<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
----------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission file number 0-16498
-------
ADDINGTON RESOURCES, INC.
------------------------
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 61-1125039
- -------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer ID Number)
of incorporation or organization)
771 Corporate Dr., Suite 1000
Lexington, KY 40503
- -------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number,
including area code (606) 223-3824
--------------
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 the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Class - Common stock, $1.00 Par Value
-----
Outstanding at November 14, 1995 - 14,967,451 shares
--------------------------------
1
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Consolidated Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1995 (Unaudited) and
December 31, 1994 3-4
Consolidated Statements of Operations
(Unaudited) Three Months and Nine Months
Ended September 30, 1995 and 1994 5-6
Consolidated Statements of Cash Flows
(Unaudited) Nine Months Ended
September 30, 1995 and 1994 7-8
Notes to Consolidated Financial
Statements (Unaudited) 9-14
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 15-25
PART II. Other Information 26-27
SIGNATURES 28
</TABLE>
2
<PAGE>
ITEM 1
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 916 $ 3,410
Short term investments 703 8,474
Accounts receivable, net 14,161 7,191
Prepaid expenses and other 650 1,543
-------- --------
Total current assets 16,430 20,618
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost 109,646 89,537
Less - Accumulated depreciation (13,177) (8,020)
-------- --------
96,469 81,517
-------- --------
PROPERTY, PLANT AND EQUIPMENT and other
long-term assets of discontinued
operations, net 71,403 91,490
RESTRICTED CASH 5,497 4,348
OTHER 2,126 5,569
-------- -------
Total assets $191,925 $203,542
======== ========
</TABLE>
3
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
(Unaudited)
(in thousands)
CURRENT LIABILITIES:
Accounts payable $ 5,518 $ 3,883
Current portion of long-term debt 674 880
Accrued expenses and other 9,157 6,211
Net current liabilities of discontinued
operations 8,132 8,385
-------- --------
Total current liabilities 23,481 19,359
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current portion 35,417 32,767
Other long-term liabilities 12,058 8,204
Deferred income taxes 3,158 3,923
Long-term liabilities of discontinued
operations 16,074 19,068
-------- --------
Total non-current liabilities $ 66,707 $ 63,962
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value;
30,000 shares authorized,
15,967 and 15,853 shares
outstanding at September 30, 1995
and December 31, 1994, respectively 15,967 15,853
Paid-in capital 85,120 83,789
Retained earnings 650 20,579
-------- --------
Total stockholders' equity 101,737 120,221
-------- --------
Total liabilities and
stockholders' equity $191,925 $203,542
======== ========
</TABLE>
4
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ ------------------
September 30, September 30,
1995 1994 1995 1994
------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES $16,578 $ 9,942 $41,579 $25,660
COSTS AND EXPENSES:
Cost of operations 9,377 5,719 23,370 15,150
Provision for asset
write-down - 670 - 670
Depreciation and
amortization 2,081 1,285 5,272 3,456
Selling, general and
administrative 1,811 1,594 4,922 3,495
------- ------- ------- -------
13,269 9,268 33,564 22,771
------- ------- ------- -------
INCOME FROM OPERATIONS 3,309 674 8,015 2,889
------- ------- ------- -------
INTEREST AND OTHER INCOME
(EXPENSE):
Interest income 82 228 366 604
Interest expense (210) (156) (384) (199)
Other, net (16) (1,152) 171 (1,123)
------- ------- ------- -------
(144) (1,080) 153 (718)
------- ------- ------- -------
Income (loss) before
income taxes 3,165 (406) 8,168 2,171
------- ------- ------- -------
INCOME TAX PROVISIONS
(BENEFITS):
Federal 1,076 (146) 2,777 781
State 190 (16) 490 87
------- ------- ------- -------
1,266 (162) 3,267 868
------- ------- ------- -------
Net income (loss)from
continuing operations 1,899 $ (244) $ 4,901 $ 1,303
======= ======== ======= =======
</TABLE>
5
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ ------------------
September 30, September 30,
1995 1994 1995 1994
-------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Discontinued operations
(Note 2):
Income (loss) from opera-
tions of discontinued seg-
ment [less applicable income
taxes (benefit) of $480,
$(6,138), $1,899 and $(5,087)
for the three and nine months
ended September 30, 1995 and
1994] $ 1,778 $(11,575) $ 5,707 $ (8,710)
Estimated loss on disposal
of segment, including pro-
vision of $2,000 for
operating losses during
disposal period (less applic-
able income tax benefit of
$9,790 for the three and
nine months ended September
30, 1995 and 1994) (30,537) - (30,537) -
-------- -------- -------- -------
Loss from discontinued
operations (28,759) (11,575) (24,830) (8,710)
-------- -------- -------- -------
Net loss $(26,860) $(11,819) $(19,929) $(7,407)
======== ======== ======== =======
Earnings per share:
Income (loss) from
continuing operations $ .12 $ (.02) $ .31 $ .08
Income (loss) from dis-
continued operations .11 (.73) .36 (.55)
Estimated loss on
disposal of segment (1.91) - (1.92) -
-------- -------- -------- -------
Net loss $ (1.68) $ (.75) $ (1.25) $ (.47)
======== ======== ======== =======
Equivalent shares of
stock outstanding 15,983 15,853 15,911 15,780
======== ======== ======== =======
</TABLE>
6
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
