense of Debtor, or the cessation from any cause whatsoever of the liability of Debtor, or any claim that Guarantor's obligations exceed or are more burdensome than those of Debtor, including any of the foregoing arising by virtue of any provision of the U.S. Bankruptcy Code (Title 11, U.S. Code) (the "Bankruptcy Code"). 5. Waiver of Subrogation and Other Rights and Defenses. (a)Until the Obligations and any Other Obligations are paid in full, Guarantor waives (i) any right of subrogation, reimbursement, indemnification and contribution (contractual, statutory, or -1- from the existence or performance of this Guaranty, (ii) any right to enforce any remedy Secured Party now has or may hereafter have against Debtor and (iii) any benefit of, and any right to participate in, any security now or hereafter held by Secured Party. (b) Guarantor understands and acknowledges that if Secured Party forecloses, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing the Obligations, that foreclosure could impair or destroy any ability Guarantor may have to seek reimbursement, contribution, or indemnification from Debtor or others based on any right Guarantor may have of subrogation, reimbursement, contribution, or indemnification for any amounts paid by Guarantor under this Guaranty. Guarantor further understands and acknowledges that in the absence of this paragraph, such potential impairment or destruction of Guarantor's rights, if any, may entitle Guarantor to assert a defense to this Guaranty based on Section 580d of the California Code of Civil Procedure ("CCP") as interpreted in Union Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968). By executing this Guaranty, Guarantor freely, irrevocably, and unconditionally: (i) waives and relinquishes that defense and agrees that Guarantor will be fully liable under this Guaranty even though Secured Party may foreclose, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing the Obligations; (ii) agrees that Guarantor will not assert that defense in any action or proceeding Secured Party may commence to enforce this Guaranty; (iii) acknowledges and agrees that the rights and defenses waived by Guarantor in this Guaranty include any right or defense Guarantor may have or be entitled to assert based upon or arising out of any one or more of CCP Section Section 580a, 580b, 580d, or 726 or Section 2848 of the California Civil Code ("CC") and (iv) acknowledges and agrees that Secured Party is relying on this waiver in creating the Obligations, and that this waiver is a material part of the consideration therefor. (c) Guarantor waives any rights and defenses that are or may become available to Guarantor under CC Section Section 2787 to 2855, inclusive. Guarantor waives the benefit of any statute of limitations affecting its liability hereunder. 6. Waiver of Presentments, Etc. Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional Obligations or any Other Obligations. 7. Information Relating to Debtor. Guarantor acknowledges and agrees that it has sole responsibility for obtaining from Debtor such information concerning Debtor's financial condition or business operations or the Collateral as Guarantor may require, and that Secured Party has no duty at any time to disclose to Guarantor any information relating to the business operations or financial condition of Debtor or the Collateral. 8. Security. To secure all of Guarantor's obligations hereunder, Guarantor assigns and grants to Secured Party a security interest in all moneys, securities and other property of Guarantor now or hereafter in the possession of Secured Party, all deposit accounts of Guarantor maintained with Secured Party, and all proceeds thereof. Upon default or breach of any of Guarantor's obligations to Secured Party hereunder, Secured Party may apply any such deposit -2- account to reduce the Obligations, and may foreclose any collateral as provided in the Uniform Commercial Code and in any security agreements between Secured Party and Guarantor. 9. Subordination. Any obligations of Debtor to Guarantor, now or hereafter existing, including any obligations to Guarantor as subrogee of Secured Party or resulting from Guarantor's performance under this Guaranty, are hereby subordinated to the Obligations and any Other Obligations. Such obligations of Debtor to Guarantor if Secured Party so requests shall be enforced and performance received by Guarantor as trustee for Secured Party, and the proceeds thereof shall be paid over to Secured Party on account of the Obligations and all Other Obligations, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. 10. Debtor's Authorization. Where Debtor is a corporation, partnership, or limited liability company, it is not necessary for Secured Party to inquire into the powers of Debtor or of the officers, directors, partners, members, managers, or agents acting or purporting to act on its behalf, and any Obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. 10.A. Financial Covenants and Controls. Guarantor shall, for the periods and on the dates specified below, comply with each of the following: (a) Interest Coverage Ratio: Guarantor will not permit the Interest Coverage Ratio for any test period ending on a date set forth below to be less than the ratio set forth opposite such date:

Date Ratio ---- ----- June 30, 2002 2.30:1.0 June 30, 2003 2.60:1.0 June 30, 2004 3.00:1.0 June 30, 2005 3.00:1.0

"Interest Coverage Ratio" shall mean for any test period the ratio of Consolidated EBITDA for such test period to Consolidated Interest Expense for such test period provided that any interest non-payable in cash for subordinated debt shall be excluded from consolidated interest expense for the purposes of determining the Interest Coverage Ratio. "Consolidated EBITDA" shall mean for any period (A) the sum of the amounts for such period of 1) consolidated net income, 2) provisions for cash taxes based on income, 3) Consolidated Interest Expense, 4) amortization or write-off of deferred financing costs to the extent deducted in determining consolidated net income, 5) losses on sales of assets (excluding sales in the ordinary course of business) and other extraordinary or nonrecurring losses, (6) depreciation expense, 7) amortization expense, and without duplication all other non-cash charges (including non-cash stock compensation expense) included in determining consolidated -3- period of gains on sales of assets (excluding sales in the ordinary course of business) and other extraordinary or nonrecurring gains, all as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" shall mean for any period total interest expense (including that attributable to capital Agreements in accordance with GAAP) of Guarantor and its subsidiaries on a consolidated basis with respect to all indebtedness of Guarantor and its subsidiaries, including, without limitation all capitalized interest, but excluding 1) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under interest rate agreements and 2) transaction expenses. This ratio will be calculated at the end of each reporting period for which Secured Party requires financial statements from Guarantor, using the results of the twelve-month period ending with that reporting period. (b) Leverage Ratio: Guarantor will not permit the Leverage Ratio on the last day of any test period to be greater than the ratio set forth opposite such date below:

Date Ratio ---- ----- June 30, 2002 4.25:1.0 June 30, 2003 3.75:1.0 June 30, 2004 3.00:1.0 June 30, 2005 3.00:1.0

"Leverage Ratio" shall mean at any date of determination the ratio of (A) Consolidated Indebtedness on such date to (B) Consolidated EBITDA for the test period. "Consolidated Indebtedness" shall mean as at any date of determination the aggregate amount of all Indebtedness of Guarantor and its subsidiaries on a consolidated basis. "Indebtedness" of any person shall mean without duplication 1) all indebtedness of such person for borrowed money, 2) the deferred purchase price of assets and services which in accordance with GAAP would be shown on the liability side of the balance sheet of such person, 3) the face amount of letters of credit issued for the account of Guarantor or its subsidiaries and, without duplication, all drafts drawn thereunder, 4) all indebtedness of a second person secured by any lien on any property owned by such first person whether or not such indebtedness has been assumed, 5) all capitalized Agreement obligations of such person, 6) all obligations of such person to pay a specified purchase price for goods and services whether or not delivered or accepted i.e., take-or-pay and similar obligations, 7) all net obligations of such person under interest rate agreements, and 8) all contingent obligations of such person (other than contingent obligations arising from the guaranty by such person of the obligations of Guarantor and/or its -4- subsidiaries to the extent such guaranteed obligations do not constitute Indebtedness); provided that Indebtedness shall not include trade payables, deferred revenue, taxes and accrued expenses in each case arising in the ordinary course of business. This ratio will be calculated at the end of each reporting period for which Secured Party requires financial statements from Guarantor, using the results of the twelve-month period. 10.B. Additional Guarantor Covenant. Guarantor agrees that it shall provide Secured Party with copies of all quarterly compliance certificates required to be furnished under either (1) the Credit Agreement among Penhall International Corp., Penhall Acquisition Corp., Bankers Trust Company, Credit Suisse First Boston, Fleet Capital Corporation and Union Bank of California dated as of August 4, 1998, as amended from time to time, or (2) any successor credit or loan agreement. 11. Assignments. Secured Party may, without notice to Guarantor and without affecting Guarantor's obligations hereunder, sell, assign, grant participations in, or otherwise transfer to any other person, firm, or corporation the Agreement, the Collateral, the Obligations and this Guaranty, in whole or in part. Guarantor agrees that Secured Party may disclose to any such assignee or purchaser, or any prospective assignee or purchaser, of all or part of the Agreement or the Obligations any information in Secured Party's possession concerning Guarantor, this Guaranty and any security for this Guaranty. 12. Reinstatement of Guaranty. If any payment or transfer of any interest in property by Debtor to Secured Party is rescinded or must be returned by Secured Party to Debtor, (a) this Guaranty shall be reinstated with respect to any such payment or transfer, even if this Guaranty was previously returned or canceled, and (b) Guarantor shall remain fully liable with respect to any such amount as if such amount had not been paid by Debtor. 13. Costs and Expenses. Guarantor agrees to pay all reasonable attorneys' fees, including allocated costs of Secured Party's internal counsel, and all other costs and expenses Secured Party may incur (a) in the enforcement of this Guaranty or (b) in the preservation, protection, or enforcement of any rights of Secured Party in any case commenced by or against Guarantor under the Bankruptcy Code or any similar statute. 14. Governing Law. This Guaranty shall be governed by and construed under the laws of California, to the jurisdiction of which, and of the Federal courts in California, Guarantor hereby submits. -5- 15. Interpretation. No provision or waiver in this Guaranty shall be construed as limiting the generality of any other waiver in this Guaranty. The term "including" is not limiting and means "including without limitation". Section headings are for convenience of reference only and do not affect the interpretation of this Guaranty. The invalidity of any portion of this Guaranty shall not affect the remaining provisions. Where more than one Guarantor executes this Guaranty, all of the provisions hereof shall apply to each of such persons singly, and the obligations of each such person shall be joint and several. Executed as of _______________________________. Guarantor: Penhall International Corp. _____________________________ _____________________________ Print Name _____________________________ Address Address for notices to Guarantor: _________________________________ _________________________________ _________________________________ -6- EX-10.22 9 a84597exv10w22.txt EXHIBIT 10.22 EXHIBIT 10.22 BANK OF AMERICA BANC OF AMERICA LEASING & CAPITAL, LLC Amendment Number 1 to Guaranty dated July 25, 2002 ================================================================================ This Amendment Number 1 made this 4th day of September, 2002, to Guaranty dated July 25, 2002 ( the "Guaranty"), between Banc of America Leasing & Capital, LLC ("Secured Party") and Penhall International Corp. ("Guarantor"). W I T N E S S E T H : WHEREAS, Secured Party and Guarantor are parties to the Guaranty; and WHEREAS, Secured Party and Guarantor desire to amend certain provisions of the Guaranty; NOW, THEREFORE, in consideration of the premises and the mutual obligations hereinafter contained, and for the other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereto agree as follows: 1. Section 10A. (a) of Guaranty. Interest Coverage Ratio is hereby restated as follows: Interest Coverage ratio (minimum)

Date Ratio ---- ----- June 30, 2003 1.80 June 30, 2004 1.95 June 30, 2005 2.15 December 31, 2006 2.25

2. Section 10A (b) of Guaranty. Leverage Ratio is hereby restated as follows: Leverage ratio (maximum)

Date Ratio ---- ----- June 30, 2003 5.20 June 30, 2004 4.85 June 30, 2005 4.55 December 31, 2006 4.30

3. Except as amended hereby, the Guaranty shall remain in full force and effect and is in all respects hereby ratified and affirmed. Capitalized terms not otherwise defined herein shall have the meanings ascribed them in the Guaranty. IN WITNESS WHEREOF, the parties hereunto have caused this instrument to be executed by their duly authorized officers as of the day and year first above written. BANC OF AMERICA LEASING & CAPITAL, LLC Penhall International Corp. (Secured Party) (Guarantor) By: ___________________________________ By: ___________________________________ Printed Name: _________________________ Printed Name: _________________________ Title: ________________________________ Title: ________________________________ EX-12 10 a84597exv12.txt EXHIBIT 12 EXHIBIT 12 PENHALL INTERNATIONAL CORP AND SUBSIDIARIES RATIO OF EARNINGS TO FIXED CHARGES

FISCAL YEAR ENDED JUNE 30, ------------------------------------------------------------- 1998 1999 2000 2001 2002 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Earnings before income taxes........... $ 5,232 $ (7,337) $ 10,326 $ 9,159 $ (2,473) Fixed charges - interest expense(1).... 1,204 14,580 15,920 15,624 14,747 -------- -------- -------- -------- -------- $ 6,436 $ 7,243 $ 26,246 $ 24,783 $ 12,274 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges..... 5.3 to 1 .5 to 1 1.6 to 1 1.6 to 1 .8 to 1 Coverage deficiency ................... $ -- $ 7,337 $ -- $ -- $ 2,473 ======== ======== ======== ======== ========

- ------------ (1) Fixed charges - interest expense includes a component for interest computed on rent expense that approximates 30% of the total rent expense for each period presented. EX-21 11 a84597exv21.txt EXHIBIT 21 EXHIBIT 21 PENHALL INTERNATIONAL CORP AND SUBSIDIARIES SUBSIDIARIES

NAME JURISDICTION ---- ------------ Penhall Rental Corp. Arizona Penhall Company California

-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.12

                                                               EXHIBIT NO. 10.12



                                 FIRST AMENDMENT


               FIRST AMENDMENT (this "Amendment"), dated as of November 10,
1999, among PENHALL INTERNATIONAL CORP., an Arizona corporation (the
"Borrower"), the lending institutions party to the Credit Agreement referred to
below (each a "Bank" and, collectively, the "Banks"), BANKERS TRUST COMPANY as
administrative agent (the "Administrative Agent") and CREDIT SUISSE FIRST BOSTON
as syndication agent (the "Syndication Agent"). All capitalized terms used
herein and not otherwise defined shall have the respective meanings provided
such terms in the Credit Agreement referred to below.


                              W I T N E S S E T H :

               WHEREAS, the Borrower, the Banks, the Issuing Banks and the
Administrative Agent are parties to a Credit Agreement, dated as of August 4,
1998 (as amended, modified or supplemented through the date hereof, the "Credit
Agreement");

               WHEREAS, the parties hereto wish to amend certain provisions of
the Credit Agreement as herein provided, subject to and on the terms and
conditions set forth herein;

               NOW, THEREFORE, it is agreed:

               1. Section 8.02(k)(iv) of the Credit Agreement is hereby amended
by deleting "$25,000,000" and inserting "$50,000,000 in total and $15,000,000
per year".

               2. Section 8.02(k)(v) of the Credit Agreement is hereby amended
by inserting the phrase "have provided documentation to the Administrative Agent
showing that the Borrower will" after the phase "the Borrower shall".

               3. Section 8.05(a) of the Credit Agreement is hereby amended by
deleting the chart contained therein and inserting the following new chart in
lieu thereof:



               Fiscal Year Ending                            Amount
               ------------------                          -----------
                                                        
               June 30, 1999                               $13,500,000

               June 30, 2000                               $22,500,000

               June 30, 2001                               $22,500,000

               June 30, 2002                               $19,000,000

               June 30, 2003                               $16,000,000

               June 30, 2004                               $16,500,000






               4. Section 8.05(b)of the Credit Agreement is hereby amended by
(i) adding the text "(starting with the fiscal year ending June 30, 2000)"
immediately following the text "In the event that the maximum amount which is
permitted to be expended in respect of Consolidated Capital Expenditures during
any fiscal year of the Borrower" and (ii) deleting the "25%" following "such
increase shall not exceed the amount otherwise permitted by more than" and
inserting "$2,000,000" in lieu thereof.

               5. Section 8.05(c) of the Credit Agreement is hereby deleted in
its entirety, and Sections 8.05(d), (e), (f) and (g) are hereby renamed Sections
8.05(c), (d), (e) and (f), respectively.

               6. Section 8.05(f) (to be referred to as Section 8.05(e) after
the Amendment Effective Date, as defined below in Section 12 of this Amendment)
is hereby amended by deleting the "(g)" after "provided that any proceeds that
are so used to make Consolidated Capital Expenditures pursuant to this clause"
and inserting "(e)" in lieu thereof.

               7. Section 8.12 of the Credit Agreement is hereby amended by
deleting the reference to "Section 8.05(e)" and inserting "Section 8.05(d)" in
lieu thereof.

               8. Section 8.14 of the Credit Agreement is hereby amended by
deleting the chart contained therein and inserting the following new chart in
lieu thereof:



     Date                                                           Amount
     ----                                                           ------
                                                              
     September 30, 1998                                           $6,900,000

     December 31, 1998                                            $5,800,000

     March 31, 1999                                               $4,700,000

     June 30, 1999                                               $23,000,000

     September 30, 1999                                          $24,000,000

     December 31, 1999                                           $26,000,000

     March 31, 2000                                              $27,000,000

     June 30, 2000                                               $28,700,000

     September 30, 2000                                          $28,700,000

     December 31, 2000                                           $30,700,000

     March 31, 2001                                              $30,700,000

     June 30, 2001                                               $31,800,000

     September 30, 2001                                          $31,800,000

     December 31, 2001                                           $32,800,000





                                      -2-


                                                         
     March 31, 2002                                              $32,800,000

     June 30, 2002                                               $34,300,000

     September 30, 2002                                          $34,300,000

     December 31, 2002                                           $35,300,000

     March 31, 2003                                              $35,300,000

     June 30, 2003                                               $36,000,000

     September 30, 2003                                          $36,000,000

     December 31, 2003                                           $37,000,000

     March 31, 2004                                              $37,000,000

     June 30, 2004                                               $38,000,000

     


               9. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that (i) the representations, warranties
and agreements contained in Article 6 of the Credit Agreement are true and
correct in all material respects on and as of the Amendment Effective Date (as
defined in Section 12 of this Amendment and after giving effect thereto) (it
being understood and agreed that any representation or warranty which by its
terms is made as of a specified date shall be required to be true and correct in
all material respects only as of such specified date) and (ii) there exists no
Default or Event of Default on the Amendment Effective Date, after giving effect
to this Amendment.

               10. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.

               11. This Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower, the Administrative Agent and
each Bank.

               12. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.

                13. This Amendment shall become effective on the date (the
"Amendment Effective Date") when (i) the Borrower and the Required Banks shall
have signed a counterpart hereof (whether the same or different counterparts)
and shall have delivered (including by way of facsimile transmission) the same
to the Administrative Agent at its address for notice provided for in the Credit
Agreement and (ii) the Borrower pays a fee to each Bank which executes and
delivers a counterpart to this Amendment prior to the Amendment Effective Date
equal to 0.1% of such Bank's total outstanding Term Loan and/or Revolving
Commitment;



                                      * * *




                                      -3-


               IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.



1801 Penhall Way                            PENHALL INTERNATIONAL CORP.,
PO Box 4609                                 as Borrower
Anaheim, CA 92803
Attention: John Sawyer
Tel: (714) 772-6450
Fax: (714) 778-8437                         By _________________________________
                                               Title:







                                        BANKERS TRUST COMPANY,
                                        Individually and as Administrative Agent



                                        By _____________________________________
                                           Title:






                                        CREDIT SUISSE FIRST BOSTON
                                        Individually and as Syndication Agent



                                        By _____________________________________
                                           Title:



                                        By _____________________________________
                                           Title:








                                        FLEET CAPITAL CORPORATION



                                        By _____________________________________
                                           Title:




                                        UNION BANK OF CALIFORNIA, N.A.



                                        By _____________________________________
                                           Title:




                                        U.S. BANK NATIONAL ASSOCIATION



                                        By _____________________________________
                                           Title:

EX-10.13

                                                               EXHIBIT NO. 10.13



                                SECOND AMENDMENT


               SECOND AMENDMENT (this "Amendment"), dated as of May 8, 2000,
among PENHALL INTERNATIONAL CORP., an Arizona corporation (the "Borrower"), the
lending institutions party to the Credit Agreement referred to below (each a
"Bank" and, collectively, the "Banks"), BANKERS TRUST COMPANY as administrative
agent (the "Administrative Agent") and CREDIT SUISSE FIRST BOSTON as syndication
agent (the "Syndication Agent"). All capitalized terms used herein and not
otherwise defined shall have the respective meanings provided such terms in the
Credit Agreement referred to below.