September 30, September 30,
1995 1994
------------- -------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(19,929) $ (7,407)
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,272 3,456
Loss on sale of assets 58 1,819
Loss on disposal of discontinued operations 30,537 9
Change in assets and liabilities, net of effects
from acquisitions and disposals:
(Increase) decrease in:
Accounts receivable (6,873) (4,282)
Prepaid expenses and other 823 1,664
Other assets (1,568) 687
Increase (decrease) in:
Accounts payable 1,159 (696)
Accrued expenses and other liabilities 4,059 3,690
Deferred income taxes (766) (5,936)
Net cash flows from discontinued operations'
operating activities 9,855 (3,282)
-------- --------
Total adjustments 42,556 (2,871)
-------- --------
Net cash provided by (used in)
operating activities 22,627 (10,278)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets - 1,713
Proceeds from sale of coal subsidiaries,
net of disposition costs - 185,074
Decrease (increase) in short-term investments 7,771 (10,000)
Acquisition of environmental companies,
net of cash acquired - (2,057)
Additions to property, plant and equipment (20,030) (15,807)
Net cash flows from discontinued operations'
investing activities (21,392) (36,098)
-------- --------
Net cash provided by (used in)
investing activities $(33,651) $122,825
-------- --------
</TABLE>
7
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
-------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
September 30, September 30,
1995 1994
------------- -------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt $ 5,863 $ 20,406
Repayments of long-term debt (263) (2,028)
Retirements of senior secured notes,
including redemption premium - (131,716)
Issuance of common stock 339 341
Financing costs incurred - (425)
Net cash flows from discontinued operations'
financing activities 2,591 (6,217)
------- ---------
Net cash provided by (used in)
financing activities 8,530 (119,639)
------- ---------
Net decrease in cash
and cash equivalents (2,494) (7,092)
CASH AND CASH EQUIVALENTS, beginning of period 3,410 13,470
------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 916 $ 6,378
======= =========
</TABLE>
Note: For purposes of these statements, the Company and its subsidiaries
consider short-term investments having maturities of three months
or less at the time of purchase to be cash equivalents.
The cash amounts of interest and income taxes paid by the Company and its
subsidiaries during the nine months ended September 30, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
(in thousands)
<S> <C> <C>
Interest, including amounts capitalized of
approximately $1,739 and $878,
respectively $2,123 $1,955
Income taxes 1,093 56
</TABLE>
During the nine months ended September 30, 1995, the Company issued 68,350
shares of common stock in connection with the exercise of stock grants issued to
employees. The issuance of common stock in connection with the exercise of
stock grants increased paid in capital by $940 and increased common stock by $68
for the nine months ended September 30, 1995 (see Note 8 to the consolidated
financial statements). During the nine months ended September 30, 1994, the
Company wrote off certain assets of approximately $9,500 against previously
established contingency reserves and other accruals recorded in connection with
the Company's de-emphasis on its mining operations. Such non-cash activity has
been excluded from the above statements of cash flows.
8
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
(Dollar amounts in thousands, except per share data)
1. Financial Statement Presentation-
--------------------------------
The accompanying consolidated unaudited financial statements have been prepared
in accordance with the rules and regulations of the Securities and Exchange
Commission for interim financial information. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements. Therefore, the accompanying
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's latest annual report on Form 10-K.
The accompanying consolidated financial statements as of September 30, 1995 and
1994 include the accounts of Addington Resources, Inc. (the Company) and its
wholly-owned direct and indirect subsidiaries.
In the opinion of management, the accompanying consolidated unaudited financial
statements include all adjustments necessary to present fairly the Company's
financial position as of September 30, 1995 and results of operations for the
nine months ended September 30, 1995 and 1994. Except for the implementation of
discontinued operations accounting, all adjustments were of a normal recurring
nature. The results of operations for such interim periods are not necessarily
indicative of the results to be expected for the full year.
2. Discontinued Operations-
-----------------------
Discontinued operations consist of the following: coal mining, mining
equipment manufacturing and licensing, citrus properties in Belize, precious and
industrial metals mining and incidental limestone properties. Accordingly, the
Company's continuing operations will be comprised of integrated solid waste
management, which includes landfill operations and waste collection and
recycling services. The Company estimates it will record a loss on the
disposal of the discontinued operations of approximately $30,537 (net of income
tax benefits of approximately $9,790) which represents the estimated loss on the
disposal of the non-environmental operations and a provision of approximately
$2,000 for expected operating losses through the final disposition of such
operations.