                              W I T N E S S E T H :

               WHEREAS, the Borrower, the Banks, the Issuing Banks and the
Administrative Agent are parties to a Credit Agreement, dated as of August 4,
1998 (as amended, modified or supplemented through the date hereof, the "Credit
Agreement");

               WHEREAS, the parties hereto wish to amend certain provisions of
the Credit Agreement as herein provided, subject to and on the terms and
conditions set forth herein;

               NOW, THEREFORE, it is agreed:

               1. Section 4.02(A)(e) of the Credit Agreement is hereby amended
by deleting the dollar amount "1,500,000" appearing in clause (z) therein and
inserting the dollar amount "6,000,000" in lieu thereof.

               2. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that (i) the representations, warranties
and agreements contained in Article 6 of the Credit Agreement are true and
correct in all material respects on and as of the Second Amendment Effective
Date (as defined in Section 6 of this Amendment and after giving effect thereto)
(it being understood and agreed that any representation or warranty which by its
terms is made as of a specified date shall be required to be true and correct in
all material respects only as of such specified date) and (ii) there exists no
Default or Event of Default on the Second Amendment Effective Date, after giving
effect to this Amendment.

               3. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.

               4. This Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower, the Administrative Agent and
each Bank.

               5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.




               6. This Amendment shall become effective on the date (the "Second
Amendment Effective Date") when the Borrower and the Required Banks shall have
signed a counterpart hereof (whether the same or different counterparts) and
shall have delivered (including by way of facsimile transmission) the same to
the Administrative Agent at its address for notice provided for in the Credit
Agreement.



                                      * * *




                                      -2-


               IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.



1801 Penhall Way                        PENHALL INTERNATIONAL CORP.,
PO Box 4609                             as Borrower
Anaheim, CA 92803
Attention: John Sawyer
Tel: (714) 772-6450
Fax: (714) 778-8437                     By _____________________________________
                                           Title:











                                        BANKERS TRUST COMPANY,
                                        Individually and as Administrative Agent



                                        By _____________________________________
                                           Title:






                                        CREDIT SUISSE FIRST BOSTON
                                        Individually and as Syndication Agent



                                        By _____________________________________
                                           Title:



                                        By _____________________________________
                                           Title:








                                        FLEET CAPITAL CORPORATION



                                        By _____________________________________
                                           Title:







                                        UNION BANK OF CALIFORNIA, N.A.



                                        By _____________________________________
                                           Title:







                                        U.S. BANK NATIONAL ASSOCIATION



                                        By _____________________________________
                                           Title:

EX-10.14

                                                               EXHIBIT NO. 10.14



                                 THIRD AMENDMENT


               THIRD AMENDMENT (this "Amendment"), dated as of February 15,
2002, among PENHALL INTERNATIONAL CORP., an Arizona corporation (the
"Borrower"), the lending institutions party to the Credit Agreement referred to
below (each a "Bank" and, collectively, the "Banks"), BANKERS TRUST COMPANY as
administrative agent (the "Administrative Agent") and CREDIT SUISSE FIRST BOSTON
as syndication agent (the "Syndication Agent"). All capitalized terms used
herein and not otherwise defined shall have the respective meanings provided
such terms in the Credit Agreement referred to below.


                              W I T N E S S E T H :

               WHEREAS, the Borrower, the Banks, the Issuing Banks and the
Administrative Agent are parties to a Credit Agreement, dated as of August 4,
1998 (as amended, modified or supplemented through the date hereof, the "Credit
Agreement");

               WHEREAS, the parties hereto wish to amend certain provisions of
the Credit Agreement as herein provided, subject to and on the terms and
conditions set forth herein;

               NOW, THEREFORE, it is agreed:

               1. Section 4.02(A)(c) is hereby amended by deleting the proviso
appearing at the end of the first sentence appearing therein in its entirety and
inserting the following new proviso in lieu thereof:

               "provided that (i) the Net Cash Proceeds from the Permitted
               Sale-Leaseback Transactions and (ii) up to an aggregate of
               $2,000,000 of Net Cash Proceeds from Asset Sales in any fiscal
               year of the Borrower, shall not give rise to a mandatory
               repayment (and/or commitment reduction, as the case may be) to
               the extent the Borrower elects, as hereinafter provided, to cause
               such Net Cash Proceeds to be reinvested in Reinvestment Assets (a
               "Reinvestment Election")."

               2. Section 8.02(f) of the Credit Agreement is hereby amended by
deleting the text "$2,500,000" therein and inserting the text "2,000,000" in
lieu thereof.

               3. Section 8.02 of the Credit Agreement shall be further amended
by inserting the following new sub-clause (l) immediately after sub-clause (k)
appearing at the end thereof:

               "(l)  each of the Borrower and its Subsidiaries may enter into
                     sale-leaseback transactions with respect to their equipment
                     and Real Property placed into service after August 1, 2001
                     (the "Permitted Sale-Leaseback Transactions"), so long as
                     (i) no Default or Event of Default then exists or would
                     result therefrom, (ii) each such sale-leaseback transaction
                     is in an arm's-length transaction and the Borrower or
                     Subsidiary, as the case may be, receives at least fair
                     market value (as determined in good faith by the Borrower
                     or such Subsidiary, as the case may be), (iii) the total
                     consideration received by the Borrower or such Subsidiary
                     is cash and is paid at the time of the closing of such
                     sale, (iv) the Net Cash Proceeds therefrom are applied
                     and/or reinvested as (and to the extent) required by
                     Section 4.02(A)(c), (v) the Net Cash Proceeds shall not
                     exceed $5,000,000 at any time and (vi) to the extent that
                     any such sale-leaseback transaction results in a
                     Capitalized Lease Obligation, such Capitalized Lease
                     Obligation is permitted under Section 8.04(d)."

               4. Section 8.03 of the Credit Agreement is hereby amended by
inserting the following new sub-clause (r) immediately after sub-clause (q)
appearing therein:





               "(r)  Liens which may be deemed to exist as a result of the
                     consummation of one or more sale-leaseback transactions
                     effected in accordance with the law of Section 8.02 (l),
                     which liens shall relate only to the assets subject to the
                     respective sale-leaseback transaction."

               5. Section 8.04(d) of the Credit Agreement is hereby amended by
inserting immediately after the text "Capital Lease Obligations" appearing
therein the text "(including Capital Lease Obligations resulting from
sale-leaseback transactions permitted under Section 8.02(l))".

               6. Section 8.05(a) of the Credit Agreement is hereby amended by
deleting the chart contained therein and inserting the following chart in lieu
thereof:



               Fiscal Year Ending                           Amount
               ------------------                         -----------
                                                       
               June 30, 1999                              $13,500,000

               June 30, 2000                              $22,500,000

               June 30, 2001                              $22,500,000

               June 30, 2002                              $15,000,000

               June 30, 2003                              $16,000,000

               June 30, 2004                              $16,000,000


               7. Section 10 of the Credit Agreement is hereby amended by
inserting the following new defined term in appropriate alphabetical order:

               "Permitted Sale-Leaseback Transactions' shall have the meaning
provided in Section 8.02(l)."

               8. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that (i) the representations, warranties
and agreements contained in Article 6 of the Credit Agreement are true and
correct in all material respects on and as of the Third Amendment Effective Date
(as defined in Section 6 of this Amendment and after giving effect thereto) (it
being understood and agreed that any representation or warranty which by its
terms is made as of a specified date shall be required to be true and correct in
all material respects only as of such specified date) and (ii) there exists no
Default or Event of Default on the Third Amendment Effective Date, after giving
effect to this Amendment.

               9. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.

               10. This Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower, the Administrative Agent and
each Bank.

               11. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.

               12. This Amendment shall become effective on the date (the "Third
Amendment Effective Date") when the Borrower and the Required Banks shall have
signed a counterpart hereof (whether the same or different counterparts) and
shall have delivered (including by way of facsimile transmission) the same to
the Administrative Agent at its address for notice provided for in the Credit
Agreement.



                                      * * *


                                      -2-


               IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.



1801 Penhall Way                        PENHALL INTERNATIONAL CORP.,
PO Box 4609                             as Borrower
Anaheim, CA  92803
Attention: John Sawyer
Tel: (714) 772-6450
Fax: (714) 778-8437                     By _____________________________________
                                           Title:




                                        BANKERS TRUST COMPANY,
                                        Individually and as Administrative Agent



                                        By _____________________________________
                                           Title:






                                        CREDIT SUISSE FIRST BOSTON
                                        Individually and as Syndication Agent



                                        By _____________________________________
                                           Title:



                                        By _____________________________________
                                           Title:




                                        FLEET CAPITAL CORPORATION



                                        By _____________________________________
                                           Title:







                                        UNION BANK OF CALIFORNIA, N.A.



                                        By _____________________________________
                                           Title:







                                        U.S. BANK NATIONAL ASSOCIATION



                                        By _____________________________________
                                           Title:

EX-10.15

                                                               EXHIBIT NO. 10.15



                                FOURTH AMENDMENT


               FOURTH AMENDMENT (this "Amendment"), dated as of July 19, 2002,
among PENHALL INTERNATIONAL CORP., an Arizona corporation (the "Borrower"), the
lending institutions party to the Credit Agreement referred to below (each a
"Bank" and, collectively, the "Banks") and DEUTSCHE BANK TRUST COMPANY AMERICAS
(f/k/a BANKERS TRUST COMPANY) as administrative agent (the "Administrative
Agent"). All capitalized terms used herein and not otherwise defined shall have
the respective meanings provided such terms in the Credit Agreement referred to
below.


                              W I T N E S S E T H :


               WHEREAS, the Borrower, the Banks, Credit Suisse First Boston and
the Administrative Agent are parties to a Credit Agreement, dated as of August
4, 1998 (as amended, modified or supplemented through the date hereof, the
"Credit Agreement");

               WHEREAS, the parties hereto wish to amend certain provisions of
the Credit Agreement as herein provided, subject to and on the terms and
conditions set forth herein;

               NOW, THEREFORE, it is agreed:

               1. Section 2.01(b) of the Credit Agreement is hereby amended by
deleting the text "15,000,000" appearing therein and inserting the text
"$20,000,000" in lieu thereof.

               2. Section 8.10 of the Credit Agreement is hereby amended by
deleting the table contained therein in its entirety and inserting the following
table in lieu thereof:



                  "Date                                            Ratio
                  -----                                            -----
                                                              
               June 30, 2002                                     2.00:1.00

               September  30, 2002                               1.80:1.00

               December 31, 2002                                 1.80:1.00

               March 31, 2003                                    1.80:1.00

               June 30, 2003                                     1.80:1.00

               September 30, 2003                                1.85:1.00

               December 31, 2003                                 1.85:1.00

               March 31, 2004                                    1.90:1.00

               June 30, 2004                                     1.95:1.00"


               3. Section 8.11 of the Credit Agreement is hereby amended by
deleting the table contained therein in its entirety and inserting the following
table in lieu thereof:



                  "Date                                            Ratio
                  -----                                            -----
                                                              
               June 30, 2002                                     5.00:1.00


               September  30, 2002                               5.35:1.00





                                               
               December 31, 2002                                 5.35:1.00

               March 31, 2003                                    5.25:1.00

               June 30, 2003                                     5.20:1.00

               September 30, 2003                                5.10:1.00

               December 31, 2003                                 5.00:1.00

               March 31, 2004                                    4.95:1.00

               June 30, 2004                                     4.85:1.00"

               

               4. Section 8.14 of the Credit Agreement is hereby amended by
deleting the table contained therein in its entirety and inserting the following
table in lieu thereof:



                  "Date                                            Amount
                  -----                                          -----------
                                                              
               June 30, 2002                                     $28,000,000

               September 30, 2002                                $25,200,000

               December 31, 2002                                 $25,200,000

               March 31, 2003                                    $25,600,000

               June 30, 2003                                     $25,600,000

               September 30, 2003                                $27,100,000

               December 31, 2003                                 $27,100,000

               March 31, 2004                                    $28,100,000

               June 30, 2004                                     $28,100,000"


               5. Section 10 of the Credit Agreement is hereby amended by
deleting the table appearing in the definition of `Applicable Margin' in its
entirety and inserting the following table in lieu thereof:



                                        "Base Rate                Eurodollar
                                           Loans                  Rate Loans
                                        ----------                ----------
                                                            
               Level I Status              1.25%                     2.25%

               Level II Status             1.50%                     2.50%

               Level III Status            1.75%                     2.75%

               Level IV Status             2.00%                     3.00%"


               6. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that (i) the representations, warranties
and agreements contained in Section 6 of the Credit Agreement and in the other
Credit Documents are true and correct in all material respects on and as of the
Fourth Amendment Effective Date (as defined in Section 12 of this Amendment) (it
being understood and agreed that any representation or warranty which by its
terms is made as of a specified date shall be required to be true and correct in
all material respects only as of such specified date) and (ii) there exists no
Default or Event of Default on the Fourth Amendment Effective Date.

               7. For avoidance of doubt, each Credit Party hereby acknowledges
and confirms its due authorization, execution and delivery of all Credit
Documents to which it is a party (each Credit Document as amended, modified or
supplemented through and including the date hereof), including all instruments,
financing statements, agreements, certificates and documents executed and
delivered in connection therewith, and hereby ratifies all actions heretofore
taken in connection therewith.




                                      -2-


               8. Each Credit Party, by its execution and delivery of a copy of
this Amendment, hereby consents to the extensions of credit pursuant to the
Credit Agreement (including, without limitation, as amended by this Amendment).
Each Credit Party further acknowledges and agrees to the provisions of this
Amendment and hereby agrees for the benefit of the Banks that all extensions of
credit (including as contemplated by this Amendment) pursuant to the Credit
Agreement (including, without limitation, as amended by this Amendment, and as
same may be further amended, modified or supplemented from time to time) shall
be fully entitled to all benefits of, and shall be fully guaranteed and secured
pursuant to and in accordance with the terms of, each of the Credit Documents,
as applicable.

               9. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.

               10. This Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower, the Administrative Agent and
each Bank.

               11. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.

               12. This Amendment shall become effective on the date (the
"Fourth Amendment Effective Date") when (i) the Borrower and each of the Banks
shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Administrative Agent at its address for notice
provided for in the Credit Agreement and (ii) the Borrower shall have paid all
reasonable out-of-pocket costs and expenses of the Banks incurred prior to the
Fourth Amendment Effective Date (including, without limitation, the fees and
disbursements of White & Case LLP) and (iii) the Borrower shall have paid to the
Administrative Agent for the account of each Bank which executes and delivers a
counterpart hereof (including by way of facsimile transmission) to the
Administrative Agent at the Notice Office on or prior to 5:00 P.M. (New York
time) on July 19, 2002, an amendment fee equal to 0.25% of the sum of (a) the
aggregate principal amount of each such Bank's outstanding Term Loans plus (b)
such Bank's Revolving Loan Commitment as of the Fourth Amendment Effective Date.



                                      * * *




                                      -3-


               IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.



1801 Penhall Way                        PENHALL INTERNATIONAL CORP.,
PO Box 4609                             as Borrower
Anaheim, CA 92803
Attention: Jeff Platt
Tel:  (714) 772-6450
Fax:  (714) 778-8437                    By _____________________________________
                                           Title:


                                        PENHALL LEASING LLC,
                                        as Guarantor



                                        By _____________________________________
                                           Title:


                                        PENHALL INVESTMENTS, INC,
                                        as Guarantor



                                        By _____________________________________
                                           Title:


                                        PENHALL COMPANY,
                                        as Guarantor



                                        By _____________________________________
                                           Title:





                                        DEUTSCHE BANK TRUST COMPANY AMERICAS
                                        (f/k/a BANKERS TRUST COMPANY)
                                        Individually and as Administrative Agent



                                        By _____________________________________
                                           Title:






                                        CREDIT SUISSE FIRST BOSTON
                                        Individually and as Syndication Agent



                                        By _____________________________________
                                           Title:






                                        FLEET CAPITAL CORPORATION



                                        By _____________________________________
                                           Title:






                                        UNION BANK OF CALIFORNIA, N.A.



                                        By _____________________________________
                                           Title:






                                        U.S. BANK NATIONAL ASSOCIATION



                                        By _____________________________________
                                           Title:

EX-10.20

                                                                   EXHIBIT 10.20


BANC OF AMERICA LEASING & CAPITAL, LLC

                                                     NOTE AND SECURITY AGREEMENT
                                                     (VARIABLE RATE, LIBOR)
================================================================================

This Note and Security Agreement ("Agreement") made as of the date set forth
below sets forth the terms and conditions governing the repayment of a loan made
by Banc of America Leasing & Capital, LLC ("Secured Party") to the party
identified below as "Debtor" for the purpose of financing the personal property
identified below as the "Equipment", and the granting by Debtor to Secured Party
of a security interest in the Equipment and certain related property to secure
the repayment of all Debtor's obligations to Secured Party.

                                                                                        
DATE:   MARCH 18, 2002                                                  AGREEMENT NUMBER:     02973-00701

SECURED PARTY:         Banc of America Leasing & Capital, LLC
                       2059 Northlake Parkway, 4 South
                       Tucker, Georgia  30084-4007

DEBTOR:                Penhall Company

Equipment:             See Exhibit A attached hereto and made a part hereof

EQUIPMENT LOCATION:    See Exhibit B attached hereto and made a part hereof




PRINCIPAL AMOUNT OF LOAN: TWO MILLION EIGHT HUNDRED SIX THOUSAND THREE HUNDRED
NINE AND 14/100 DOLLARS ($2,806,309.14)

NUMBER OF PRINCIPAL REPAYMENT INSTALLMENTS (INCLUDING FINAL REPAYMENT
INSTALLMENT):  FIFTY-ONE (51)

AMOUNT OF EACH PRINCIPAL REPAYMENT INSTALLMENT PRIOR TO FINAL REPAYMENT
INSTALLMENT:   SEE ANNEX I ATTACHED HERETO AND MADE A PART HEREOF.

AMOUNT OF FINAL PRINCIPAL REPAYMENT INSTALLMENT: SEE ANNEX I ATTACHED HERETO AND
MADE A PART HEREOF.

DUE DATE OF FIRST PRINCIPAL REPAYMENT INSTALLMENT: THE THIRTIETH (30TH) DAY
FOLLOWING THE DATE SECURED PARTY FUNDS THIS LOAN.

DUE DATE OF FINAL PRINCIPAL REPAYMENT INSTALLMENT: the fifty first (51st) month
following, and on the same day of the month as, the Due Date of the First
Principal Repayment Installment

VARIABLE INTEREST RATE. For any year or portion thereof, a per annum rate of
interest equal to (i) Two and 60/100 percent (2.60%) plus the rate of interest
equal to the "average of interbank offered rates for dollar deposits in the
London Market based on quotations of sixteen (16) major banks" for a term of 30
days as published in the Wall Street Journal under a heading entitled "Money
Rates, London Interbank Offered Rates (LIBOR)" or any future or substitute
heading, on the first day of the month preceding the month in which a monthly
anniversary of the date Secured Party funds this Loan occurs, or (ii) if less,
the highest rate of interest permitted by applicable law.

LOAN; TERMS OF REPAYMENT. In consideration of the making of a loan by Secured
Party to Debtor for the purpose of financing the Equipment specified above (the
"Loan"), Debtor promises and agrees to pay to the order of Secured Party, at
Secured Party's address stated above or at such other places as Secured Party
may from time to time designate in writing, the principal amount of the Loan,
together with interest calculated as hereinafter provided. Subject to Debtor's
right to prepay such principal amount in whole or in part as hereinafter
provided, Debtor shall pay such principal amount in consecutive monthly
installments of principal, each in the amount set forth above under the heading
"Amount of Each Principal Repayment Installment Prior to Final Repayment
Installment," due and payable on the "Due Date of First Principal Repayment
Installment" set forth above and on a like date of each calendar month
thereafter until the Loan is fully repaid; provided, however, that the last such
installment shall be in the amount set forth above under the heading "Amount of
Final Principal Repayment Installment" or (if greater) the amount of the then
outstanding principal balance of the Loan.

INTEREST. Interest shall be calculated on the basis of a year of three hundred
sixty (360) days and shall, during each calendar month or portion thereof from
and after the date on which funds are disburse by Secured Party, accrue on
unmatured principal balances outstanding during such period at the "Variable
Interest Rate" specified above for the week in which the first day of the month
prior to such calendar month occurs. All interest accrued through the due date
of a principal installment shall be due and payable simultaneously with such
installment.

PREPAYMENTS. After one (1) month from the date Secured Party funds this Loan,
the outstanding principal balance of the Loan may be prepaid in whole or in part
at any time, together with all interest and late charges accrued through the
date of prepayment and a prepayment charge calculated as follows: two percent
(2%) of the amount prepaid during months 2-12 of the applicable Base Term, one
and one-half percent (1.5%) of the amount prepaid during months 13-24 of the
applicable Base Term, one percent (1%) of the amount prepaid during months 25-36
of the applicable Base Term, and no prepayment charge thereafter.