9
<PAGE>
Operating results from the discontinued operations were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ ------------------
September 30, September 30,
1995 1994 1995 1994
------- -------- ------- --------
<S> <C> <C> <C> <C>
(in thousands)
Operating revenue $27,811 $ 29,772 $92,486 $ 89,191
======= ======== ======= ========
Income (loss) before income
taxes $ 2,258 $(17,713) $ 7,606 $(13,797)
Income tax provision
(benefit) 480 (6,138) 1,899 (5,087)
------- -------- ------- --------
Income (loss) from
operations $ 1,778 $(11,575) $ 5,707 $ (8,710)
======= ======== ======= ========
</TABLE>
Included in income from discontinued operations for the nine months ended
September 30, 1995 is approximately $13,000 of pre-tax income from the sale of
the Company's Australian mining technology patents, offset by a $5,300 second
quarter disposal loss accrual recorded for Addwest Minerals.
As discussed in Note 3, subsequent to period end, the Company sold its coal
mining, mining equipment manufacturing and licensing subsidiaries as well as its
citrus properties in Belize. In addition, the Company sold its limestone
properties. The Company has entered into an agreement to sell its precious and
industrial metals mining subsidiary (see Note 4). Accordingly the Company
anticipates that it will fully dispose of all non-environmental operations
within one year. The operating results of all non-environmental segments have
been classified as discontinued operations for all periods presented in the
accompanying consolidated financial statements.
The assets and liabilities of the discontinued operations have been reclassified
in the accompanying consolidated balance sheets from the historical
classification in order to separately identify them as net assets of
discontinued operations. These net assets consist primarily of net working
capital, tangible and intangible noncurrent assets and other long-term
liabilities.
10
<PAGE>
3. Sale of Subsidiaries (included in Discontinued Operations)-
----------------------------------------------------------
(a) Coal Mining, Mining Equipment Manufacturing and Licensing-
---------------------------------------------------------
On September 22, 1995, in a related party transaction, the Company
entered into a stock purchase agreement with Addington Acquisition
Company, Inc., Larry Addington, Robert Addington and Bruce Addington
(collectively, the "Addington Brothers") whereby the Company agreed to
sell, for $30,000, subject to certain working capital adjustments, all
the issued and outstanding shares of common stock of Addington Mining,
Inc., Mining Technologies, Inc., Addwest Mining, Inc. and Addington
Coal Holding, Inc. In addition, the Company retained the right to
receive certain payments (anticipated to aggregate $7,000) due under
the Company's technology sale to BHP Australia Coal Pty. Ltd. (see Note
5). The sale was consummated on November 2, 1995.
Included in this transaction and pursuant to an option agreement dated
August 4, 1995, the Company sold to the Addington Brothers all of the
issued and outstanding shares of common stock of the Company's
subsidiary, Tennessee Mining, Inc. The Company is entitled, as
consideration for the sale, to receive a royalty based on tons of coal
delivered under a certain coal sales contract, up to a maximum
aggregate royalty of $12,500.
(b) Citrus Properties-
-----------------
On September 22, 1995, in a related party transaction, the Company
entered into an agreement to sell all of the issued and outstanding
shares of common stock of its subsidiary, Belize River Fruit Co., to
Larry and Bruce Addington in exchange for 1,000,000 shares of common
stock of the Company owned by Larry and Bruce Addington. This
transaction was consummated on November 2, 1995.
4. Addwest Minerals, Inc. (included in Discontinued Operations)-
------------------------------------------------------------
Addwest Minerals, Inc. (Addwest), a wholly-owned subsidiary of the Company,
is a development stage enterprise which was organized to mine, extract and
market precious and industrial metals. Since the inception of significant
development activities, Addwest has primarily been involved in planning,
obtaining financing, acquiring assets and developing mines.
As a development stage enterprise, Addwest has made a significant
investment in long-term assets, carried at cost, which were acquired or
developed in order to commence operations. However, successful future
operations of Addwest are subject to substantial uncertainties, including
the quantity of economically recoverable reserves, the ability of Addwest
to successfully mine and market the minerals, and the need for substantial
additional capital, which may not be available on favorable terms. Addwest
has experienced lower than expected ore grades and significant other
startup problems at its Gold Road project.
11
<PAGE>
The Company has entered into a letter agreement dated November 1, 1995
providing for the sale to a private Canadian business group of all of the
capital stock of Addwest. As consideration for the purchase, the buyer will
pay $600 in cash and either repay or cause the release of the Company from
liability in respect of $3,000 of Addwest's outstanding loan, aggregating
$7,330 after principal payments made on October 31. Pursuant to the terms
of the agreement, Addwest is required to have current liabilities not
exceeding $1,500, exclusive of certain other contractual obligations of
approximately $500, with purchase price adjustments to the extent that
current liabilities exceed or are less than that amount. There can be no
assurance that the sale will be consummated. Failure of the buyer to
consummate the transaction will result in forfeiture of a $600 deposit with
the Company.
As of September 30, 1995, the balance of the Rothschild gold loan was
$9,330, of which $2,000 was paid by the Company on October 31, 1995.
Pursuant to amended loan terms, the remaining balance of $7,330 is due upon
the earlier of the closing of the sale of Addwest or December 29, 1995.