LATE CHARGES. To the extent permitted by applicable law, Debtor shall pay on
demand, as a late charge, an amount equal to five percent (5%) of each
installment or part thereof that is not paid within ten (10) days of the date
when due, but nothing in this paragraph alters the definitions of events of
default hereunder. Debtor shall pay the late charge, to the extent permitted by
applicable law, regardless of whether or not Debtor's failure to pay such
installment when due is or becomes a default hereunder and regardless of whether
or not Secured Party proceeds under the "Remedies" provisions hereof or takes
any other action, and demand for and collection of the late charge shall not be
deemed a waiver of default or of any other remedies or rights.

SECURITY INTEREST. Debtor hereby grants to Secured Party a security interest in
and security title to the personal property described above as the "Equipment",
together with all parts, additions, accessions, accessories, replacements and
substitutions thereto or therefor, and all proceeds therefrom (including any
proceeds of insurance against fire or other casualty whether or not the
insurance policy contains an endorsement in favor of Secured Party), all of
which is hereinafter called the "Collateral". This security interest is given to
secure payment to Secured Party of all present and future obligations of Debtor
to Secured Party, including without limitation the obligation of Debtor to repay
the Loan and all other liabilities arising under or in connection with this
Agreement; all future advances, if any, made by Secured Party to Debtor, whether
or not made pursuant to any commitment of Secured Party (and nothing in this
Agreement shall be construed to create or imply the existence of any such
commitment); and all other liabilities of Debtor to Secured Party now existing
or hereafter incurred, matured or unmatured, direct or contingent, whether or
not evidenced by a promissory note, and whether owing originally to Secured
Party or acquired by Secured Party from any other party, and any renewals and
extension thereof and substitutions therefor. (All of the above obligations,
including but not limited to obligations in respect of the Loan, are hereinafter
called the "Indebtedness.")

DEBTOR WARRANTS AND REPRESENTS THAT:

GOOD STANDING. Debtor is organized and existing in good standing under the laws
of the jurisdiction of its formation, has the power to own its property and to
carry on its business as now being conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which the character of
the property owned by it therein or the transaction of its business makes such
qualification necessary.

AUTHORITY. Debtor has full power and authority to enter into this Agreement, to
make the borrowing hereunder, and to incur the obligations provided for herein,
all of which have been duly authorized by all proper and necessary action. No
consent or approval of stockholders, partners, members or co-owners or of any
public authority is required as a condition to the validity of this Agreement.

Debtor represents and warrants to Secured Party that all Collateral financed and
to be financed under this Agreement or any agreement shall be equipment operated
exclusively by Debtor's or Debtor's affiliate's employees and shall remain under
Debtors's or such affiliate's ownership and control at all times,
notwithstanding any temporary location of the Collateral at Debtor's customer's
site.

Debtor represents and warrants to Secured Party that by entering into this
Agreement and upon the execution of each agreement, there will be no violation
of the terms and conditions of (i) the Credit Agreement among Penhall
International Corp., Penhall Acquisition Corp., Bankers Trust Company, Credit
Suisse First Boston, Fleet Capital Corporation and Union Bank of California
dated as of August 4, 1998, as amended from time to time, or (ii) the Senior
Note Indenture between Penhall Acquisition Corp. and United States Trust Company
as Trustee dated as of August 1, 1998.

BINDING AGREEMENT. This Agreement constitutes the valid and legally binding
obligation of Debtor enforceable in accordance with its terms.

LITIGATION. There are no proceedings pending or threatened before any court or
administrative agency that might materially adversely affect the financial
condition or operation of Debtor.

NO CONFLICTING AGREEMENTS. There is no charter, by-law, preference stock or
partnership agreement provision of Debtor and no provision of any other
organizational documents or existing mortgage, indenture, contract or agreement
binding on Debtor or affecting its property which would conflict with or in any
way prevent the execution, delivery or performance of the terms of this
Agreement.

OWNERSHIP FREE OF ENCUMBRANCES. Except for the security interest granted hereby,
Debtor now owns, or will use the proceeds hereof to become the owner of, the
Collateral free from any prior lien, security interest or encumbrance. No
financing statement covering the Collateral or any proceeds thereof is on file
in any public office, except for financing statements showing Secured Party as
the sole secured party thereunder. Debtor has a good right to grant a security
interest in the Collateral to Secured Party.

FIXTURES. None of the Collateral is now a part of or affixed to any real
property.

COLLATERAL LOCATION. Except for items of Collateral that constitute mobile goods
and that are in fact in use by Debtor in the ordinary course of its business at
other locations, all the Collateral comprising goods heretofore delivered to the
Debtor by the seller thereof is located either at (i) Debtor's address set forth
above or (ii) the "Equipment Location" set forth above. If at any time the
Collateral, or any part thereof, is removed to a new location, Debtor shall
notify the Secured Party in the manner outlined in the section below entitled
"Location of Collateral".

MERGER/NAME CHANGE. Within the five (5) years preceding the date hereof, Debtor
has not changed its name or been party to any merger or other corporate
reorganization.

DEBTOR COVENANTS AND AGREES THAT UNTIL ALL THE INDEBTEDNESS IS FULLY SATISFIED:

INSURANCE. Debtor shall maintain continuously, and pay when due all premiums
for, fire and casualty insurance with extended coverage on the Collateral,
insuring the same against loss by fire, explosion, theft and such other
casualties as are usually insured against by companies engaged in the same or
similar businesses with a responsible company or companies satisfactory to
Secured Party, in an amount not less than the unpaid balance of the Loan. Each
of such insurance policies shall have attached thereto a standard loss payable
endorsement, without contribution, in favor of Secured Party as its interest may
appear; shall provide that it may not be





canceled without thirty (30) days' prior written notice to Secured Party; shall
provide that, in respect of Secured Party's interest in such policy, the
insurance shall not be invalidated by any action or inaction of Debtor or any
other person (other than Secured Party); shall insure Secured Party's interest
in the Collateral as it may appear, regardless of any breach or violation of any
warranty, declaration or condition contained in such policy by Debtor or any
other person (other than Secured Party); and shall otherwise be in form and
substance acceptable to Secured Party. Debtor shall deliver forthwith to Secured
Party each such policy (together with the loss payable endorsement), or
certificates of insurance or other evidence satisfactory to Secured Party of the
existence of all required insurance, its terms and conditions, and the payment
of all applicable premiums. Similar evidence of renewal coverage, satisfactory
to Secured Party, shall be delivered to Secured Party at least fifteen (15) days
before the expiration of any initial insurance coverage. In addition, Debtor
shall maintain, and pay when due all premiums for, liability and other insurance
in such amounts and against such risks as is customarily carried by persons in
similar businesses owning similar property. Debtor irrevocably appoints Secured
Party as Debtor's attorney-in-fact, with full power of substitution, during the
existence of any default under this Agreement, to execute loss claims and other
applications for payment of benefits under any insurance policy in the name of
Debtor or Secured Party, to receive all monies and to endorse drafts, checks and
other instruments for the payment of any proceeds of any insurance. This
appointment shall be deemed a power coupled with an interest and shall not be
terminable by Debtor so long as Debtor remains indebted to Secured Party.

MAINTENANCE AND CLEAR TITLE. Debtor shall keep the Collateral in good condition
and free from liens and security interests, shall not sign or suffer to be filed
any financing statements relating to the Collateral except those showing Secured
Party as sole secured party shall not sell or lease or offer to sell or lease or
otherwise encumber or dispose of any of the Collateral, shall defend the
Collateral against all claims and demands of all persons at any time claiming
any interest or right therein, and shall not use the Collateral illegally.
Secured Party may examine and inspect the Collateral at any time, wherever
located.

CHANGE OF NAME, RESIDENCE OR PLACE OF BUSINESS. Debtor shall not change its
name, residence or place of business or do business under any assumed or
fictitious name without giving Secured Party written notice no later than thirty
(30) days after the change has occurred.

USE OF COLLATERAL. Debtor shall use the Collateral exclusively for business
operations.

INSPECTION: NON-INTERFERENCE. (a) Secured Party, its agents and employees shall
have the right to enter any property where any Collateral is located and inspect
any Collateral together with its related books and records, at any reasonable
time. Such right shall not impose any obligation on Secured Party.

FIXTURES. Debtor shall not permit any of the Collateral to become a part of or
affixed to any real property.

LOCATION OF COLLATERAL. Except for items of Collateral that constitute mobile
goods and that are in fact in use by Debtor in the ordinary course of business
at other locations, all the Collateral shall, from and after the moment that
Debtor acquires possession or control of it, be kept either at (i) Debtor's
address set forth above or (ii) the "Equipment Location" set forth above, and
all records relating to the Collateral shall likewise be kept only at such
location or locations. If at any time the Collateral, or any part thereof, is
removed to a new location, Debtor: (a) shall provide written notice thereof to
Secured Party within six (6) months after the funding of this Agreement and
every six (6) months thereafter until the end of the term; and (b) either (i)
the premises in which such Collateral will be installed will be owned by Debtor
free of any liens or encumbrances, or (ii) if not owned by Debtor free of liens
or encumbrances, the owner of such premises and/or the holder of any such liens
or encumbrances on such premises shall have consented and acknowledge the
superiority of Secured Party's interest in such Collateral.

INDEMNIFICATION. Debtor shall indemnify Secured Party against all claims arising
out of or connected with the ownership or use of the Collateral.

MOTOR VEHICLES. If the Collateral consists of or includes motor vehicles or
other equipment for which there is a certificate of title evidencing ownership
thereof, Debtor shall forthwith cause each certificate to be endorsed over and
the lien of Secured Party to be noted so as to show Secured Party's interest,
and Debtor shall deliver forthwith each such certificate to Secured Party.

TAXES. Debtor shall pay promptly when due all taxes, charges and assessments
that are or may become a lien on the Collateral or any part thereof, except to
the extent that the same are contested in good faith and by appropriate
proceedings.

FINANCIAL STATEMENTS.