The loss expected to be realized on the sale of Addwest is included in the
estimated loss on disposal of discontinued segments (see Note 2) in the
accompanying consolidated statements of operations. However, there can be
no assurance that the sale of Addwest will be consummated or that the loss
ultimately realized on the sale or other disposition of Addwest will not be
greater than the amount recorded in the accompanying consolidated financial
statements.
5. Sale of Australian Mining Technology Patents-
--------------------------------------------
During the second quarter of 1995, the Company entered into a mining
technology exchange agreement with BHP Australia Coal Pty Ltd. (BHPAC)
whereby the Company sold its Australian patents on highwall mining machines
and certain other related technology. In consideration for the sale, the
Company received cash of $10,000 and a receivable of $4,000 (which was
received in October, 1995). The agreement also provides for contingent
payments to the Company of $3,000 upon the satisfaction of certain
production requirements related to BHPAC's use of a highwall mining system
incorporating the sold technology.
The Company's subsidiary which developed the sold patents and technology is
one of the subsidiaries which have been sold to Addington Acquisition
Company, Inc. (see Note 3a). However, the $4,000 and $3,000 payments from
BHPAC will be retained by the Company.
12
<PAGE>
6. Commitments and Contingencies-
-----------------------------
(a) Legal Matters-
-------------
In the normal course of its operations, the Company may become involved
in a variety of legal disputes. Currently, the Company is a party to
certain litigation, including workers' compensation matters, permit
proceedings and other minor business disputes.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular reporting
period, management believes that the ultimate disposition of these
matters will not have a material adverse effect on the consolidated
financial position of the Company.
(b) Environmental Proceedings-
-------------------------
The Company is involved in various environmental matters and
proceedings, including permit application proceedings, in connection
with the establishment, operation and expansion activities of certain
landfill facilities, as well as other matters or claims that could
result in additional environmental proceedings.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular reporting
period, management believes that the ultimate disposition of these
matters will not have a material adverse effect on the consolidated
financial position of the Company.
(c) Landfill Acquisitions-
---------------------
During 1994, the Company acquired a landfill near Macon, Georgia. The
existing landfill operation is permitted to accept construction and
demolition waste and certain industrial wastes. A new permit allowing
the landfill to accept municipal solid waste was issued in June 1994
and, after legal challenges, the new permit became final and
nonappealable in October, 1995. Accordingly, an additional payment of
approximately $3,600 is due to the seller.
(d) Sale of Certain Coal Subsidiaries-
---------------------------------
During January 1994, the Company sold the stock of five of its coal
subsidiaries to Pittston Minerals Group. In connection with the sale,
the Company provided certain guarantees of indemnification to Pittston.
In connection with the sale of coal subsidiaries to the Addington
Brothers (see Note 3a), the Company received indemnifications related
to its guarantees to Pittston as well as other matters, including
certain mineral leases and workers' compensation benefits.
13
<PAGE>
7. Related-Party Transactions-
--------------------------
The Company has dealt with certain companies or individuals which are
related parties either by having stockholders in common or because they are
controlled by stockholders/officers or by relatives of
stockholders/officers of the Company. The Company recorded various expenses
(included in results of discontinued operations) to related parties
consisting of approximately $2,497 and $5,083 for trucking services for the
nine month periods ended September 30, 1995 and 1994, respectively, office
rent of $83 for the nine month periods ended September 30, 1995 and 1994,
and flight fees of $315 for the nine months ended September 30, 1995.
The Company had amounts payable to related parties of $392 and $298 as of
September 30, 1995 and December 31, 1994, respectively. (See Note 3 for
additional related-party transactions).
8. Stockholders' Equity-
--------------------
During the nine months ended September 30, 1995 and 1994, 46,250 and 28,800
shares, respectively, of common stock were issued in connection with the
exercise of stock options.
During the nine months ended September 30, 1994, 148,673 shares of common
stock were issued in connection with the acquisition of a landfill company.
In accordance with the landfill acquisition agreement, the Company has
received a request from the holder of these shares of common stock that the
Company register them for resale. The agreement provides that under certain
conditions the Company is obligated to the holder for the difference, if
any, between the per share market price on the date of receipt of the
holder's request for registration (approximately $13.75 per share) and the
per share market price on the date immediately preceding the effective date
of the registration statement for resale. The Company has not yet filed the
requested registration statement.
During the nine months ended September 30, 1995, 68,350 shares of common
stock were issued in connection with 1989 stock grants to employees. These
stock grants specified that the recipient of the stock grant remain
employed by the Company for five years from the date of the grant in order
to exercise the grant.
As a result of these options and grants being exercised and shares being
issued, common stock increased $115 and $177 respectively, and paid-in
capital increased $1,330 and $2,245, respectively, during the nine months
ended September 30, 1995 and 1994.
14
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share data)
Recent Developments
- -------------------
On August 4, 1995, the Company appointed four new members to its Board of
Directors, Howard P. Berkowitz (Chairman), Richard Ravitch, James Grosfeld and
Harold Blumenstein, and accepted the resignation of Robert Addington from the
current Board. With these changes, the reconstituted Board of Directors
consisted of eight members: Larry Addington, Bruce Addington, Jack C. Fischer,
Carl R. Whitehouse, and the four new members.