(a) During the term of this Agreement, Debtor shall (i) maintain books and
records in accordance with generally accepted accounting principles ("GAAP") and
prudent business practice, (ii) promptly and in no event later than 120 days
after each fiscal year end furnish Secured Party annual audited consolidated and
consolidating financial statements of Penhall International Corp. and
subsidiaries, prepared in accordance with GAAP consistently applied, together
with an unqualified opinion of an independent auditor, and (iii) at Secured
Party's request, furnish Secured Party all other financial quarterly or other
interim financial statements of Debtor and of any Guarantor. Debtor shall
furnish such other information as Secured Party may reasonably request at any
time concerning Debtor, Guarantor and their respective affairs, or any
Collateral. Debtor shall promptly notify Secured Party of any event of default
or event or circumstance which, with notice, lapse of time or both, would be an
event of default. (b) Debtor represents and warrants that all information
furnished and to be furnished by Debtor or any Guarantor to Secured Party is
accurate, and that all financial statements Debtor or any Guarantor has
furnished and hereafter may furnish to Secured Party reasonably reflect and will
reflect, as of their respective dates, results of the operations and the
financial condition of Debtor, such Guarantor or other entity they purport to
cover. (c) Credit and other information regarding Debtor, any Guarantor or their
affiliates may be shared by Secured Party with its affiliates and agents.

REIMBURSEMENT FOR EXPENSES. At its option, and with no obligation to do so,
Secured Party may (i) if an event of default exists, discharge taxes or other
encumbrances on the Collateral, or pay for the repair, maintenance and
preservation of the Collateral and (ii) ten (10) days after notifying Debtor of
Secured Party's intent to do so, arrange and pay for insurance on the
Collateral. Debtor agrees to reimburse Secured Party on demand for any payments
so made; Debtor also agrees to reimburse and pay to Secured Party on demand all
expenses incurred or paid by Secured Party in perfecting the security interest
granted hereunder and in collecting the Indebtedness and in protecting or
enforcing Secured Party's rights under this Agreement, including but not limited
to reasonable attorney's fees and legal expenses. Until Debtor makes such
reimbursement, the amount of all such payments and expenses, with interest at
the rate then applicable to principal installments of the Loan not paid when
due, from the date of payment until reimbursement, shall be added to the
Indebtedness and shall be secured by the security interest granted by Debtor
under this Agreement. Nothing in this paragraph relieves





Debtor of the duty to care for, insure and protect the Collateral and Secured
Party's interests therein and to pay tax on or related to the Collateral, or of
any other duty.

SALE OR REPLACEMENT OF COLLATERAL. Debtor shall not sell or replace any item or
part of the Collateral without the prior written consent of Secured Party,
except as noted in the section below entitled "Assignability"

POST DEFAULT INTEREST. Any principal balance not paid when due (whether by
acceleration or otherwise) shall accrue interest at the "Default Rate" until
such principal balance is paid. "Default Rate" shall be a per annum rate of
interest equal to (i) fifteen percent (15.0%) or (ii), if less, the highest rate
of interest permitted by applicable law. Upon the occurrence of an Event of
Default, Debtor shall also pay, in addition to and on the same date each
principal installment is due, additional interest ("Daily Supplemental
Interest") as reflected in Secured Party's invoice, which Secured Party shall
calculate as follows:

             Daily Supplemental Interest shall be the amount obtained by
             multiplying the principal installment, determined as of the due
             date next preceding the occurrence of the Event of Default, by
             Three percent (3.00%) and dividing the product by 360 days;
             provided that any corresponding increase in the interest rate
             hereof shall be reduced, if necessary, so as not to exceed the
             maximum interest rate permitted by applicable law.

Secured Party may, at its option, apply late payments (either in full or
partial) in the following manner: first to interest, then to principal, and
finally to late charges. To the extent permitted by applicable law, Debtor shall
pay interest on delinquent principal installments on demand regardless of
whether or not Secured Party proceeds under the "Remedies" provisions hereof or
takes any other action, and demand for and collection of interest on such
overdue installments at the Default Rate shall not be deemed a waiver of default
or of any other remedies or rights.

This paragraph shall not be construed to limit or waive any of Secured Party's
rights and remedies otherwise available to Secured Party after the occurrence of
any Event of Default

EVENTS OF DEFAULT. Debtor shall be in default under this Agreement upon the
happening of any of the following events or conditions, each of which is an
event of default:

(1) Debtor fails to pay within ten days of the day when due any installment of
the Loan, or in the payment of any other Indebtedness, when and as the same
becomes due and payable, whether at the stated maturity thereof or by
acceleration or otherwise; (2) Debtor fails to maintain insurance in respect of
any Collateral as required, or sells, leases, subleases, assigns, conveys,
encumbers or suffers to exist any lien or charge against, any Collateral without
Secured Party's prior consent, or any Collateral is subjected to levy, seizure
or attachment; (3) Debtor or any guarantor under any guaranty providing a
guaranty of Debtor's obligations hereunder ("Guarantor") fails to perform and
comply with any covenant or obligation (other than, with respect to Debtor only,
Debtor's breach of subsections (1) or (2) of this Section EVENTS OF DEFAULT)
under any Agreement, guaranty, or any progress payment, assignment, security or
other agreement related to any Agreement or Collateral (together, "Related
Agreements") and, if curable, such failure continues for 30 days after written
notice to Debtor or Guarantor, as applicable (4) any representation, warranty or
other written statement made to Secured Party in connection with this Loan, or
any guaranty, by Debtor or Guarantor, including financial statements, proves to
have been incorrect in any material respect when made; (5) Debtor (x) enters
into any merger or consolidation with, or sells or transfers all, substantially
all or any substantial portion of its assets to, or enters into any partnership
or joint venture other than in the ordinary course of business with, any entity,
(y) dissolves, liquidates or ceases or suspends the conduct of business, or
ceases to maintain its existence, or (z) enters into or suffers any transaction
or series of transactions as a result of which Debtor is directly or indirectly
controlled by persons or entities not affiliates of Debtor as of the date of
this Agreement; (6) Debtor undertakes any general assignment for the benefit of
creditors or commences any voluntary case or proceeding for relief under the
Bankruptcy Code, or any other law for the relief of debtors, or takes any action
to authorize or implement any of the foregoing; (7) the filing of any petition
or application against Debtor under any law for the relief of debtors, including
proceedings under the Bankruptcy Code, or for the subjection of property of
Debtor to the control of any court, receiver or agency for the benefit of
creditors if such petition or application is consented to by Debtor or not
dismissed within 60 days from the date of filing; (8) any payment default or
other event of default occurs under any other bilateral or multi-lateral loan,
lease, or credit, or other agreement or instrument to which Debtor and Secured
Party or any affiliate of Secured Party are now or hereafter party; (9) any
payment default or other event of default occurs under any other lease, or
credit, or other agreement or instrument or any combination thereof to which
Debtor is now or hereafter party and under which there is outstanding (on a
present value basis for all future rent, in the case of leases), owing or
committed an aggregate amount greater than $100,000.00; (10) the repudiation of
or breach or default under any guaranty relating to any Indebtedness; or (11)
the occurrence of any event described in clauses (5), (6), (7), (8) or (9) of
this Section with reference to "any Guarantor" in lieu of "Debtor", or any
Guarantor dies.

REMEDIES. Upon any event of default and at any time thereafter, Secured Party
may declare all the Indebtedness immediately due and payable in full (unless
such event of default comprises one or more of the events described in
paragraphs 7 or 8 above, in which case all the Indebtedness shall become
immediately due and payable in full without declaration, notice or other action
on the part of Secured Party), and may proceed to enforce payment thereof and
exercise any and all of the rights and remedies provided by the Uniform
Commercial Code as well as all other rights and remedies of Secured Party
hereunder or under other applicable law. Upon the occurrence of an event of
default, Debtor shall, upon demand by Secured Party, assemble the Collateral and
make it available to Secured Party at a place designated by Secured Party
reasonably convenient to both parties. Secured Party may, at its election,
enforce its rights under this Agreement by a suit in equity for specific
performance. Debtor grants Secured Party the right to enter upon any premises of
Debtor for the purpose of recovering possession of the Collateral or any part
thereof after the occurrence of an event of default, or for the preservation or
enforcement of Secured Party's other rights hereunder, all without demand or
notice to Debtor and without judicial hearing or proceedings, which Debtor
hereby expressly waives. The requirements of reasonable notice shall be deemed
met if such notice is mailed to an address of Debtor shown at the beginning of
this Agreement at least ten (10) days before the time of the sale or
disposition, but nothing contained herein shall be construed to mean that other
notice or a shorter period of time does not constitute reasonable notice of the
sale or other disposition of the Collateral. Debtor shall reimburse Secured
Party for all Secured Party's expenses of retaking, holding, preparing for sale,
selling or otherwise dealing with or disposing of the Collateral, including
attorney's fees in the amount of fifteen percent (15%) of the outstanding
principal balance of and interest on the Indebtedness (but not to exceed the
amount of attorneys' fees actually incurred) if collection is by or through an
attorney at law. Subject to applicable law, Debtor shall pay any Indebtedness
remaining unpaid after sale or other disposition of any or all of the
Collateral. Any surplus proceeds from the sale or other disposition of the
Collateral remaining after full satisfaction of the Indebtedness shall be paid
to Debtor or to such other persons as may be entitled thereto under applicable
law.





CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to Secured Party
hereunder or in connection herewith, or allowed it by law or equity, shall be
cumulative and may be exercised from time to time. No failure on the part of
Secured Party to exercise, and no delay in exercising, any right shall operate
as a waiver thereof, nor shall any single or partial exercise by Secured Party
of any right preclude any other or future exercise thereof or the exercise of
any other right.

FINANCING STATEMENTS. Debtor shall sign and deliver to Secured Party such
financing statements and other documents as Secured Party may deem necessary to
perfect, protect and continue its security interest in the Collateral, in form
satisfactory to Secured Party. Debtor will reimburse Secured Party for all
expenses incurred in the filing of financing statements, continuation
statements, termination statements and any other documents relating to the
perfection of Secured Party's security interest in the Collateral. A carbon,
photographic or other reproduction of this Agreement or of a financing statement
relating to the security interest herein granted is sufficient as a financing
statement. Debtor authorizes Secured Party to file financing statements as to
the Collateral signed only by Secured Party and not by Debtor.