The Board changes follow the execution of a definitive agreement on August 4,
1995 between Larry, Bruce and Robert Addington for their sale of an aggregate of
2,000,000 shares of the Company's common stock to HPB Associates, L.P., of which
Howard Berkowitz is managing general partner and Messrs. Ravitch and Blumenstein
are limited partners.
On August 15, 1995, Bruce Addington resigned from the Board of Directors.
Discontinued operations consist of the following: coal mining, mining equipment
manufacturing and licensing, citrus properties in Belize, precious and
industrial metals mining and incidental limestone properties. The Company's
continuing operations are comprised of integrated solid waste management, which
includes landfill operations and waste collection and recycling services. The
Company estimates it will record a loss on the disposal of the discontinued
operations of approximately $30,537 (net of income tax benefits of approximately
$9,790) which represents the estimated loss on the disposal of the non-
environmental operations and a provision of approximately $2,000 for expected
operating losses through the final disposition of such operations.
As a part of the Company's plan to dispose of all of its non-environmental
operations, it has taken the following actions:
(1) On September 22, 1995, the Company entered into a stock purchase
agreement with Addington Acquisition Company, Inc., Larry Addington, Robert
Addington and Bruce Addington (collectively, the "Addington Brothers")
whereby the Company agreed to sell, for $30,000, subject to certain working
capital adjustments, all the issued and outstanding shares of common stock of
Addington Mining, Inc., Mining Technologies, Inc., Addwest Mining, Inc. and
Addington Coal Holding, Inc. In addition, the Company retained the right to
receive certain payments (anticipated to aggregate $7,000) due under the
Company's technology sale to BHP Australia Coal Pty. Ltd. (see Note 5). The
sale was consummated on November 2, 1995.
15
<PAGE>
(2) Included in this transaction and pursuant to an option agreement dated
August 4, 1995, the Company sold to the Addington Brothers all of the issued
and outstanding shares of common stock of the Company's subsidiary, Tennessee
Mining, Inc. The Company is entitled to receive a royalty based on tons of
coal delivered under a certain coal sales contract, up to a maximum aggregate
royalty of $12,500.
(3) On September 22, 1995, the Company entered into an agreement to sell all
of the issued and outstanding shares of common stock of its subsidiary,
Belize River Fruit Co., to Larry and Bruce Addington in exchange for
1,000,000 shares of common stock of the Company owned by Larry and Bruce
Addington. This transaction was consummated on November 2, 1995.
(4) The Company has entered into a letter agreement dated November 1, 1995
providing for the sale to a private Canadian business group of all of the
capital stock of Addwest. As consideration for the purchase, the buyer will
pay $600 in cash and either repay or cause the release of the Company from
liability in respect of $3,000 of Addwest's outstanding loan, aggregating
$7,340 after principal payments made on October 31. The Company is required
to repay the balance of the loan on the earlier of the closing of the sale
and December 29, 1995. Pursuant to the terms of the agreement, Addwest is
required to have current liabilities not exceeding $1,500, exclusive of
certain other contractual obligations of approximately $500, with purchase
price adjustments to the extent that current liabilities exceed or are less
than that amount. There can be no assurance that the sale will be
consummated. Failure of the buyer to consummate the transaction will result
in forfeiture of a $600 deposit with the Company.
16
<PAGE>
RESULTS OF OPERATIONS
---------------------
Quarter Ended September 30, 1995 Compared With Same Period In 1994
------------------------------------------------------------------
(in thousands, except per share data)
Net income from continuing operations during the quarter ended September 30,
1995 was $1,899 or $.12 per share, compared to net loss of $244 or $.02 per
share for the comparable quarter of 1994.
Revenues for the three months ended September 30, 1995 and 1994,
respectively, are derived solely from the Company's environmental operations
as follows (in thousands):
<TABLE>
<CAPTION>
Landfill Waste Collection Total
Operations Services Environmental
----------------- ----------------- ------------------
For the three months ended September 30,
------------------------------------------------------------
1995 1994 1995 1994 1995 1994
------- ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues $11,802 $6,361 $4,776 $ 3,581 $16,578 $9,942
Income from operations 3,865 2,741 (348) (1,990) 3,517/1/ 751/1/
Tonnage received 535 305
</TABLE>
/1/ Before the deduction of corporate overhead of $208 and $77 for the three
months ended 1995 and 1994, respectively.
Revenues during the third quarter of 1995 increased by $6,636 (67%) over prior
year levels. The substantial increases in total revenues reflects the 75%
increase in tons of waste received, as well as substantially improved operating
results from the Company's waste collection services. This increase in tons is
primarily attributable to internal growth and the Company operating 10 landfills
as of September 30, 1995, compared to operating 7 landfills as of September 30,
1994. The 7 landfills which were operating during the quarter ended September
30, 1994 generated $9,992 of revenues, and received 484 tons during the quarter
ended September 30, 1995. Currently, the Company has two landfills under
development, but the Company can make no assurances as to when (or if) these
landfills will be operational. Improved revenues arising from the Company's
waste collection services are primarily the result of reduced operating costs.
The Company does not allow a discount on its waste collection services for waste
delivered to Company landfills.
As a percentage of total revenues, cost of operations decreased from 58% for
the third quarter of 1994 to 57% for the third quarter of 1995. This decrease
reflects economies of scale realized by the Company as certain of its fixed
costs are spread over a broader revenue base.
During the third quarter of 1994, the Company provided for asset writedowns of
$670 associated with certain environmental projects which the Company decided
should no longer be pursued. No provisions occurred during the third quarter of
1995 in the environmental business.
17
<PAGE>
Depreciation and amortization increased $796 (or 62%) in the third quarter of
1995 as compared to $1,285 in the third quarter of 1994. This increase is
primarily attributable to an increase in tonnage received as well as
environmental depreciable assets purchased or developed in connection with the
growth of environmental operations.
Selling, general and administrative expenses increased $217 (or 14%) during the
third quarter of 1995 as compared to $1,594 during the third quarter of 1994,
reflecting 3 additional landfills opened since September 30, 1994 and the
overall growth of environmental operations. As a percentage of revenues,
selling, general and administrative expenses declined from 16% to 11%,
reflecting economies of scale realized by the Company as its SG&A costs are
spread over a broader revenue base.
Operating income increased $2,635 (or 391%) for the three months ended September
30, 1995 as compared to 1994. Operating income increased as a percentage of
revenues from 7% to 20%. The increase in operating income in dollars and as a
percentage of revenues is attributable to (i) increased volumes and
efficiencies in the Company's environmental operations and (ii) the absence of
any provision for write-downs in the 1995 period, in contrast to the 1994
period.
Interest income decreased from $228 during the third quarter of 1994 compared to
$82 during the third quarter of 1995. This decrease is due to a decrease in the
average amount of short-term investments outstanding partially offset by an
increase in the interest rate yields on short-term investments during the third
quarter of 1995.
Interest expense remained relatively unchanged from $156 during the third
quarter of 1994 to $210 during the third quarter of 1995. The amount of
interest capitalized for the three months ended September 30, 1995 and 1994 was
$570 and $245, respectively.
Other expense decreased from $1,152 during the third quarter of 1994 to $16 in
the third quarter in 1995. The Company wrote off its investment during the
third quarter of 1994 in a company that developed certain recycling technology.
The Company's effective tax rate during both periods was 40%.
The Company experienced losses from discontinued operations of $11,575 during
the third quarter of 1994, and generated income from discontinued operations
of $1,778 during the third quarter of 1995. The Company recorded certain
restructuring charges and other one-time charges during the third quarter of
1994. These charges included the write-off of an investment in limestone
($3,400), the establishment of a reserve for the remaining balance of a note
receivable and certain other costs in connection with a sale of a coal
subsidiary in April 1992 ($6,800) and the settlement of working capital
adjustments and adjusting certain other contingency reserves associated with
the sale of certain coal subsidiaries to Pittston Minerals Group ($6,275).
18
<PAGE>
Nine Months Ended September 30, 1995 Compared With Same Period In 1994
----------------------------------------------------------------------
(in thousands, except per share data)
Net income from continuing operations during the nine months ended September 30,
1995 was $4,901 or $.31 per share, compared to net income of $1,303 or $.08 per
share for the comparable period of 1994.
Revenues for the nine months ended September 30, 1995 and 1994, respectively,
are derived solely from the Company's environmental operations as follows (in
thousands):
<TABLE>
<CAPTION>
Landfill Waste Collection Total
Operations Services Environmental
------------------ ------------------ -------------------
For the nine months ended September 30,
---------------------------------------------------------------
1995 1994 1995 1994 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues $30,450 $17,365 $11,129 $ 8,295 $41,579 $25,660
Income from operations 10,159 6,615 (1,185) (2,914) 8,974/1/ 3,419/1/
Tonnage received 1,331 801
</TABLE>
/1/ Before the deduction of corporate overhead of $959 and $812 for the nine
months ended 1995 and 1994, respectively.
Revenues for the nine months ended September 30, 1995 increased by $15,919 (or
62%) over prior year levels. The substantial increases in total environmental
revenues reflects the 66% increase in tons of waste received, as well as
substantially improved operating results from the Company's waste collection
services. The increase in tons is primarily attributable to internal growth and
the Company operating 10 landfills as of September 30, 1995, compared to
operating 7 landfills as of September 30, 1994. The 7 landfills which were
operating during the nine months ended September 30, 1994 generated $23,119 of
revenues and received 1,178 tons during the nine months ended September 30,
1995. Currently, the Company has two landfills under development, but the
Company can make no assurances as to when (or if) these landfills will be
operational. Improved revenues arising from the Company's waste collection
services are primarily the result of reduced operating costs. The Company does
not allow a discount on its waste collection services for waste delivered to
Company landfills.