SEVERABILITY. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

ASSIGNABILITY. Debtor acknowledges that the rights of Secured Party may be
assigned to any person in whole or in part at the sole discretion of Secured
Party, and Debtor agrees that any defense it may have against Secured Party as
to events occurring prior to any assignment shall not be asserted, and shall be
void, against any assignee of the rights of Secured Party. Debtor shall not
assign, pledge, hypothecate or in any way dispose of all or any part of its
rights or obligations under any Agreement, or enter into any sublease of any
Collateral, without Secured Party's prior consent; provided that Debtor may
without Secured Party's prior written consent , but only after providing Secured
Party at least 30 days' prior written notice, sell or otherwise dispose of one
or more pieces of Collateral in an aggregate amount not to exceed $200,000
during the Base Term.

In the absence of such prior written consent, no such assignment of any right or
obligation of Debtor hereunder shall be binding on Secured Party. Subject to the
foregoing limitations, the terms and conditions of this Agreement shall be
binding on and shall inure to the benefit of the heirs, executors,
administrators, successors, and assigns of the parties.

MATERIAL ADVERSE CHANGE. There has been no material adverse change in the
operations business, properties or condition (financial or otherwise ("Material
Adverse Change") Of DEbtor or Any GUarantor Since June 30, 2001. THere is not
pending against debtor any litigation, proceeding, dispute or claim that may
result in a Material Adverse Change as to DEbtor or that may call into question
or impair Debtor's legal or other ability to enter into and perform its
obligations under this Agreement.

WARRANTY DISCLAIMER. SECURED PARTY IS NOT A MANUFACTURER OR SELLER OF THE
COLLATERAL AND MAKES NO WARRANTIES WHATSOEVER WITH RESPECT TO THE COLLATERAL,
INCLUDING WITHOUT LIMITATION WARRANTIES OF TITLE, MERCHANTABILITY OR FITNESS FOR
ANY PARTICULAR PURPOSE. DEBTOR SHALL NOT ASSERT ANY BREACH OF ANY SUCH WARRANTY
AS A DEFENSE TO ANY OF ITS OBLIGATIONS TO SECURED PARTY UNDER THIS AGREEMENT;
HOWEVER, NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED TO IMPAIR ANY OF DEBTOR'S
REMEDIES FOR BREACH OF WARRANTY AGAINST ANY SELLER OR MANUFACTURER OF THE
COLLATERAL.

GOVERNING LAW; CONSENT TO VENUE AND PERSONAL JURISDICTION. THIS AGREEMENT SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF CALIFORNIA AS OF THE DATE HEREOF. IF THE ADDRESS OF DEBTOR'S RESIDENCE
OR PRINCIPAL PLACE OF BUSINESS SHOWN HEREIN IS NOT IN THE STATE OF CALIFORNIA,
DEBTOR CONSENTS TO THE EXERCISE OF PERSONAL JURISDICTION OVER DEBTOR BY ANY
COURT OR RECORD SITTING IN THE STATE OF CALIFORNIA IN CONNECTION WITH ANY ACTION
ARISING OUT OF THIS AGREEMENT, AND WAIVES ALL OBJECTIONS TO SERVICE OF PROCESS
ON DEBTOR AT SUCH ADDRESS.

WAIVER OF JURY TRIAL. SECURED PARTY AND DEBTOR EACH WAIVE TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE
OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT.

IN WITNESS WHEREOF, the parties have caused their names to be signed and their
seals affixed as of the date first above written. By execution hereof, each
party intends and agrees to be legally bound by all the provisions of this
Agreement.

                                             
BANC OF AMERICA LEASING & CAPITAL, LLC          PENHALL COMPANY
(Secured Party)                                 (Debtor)



By: ____________________________________        By: ____________________________________

Printed Name: __________________________        Printed Name: __________________________

Title: _________________________________        Title: _________________________________

EX-10.21

                                                                   EXHIBIT 10.21



                                    GUARANTY


        1. The Guaranty. For valuable consideration, the undersigned
("Guarantor") hereby unconditionally guarantees and promises to pay to Banc of
America Leasing & Capital, LLC ("Secured Party"), or order, on demand, in lawful
money of the United States, any and all payment and performance obligations,
whether now existing or hereafter arising or matured or contingent (the
"Obligations") of Penhall Company ("Debtor") to Secured Party under or in
respect of that certain Note and Security Agreement No. 00701 dated March 18,
2002 executed by Debtor and Secured Party (together with all appendices and
other attachments thereto, now existing or hereafter arising, and any renewals,
amendments, or extensions thereof, the "Agreement") providing for the Agreement
or financing of equipment or other personal or real property ("Collateral") by
Secured Party to Debtor. The obligations of Guarantor hereunder are independent
of the Obligations and exclusive of and in addition to liability under any other
guaranty executed by Guarantor for the benefit of Secured Party or any company
related to Secured Party, and a separate action or actions may be brought and
prosecuted against Guarantor whether action is brought against Debtor or whether
Debtor is joined in any such action or actions.

        2. Authorization of Renewals, Etc. Guarantor authorizes Secured Party,
without notice or demand and without affecting its liability hereunder, from
time to time to: (a) renew, compromise, extend, accelerate, or otherwise change
the time for or amount of any payment, or substitute or exchange Collateral, or
otherwise change the terms of the Agreement or the Obligations or any other
obligations of Debtor to Secured Party ("Other Obligations"); (b) receive and
hold security for the payment of this Guaranty or the Obligations or any Other
Obligations, and exchange, enforce, waive, release, fail to perfect, sell, or
otherwise dispose of, any such security; (c) apply such security and direct the
order or manner of sale thereof as Secured Party in its discretion may
determine; and (d) release or substitute any one or more of any endorsers or
guarantors of the Obligations.

        3. Waiver of Certain Rights. Guarantor waives any right to require
Secured Party to: (a) proceed against Debtor; (b) proceed against or exhaust any
security for the Obligations or any other Obligations, or repossess, dispossess
or remarket Collateral, or otherwise mitigate damages; or (c) exercise or pursue
any other right or remedy in Secured Party's power whatsoever.

        4. Waiver of Certain Defenses. Guarantor waives any defense arising by
reason of any disability or other defense of Debtor, or the cessation from any
cause whatsoever of the liability of Debtor, or any claim that Guarantor's
obligations exceed or are more burdensome than those of Debtor, including any of
the foregoing arising by virtue of any provision of the U.S. Bankruptcy Code
(Title 11, U.S. Code) (the "Bankruptcy Code").

        5. Waiver of Subrogation and Other Rights and Defenses. (a)Until the
Obligations and any Other Obligations are paid in full, Guarantor waives (i) any
right of subrogation, reimbursement, indemnification and contribution
(contractual, statutory, or




                                      -1-


from the existence or performance of this Guaranty, (ii) any right to enforce
any remedy Secured Party now has or may hereafter have against Debtor and (iii)
any benefit of, and any right to participate in, any security now or hereafter
held by Secured Party.

           (b) Guarantor understands and acknowledges that if Secured Party
forecloses, either by judicial foreclosure or by exercise of power of sale, any
deed of trust securing the Obligations, that foreclosure could impair or destroy
any ability Guarantor may have to seek reimbursement, contribution, or
indemnification from Debtor or others based on any right Guarantor may have of
subrogation, reimbursement, contribution, or indemnification for any amounts
paid by Guarantor under this Guaranty. Guarantor further understands and
acknowledges that in the absence of this paragraph, such potential impairment or
destruction of Guarantor's rights, if any, may entitle Guarantor to assert a
defense to this Guaranty based on Section 580d of the California Code of Civil
Procedure ("CCP") as interpreted in Union Bank v. Gradsky, 265 Cal. App. 2d. 40
(1968). By executing this Guaranty, Guarantor freely, irrevocably, and
unconditionally: (i) waives and relinquishes that defense and agrees that
Guarantor will be fully liable under this Guaranty even though Secured Party may
foreclose, either by judicial foreclosure or by exercise of power of sale, any
deed of trust securing the Obligations; (ii) agrees that Guarantor will not
assert that defense in any action or proceeding Secured Party may commence to
enforce this Guaranty; (iii) acknowledges and agrees that the rights and
defenses waived by Guarantor in this Guaranty include any right or defense
Guarantor may have or be entitled to assert based upon or arising out of any one
or more of CCP Section Section 580a, 580b, 580d, or 726 or Section 2848 of the
California Civil Code ("CC") and (iv) acknowledges and agrees that Secured Party
is relying on this waiver in creating the Obligations, and that this waiver is a
material part of the consideration therefor.

           (c) Guarantor waives any rights and defenses that are or may become
available to Guarantor under CC Section Section 2787 to 2855, inclusive.
Guarantor waives the benefit of any statute of limitations affecting its
liability hereunder.

        6. Waiver of Presentments, Etc. Guarantor waives all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance of this Guaranty and of
the existence, creation, or incurring of new or additional Obligations or any
Other Obligations.

        7. Information Relating to Debtor. Guarantor acknowledges and agrees
that it has sole responsibility for obtaining from Debtor such information
concerning Debtor's financial condition or business operations or the Collateral
as Guarantor may require, and that Secured Party has no duty at any time to
disclose to Guarantor any information relating to the business operations or
financial condition of Debtor or the Collateral.

        8. Security. To secure all of Guarantor's obligations hereunder,
Guarantor assigns and grants to Secured Party a security interest in all moneys,
securities and other property of Guarantor now or hereafter in the possession of
Secured Party, all deposit accounts of Guarantor maintained with Secured Party,
and all proceeds thereof. Upon default or breach of any of Guarantor's
obligations to Secured Party hereunder, Secured Party may apply any such deposit




                                      -2-


account to reduce the Obligations, and may foreclose any collateral as provided
in the Uniform Commercial Code and in any security agreements between Secured
Party and Guarantor.

        9. Subordination. Any obligations of Debtor to Guarantor, now or
hereafter existing, including any obligations to Guarantor as subrogee of
Secured Party or resulting from Guarantor's performance under this Guaranty, are
hereby subordinated to the Obligations and any Other Obligations. Such
obligations of Debtor to Guarantor if Secured Party so requests shall be
enforced and performance received by Guarantor as trustee for Secured Party, and
the proceeds thereof shall be paid over to Secured Party on account of the
Obligations and all Other Obligations, but without reducing or affecting in any
manner the liability of Guarantor under the other provisions of this Guaranty.

        10. Debtor's Authorization. Where Debtor is a corporation, partnership,
or limited liability company, it is not necessary for Secured Party to inquire
into the powers of Debtor or of the officers, directors, partners, members,
managers, or agents acting or purporting to act on its behalf, and any
Obligations made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.

        10.A. Financial Covenants and Controls. Guarantor shall, for the periods
and on the dates specified below, comply with each of the following:

              (a) Interest Coverage Ratio: Guarantor will not permit the
Interest Coverage Ratio for any test period ending on a date set forth below to
be less than the ratio set forth opposite such date:



                         Date                  Ratio
                         ----                  -----
                                           
                    June 30, 2002             2.30:1.0
                    June 30, 2003             2.60:1.0
                    June 30, 2004             3.00:1.0
                    June 30, 2005             3.00:1.0


              "Interest Coverage Ratio" shall mean for any test period the ratio
of Consolidated EBITDA for such test period to Consolidated Interest Expense for
such test period provided that any interest non-payable in cash for subordinated
debt shall be excluded from consolidated interest expense for the purposes of
determining the Interest Coverage Ratio.

              "Consolidated EBITDA" shall mean for any period (A) the sum of the
amounts for such period of 1) consolidated net income, 2) provisions for cash
taxes based on income, 3) Consolidated Interest Expense, 4) amortization or
write-off of deferred financing costs to the extent deducted in determining
consolidated net income, 5) losses on sales of assets (excluding sales in the
ordinary course of business) and other extraordinary or nonrecurring losses, (6)
depreciation expense, 7) amortization expense, and without duplication all other
non-cash charges (including non-cash stock compensation expense) included in
determining consolidated




                                      -3-


period of gains on sales of assets (excluding sales in the ordinary course of
business) and other extraordinary or nonrecurring gains, all as determined on a
consolidated basis in accordance with GAAP.

              "Consolidated Interest Expense" shall mean for any period total
interest expense (including that attributable to capital Agreements in
accordance with GAAP) of Guarantor and its subsidiaries on a consolidated basis
with respect to all indebtedness of Guarantor and its subsidiaries, including,
without limitation all capitalized interest, but excluding 1) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs under interest rate agreements and
2) transaction expenses.

              This ratio will be calculated at the end of each reporting period
for which Secured Party requires financial statements from Guarantor, using the
results of the twelve-month period ending with that reporting period.

              (b)   Leverage Ratio: Guarantor will not permit the Leverage Ratio
                    on the last day of any test period to be greater than the
                    ratio set forth opposite such date below:



                                 Date                  Ratio
                                 ----                  -----
                                                   
                            June 30, 2002             4.25:1.0
                            June 30, 2003             3.75:1.0
                            June 30, 2004             3.00:1.0
                            June 30, 2005             3.00:1.0


              "Leverage Ratio" shall mean at any date of determination the ratio
of (A) Consolidated Indebtedness on such date to (B) Consolidated EBITDA for the
test period.

              "Consolidated Indebtedness" shall mean as at any date of
determination the aggregate amount of all Indebtedness of Guarantor and its
subsidiaries on a consolidated basis. "Indebtedness" of any person shall mean
without duplication 1) all indebtedness of such person for borrowed money, 2)
the deferred purchase price of assets and services which in accordance with GAAP
would be shown on the liability side of the balance sheet of such person, 3) the
face amount of letters of credit issued for the account of Guarantor or its
subsidiaries and, without duplication, all drafts drawn thereunder, 4) all
indebtedness of a second person secured by any lien on any property owned by
such first person whether or not such indebtedness has been assumed, 5) all
capitalized Agreement obligations of such person, 6) all obligations of such
person to pay a specified purchase price for goods and services whether or not
delivered or accepted i.e., take-or-pay and similar obligations, 7) all net
obligations of such person under interest rate agreements, and 8) all contingent
obligations of such person (other than contingent obligations arising from the
guaranty by such person of the obligations of Guarantor and/or its




                                      -4-


subsidiaries to the extent such guaranteed obligations do not constitute
Indebtedness); provided that Indebtedness shall not include trade payables,
deferred revenue, taxes and accrued expenses in each case arising in the
ordinary course of business.

        This ratio will be calculated at the end of each reporting period for
        which Secured Party requires financial statements from Guarantor, using
        the results of the twelve-month period.

        10.B. Additional Guarantor Covenant. Guarantor agrees that it shall
provide Secured Party with copies of all quarterly compliance certificates
required to be furnished under either (1) the Credit Agreement among Penhall
International Corp., Penhall Acquisition Corp., Bankers Trust Company, Credit
Suisse First Boston, Fleet Capital Corporation and Union Bank of California
dated as of August 4, 1998, as amended from time to time, or (2) any successor
credit or loan agreement.

        11. Assignments. Secured Party may, without notice to Guarantor and
without affecting Guarantor's obligations hereunder, sell, assign, grant
participations in, or otherwise transfer to any other person, firm, or
corporation the Agreement, the Collateral, the Obligations and this Guaranty, in
whole or in part. Guarantor agrees that Secured Party may disclose to any such
assignee or purchaser, or any prospective assignee or purchaser, of all or part
of the Agreement or the Obligations any information in Secured Party's
possession concerning Guarantor, this Guaranty and any security for this
Guaranty.

        12. Reinstatement of Guaranty. If any payment or transfer of any
interest in property by Debtor to Secured Party is rescinded or must be returned
by Secured Party to Debtor, (a) this Guaranty shall be reinstated with respect
to any such payment or transfer, even if this Guaranty was previously returned
or canceled, and (b) Guarantor shall remain fully liable with respect to any
such amount as if such amount had not been paid by Debtor.

        13. Costs and Expenses. Guarantor agrees to pay all reasonable
attorneys' fees, including allocated costs of Secured Party's internal counsel,
and all other costs and expenses Secured Party may incur (a) in the enforcement
of this Guaranty or (b) in the preservation, protection, or enforcement of any
rights of Secured Party in any case commenced by or against Guarantor under the
Bankruptcy Code or any similar statute.

        14. Governing Law. This Guaranty shall be governed by and construed
under the laws of California, to the jurisdiction of which, and of the Federal
courts in California, Guarantor hereby submits.




                                      -5-


        15. Interpretation. No provision or waiver in this Guaranty shall be
construed as limiting the generality of any other waiver in this Guaranty. The
term "including" is not limiting and means "including without limitation".
Section headings are for convenience of reference only and do not affect the
interpretation of this Guaranty. The invalidity of any portion of this Guaranty
shall not affect the remaining provisions. Where more than one Guarantor
executes this Guaranty, all of the provisions hereof shall apply to each of such
persons singly, and the obligations of each such person shall be joint and
several.

                Executed as of _______________________________.



        Guarantor:
        Penhall International Corp.



        _____________________________

        _____________________________
        Print Name

        _____________________________
        Address

                                               Address for notices to Guarantor:

                                               _________________________________

                                               _________________________________

                                               _________________________________




                                      -6-

EX-10.22

                                                                   EXHIBIT 10.22



BANK OF AMERICA
BANC OF AMERICA LEASING & CAPITAL, LLC

                                                 Amendment Number 1
                                                 to Guaranty dated July 25, 2002

================================================================================

This Amendment Number 1 made this 4th day of September, 2002, to Guaranty dated
July 25, 2002 ( the "Guaranty"), between Banc of America Leasing & Capital, LLC
("Secured Party") and Penhall International Corp. ("Guarantor").


                              W I T N E S S E T H :

WHEREAS, Secured Party and Guarantor are parties to the Guaranty; and

WHEREAS, Secured Party and Guarantor desire to amend certain provisions of the
Guaranty;

NOW, THEREFORE, in consideration of the premises and the mutual obligations
hereinafter contained, and for the other good and valuable consideration, the
receipt whereof is hereby acknowledged, the parties hereto agree as follows:

    1.  Section 10A. (a) of Guaranty. Interest Coverage Ratio is hereby restated
        as follows: Interest Coverage ratio (minimum)



        Date                      Ratio
        ----                      -----
                               
        June 30, 2003             1.80
        June 30, 2004             1.95
        June 30, 2005             2.15
        December 31, 2006         2.25


    2.  Section 10A (b) of Guaranty. Leverage Ratio is hereby restated as
        follows: Leverage ratio (maximum)



        Date                      Ratio
        ----                      -----
                               
        June 30, 2003             5.20
        June 30, 2004             4.85
        June 30, 2005             4.55
        December 31, 2006         4.30


    3.  Except as amended hereby, the Guaranty shall remain in full force and
        effect and is in all respects hereby ratified and affirmed. Capitalized
        terms not otherwise defined herein shall have the meanings ascribed them
        in the Guaranty.

IN WITNESS WHEREOF, the parties hereunto have caused this instrument to be
executed by their duly authorized officers as of the day and year first above
written.



                                             
BANC OF AMERICA LEASING & CAPITAL, LLC          Penhall International Corp.
(Secured Party)                                 (Guarantor)



By: ___________________________________         By: ___________________________________

Printed Name: _________________________         Printed Name: _________________________

Title: ________________________________         Title: ________________________________

EX-12

                                                                      EXHIBIT 12



                   PENHALL INTERNATIONAL CORP AND SUBSIDIARIES
                       RATIO OF EARNINGS TO FIXED CHARGES





                                                           FISCAL YEAR ENDED JUNE 30,
                                          -------------------------------------------------------------
                                            1998         1999          2000         2001         2002
                                          --------     --------      --------     --------     --------
                                                              (DOLLARS IN THOUSANDS)
                                                                                
Earnings before income taxes...........   $  5,232     $ (7,337)     $ 10,326     $  9,159     $ (2,473)
Fixed charges - interest expense(1)....      1,204       14,580        15,920       15,624       14,747
                                          --------     --------      --------     --------     --------
                                          $  6,436     $  7,243      $ 26,246     $ 24,783     $ 12,274
                                          ========     ========      ========     ========     ========

Ratio of earnings to fixed charges.....   5.3 to 1      .5 to 1      1.6 to 1     1.6 to 1      .8 to 1

Coverage deficiency ...................   $     --     $  7,337      $     --     $     --     $  2,473
                                          ========     ========      ========     ========     ========


- ------------
(1)  Fixed charges - interest expense includes a component for interest computed
     on rent expense that approximates 30% of the total rent expense for each
     period presented.

EX-21

                                                                      EXHIBIT 21


                   PENHALL INTERNATIONAL CORP AND SUBSIDIARIES

                                  SUBSIDIARIES




             NAME                                     JURISDICTION
             ----                                     ------------
                                                   
     Penhall Rental Corp.                                Arizona

        Penhall Company                                 California