As a percentage of total revenues, cost of operations decreased from 59% for the
nine months ended September 30, 1994 to 56% for the nine months ended September
30, 1995. This decrease reflects economies of scale realized by the Company as
certain of its fixed costs are spread over a broader revenue base.
During the nine months ended September 30, 1994, the Company provided for asset
writedowns of $670 associated with certain environmental projects which the
Company decided should no longer be pursued. No provisions occurred through the
nine months ended September 30, 1995 in the environmental business.
19
<PAGE>
Depreciation and amortization increased $1,816 (or 53%) during the nine months
ended September 30, 1995 as compared to the nine months ended September 30,
1994. This increase is primarily attributable to an increase in tonnage
received as well as environmental depreciable assets purchased or developed in
connection with the growth of environmental operations.
Selling, general and administrative expenses increased $1,427 (or 41%) during
the nine months ended September 30, 1995 as compared to the nine months ended
September 30, 1994, reflecting 3 additional landfills opened since September 30,
1994 and the overall growth of environmental operations. As a percentage of
revenues, selling, general and administrative expenses declined from 14% to 12%,
reflecting economies of scale realized by the Company as its SG&A costs are
spread over a broader revenue base.
Operating income increased $5,126 (or 177%) for the nine months ended September
30, 1995 as compared to 1994. Operating income increased as a percentage of
revenues from 11% to 19%. The increase in operating income in dollars and as a
percentage of revenues is attributable to (i) increased volumes and efficiencies
in the Company's environmental operations and (ii) the absence of any provision
for write-downs in the 1995 period, in contrast to the 1994 period.
Interest income decreased from $604 during the nine months ended September 30,
1994 to $366 during the nine months ended September 30, 1995. This decrease is
due to a decrease in the average amount of short-term investments outstanding
partially offset by an increase in the interest rate yields on short-term
investments during 1995.
Interest expense increased from $199 during the nine months ended September 30,
1994 to $384 during the nine months ended September 30, 1995. This increase is
primarily due to an increase in long-term debt outstanding related primarily to
the expansion of environmental operations. The amount of interest capitalized
for the nine months ended September 30, 1995 and 1994 was $1,739 and $878,
respectively.
Other expense was $1,123 during the nine months ended September 30, 1994
compared to other income of $171 during the nine months ended September 30,
1995. The Company wrote off its investment during the third quarter of 1994 in
a company that developed certain recycling technology.
The Company's effective tax rate during both periods was 40%.
The Company experienced losses from discontinued operations of $8,710 during the
nine months ended September 30, 1994, and generated income from discontinued
operations of $5,707 during the nine months ended September 30, 1995. The
Company recorded certain restructuring charges and other one-time charges during
the third quarter of 1994. These charges included the write-off of an
investment in limestone ($3,400), the establishment of a reserve for the
remaining balance of a note receivable, and certain other costs in connection
with a sale of a coal
20
<PAGE>
subsidiary in April 1992 ($6,800) and the settlement of working capital
adjustments and adjusting certain other contingency reserves associated with the
sale of certain coal subsidiaries to Pittston Minerals Group ($6,275). In
addition, during the nine months ended September 30, 1995, the Company recorded
revenues of $14,000 related to the sale of technology (see Note 5).
FINANCIAL CONDITION
-------------------
(in thousands, except per share data)
The Company's cash, cash equivalents and short-term investments totaled $1,619
at September 30, 1995, compared to $11,884 at December 31, 1994. This decrease
is primarily due to the timing of accounts receivable collections and accounts
payable payments, as well as the funding of capital expenditures and losses in
the Company's gold and highwall mining projects included in discontinued
operations.
Accounts receivable at September 30, 1995 totaled $14,161, compared to the
balance of $7,191 at December 31, 1994. This increase is primarily due to
additional tonnage being received by the Company's landfill operations as well
as expansion of the Company's waste collection services. In addition, the
Company has a $4,000 receivable at September 30, 1995 relating to the sale of
technology (see Note 5).
Prepaid expenses and other at September 30, 1995 totaled $650, compared to the
balance of $1,543 at December 31, 1994. This decrease is primarily due to the
timing of payments on prepaid insurance and other prepaid expenses.
Property, plant and equipment, net, increased to $96,469 at September 30, 1995,
compared to $81,517 at December 31, 1994. This increase is primarily due to an
increase in landfill and other environmental related development costs, net of
depreciation charges.
Property, plant and equipment and other long-term assets of discontinued
operations totaled $71,403 at September 30, 1995, compared to $91,490 at
December 31, 1994. This decrease is primarily due to the Company recording a
reserve for the disposal of the discontinued operations in the third quarter of
1995, offset by costs capitalized in connection with Addwest's gold mining
project in Arizona.
Restricted cash increased from $4,348 at December 31, 1994 to $5,497 at
September 30, 1995. This increase is primarily due to additions to escrows for
the future closure and post-closure costs associated with the Company's landfill
operations.
Other assets decreased from $5,569 at December 31, 1994 to $2,126 at September
30, 1995. This decrease is primarily attributable to the sale of an aircraft by
the Company during the first quarter of 1995.
21
<PAGE>
Accounts payable at September 30, 1995 increased to $5,518, as compared to the
December 31, 1994 balance of $3,883. This increase is primarily due to the
growth of the Company's environmental operations and the timing of payments on
accounts payable.
Accrued expenses and other liabilities were $9,157 at September 30, 1995,
compared to the $6,211 balance at December 31, 1994. This increase is due to
the accrual for expected future operating losses on discontinued operations.
The Company's current portion of long-term debt of $880 at December 31, 1994
remained relatively unchanged compared to $674 at September 30, 1995.
The Company's net current liabilities of discontinued operations were $8,385 at
December 31, 1994 and remained relatively unchanged as compared to $8,132 at
September 30, 1995. An increase in the amount of debt currently due related to
the Company's gold operations was offset by an increase in accounts receivable
and prepaid expenses in the Company's coal mining operations.
The Company's long-term debt outstanding increased from $32,767 at December 31,
1994 to $35,417 at September 30, 1995. This increase is due to additional
amounts borrowed against the Company's environmental subsidiary's line of credit
during the nine months ended September 30, 1995 to primarily finance landfill
construction. Subsequent to quarter end, during November, 1995, the Company
repaid in full the outstanding borrowings under the line of credit (subject to
availability for reborrowings) with the proceeds from the disposal discussed in
Note 3a.
The Company's other long-term liabilities increased from $8,204 at December 31,
1994 to $12,058 at September 30, 1995. This increase is primarily due to the
normal increase in landfill closure and post-closure costs accrued as well as
reclassifying accrued income taxes from current at December 31, 1994 to long
term at September 30, 1995.
The Company's long-term liabilities of discontinued operations decreased from
$19,068 at December 31, 1994 to $16,074 at September 30, 1995. This decrease is
primarily due to a decrease in long-term accrued reclamation associated with the
Company's coal mining operations.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
(in thousands, except per share data)
The working capital needs of the Company have been met primarily through a
combination of funds provided by banks; proceeds from the sale of non-
environmental businesses and assets (see Notes 3a, 5 and 6d to the consolidated
financial statements); sale/leaseback arrangements with respect to its highwall
mining machines; and cash generated through operations.
The overall net decrease in cash and cash equivalents was $2,494 and $(10,278)
for the nine months ended September 30, 1995 and 1994, respectively. Such net
decreases reflect net cash used in operating, investing and financing
activities.
Net cash generated by (used in) operations was $22,627 and $(10,278) for the
nine months ended September 30, 1995 and 1994, respectively. This fluctuation
between years is primarily a result of improved 1995 operating income (both
continuing and discontinued operations), including significant profits from the
sale of technology (see Note 5). In addition, during 1994, cash from operating
activities was used to establish working capital for retained coal properties as
well as pay for reclamation and other retained obligations in connection with
the sale of coal subsidiaries to Pittston (see Note 6d).
Net cash (used in) provided by investing activities was $(33,651) and $122,825
for the nine months ended September 30, 1995 and 1994, respectively. The
September 30, 1995 amount primarily consists of continued landfill development
costs as well as expenditures for continued investment in Addwest's Gold Road
project and other property, plant and equipment purchases, offset by a decrease
in short-term investments. The September 30, 1994 amount primarily consists of
net proceeds of $185,074 from the sale of coal subsidiaries, net of investment
purchases of $10,000, property, plant and equipment purchases and development
costs, of $15,807 and $36,098 for continuing and discontinued operations,
respectively, and acquisitions of environmental companies of $2,057.
During the nine months ended September 30, 1995, the Company made substantial
investments related to the Arizona gold mining project (Gold Road). This project
has experienced lower than expected ore grades and significant other start-up
problems. There are no assurances that the ore grade will increase or that
production will reach profitable levels. On November 1, 1995, the Company agreed
to sell the stock of its precious metals mining subsidiary (see Note 4 to the
consolidated financial statements).
Net cash provided by (used in) financing activities was $8,530 and $(119,639)
for the nine months ended September 30, 1995 and 1994, respectively. The
September 30, 1995 amount primarily represents
23
<PAGE>
borrowings of long-term debt of $5,863 and $2,591 from continuing and
discontinued operations, respectively. The September 30, 1994 amount primarily
represents a $131,716 payment for the retirement of the Company's senior secured
notes and net repayments on the Company's long-term debt of $2,028, net of
proceeds from the issuance of long-term debt of $20,406.
Net working capital as of September 30, 1995 was approximately $(7,051),
compared to approximately $1,259 as of December 31, 1994. This decrease is
primarily attributable to the following: an increase in the amount of debt
currently due related to Addwest's gold loan; the accrual for expected
future operating losses on discontinued operations; and the use of cash and
short-term investments to fund landfill and gold mine development costs.
As of September 30, 1995, the Company had approximately $13,750 available under
its environmental line of credit. The line of credit is secured by substantially
all of the Company's environmental assets and bears interest at rates ranging
from the Eurodollar rate plus 2.5% to prime plus 0.5%. During November 1995, the
Company used $26,000 of the $30,000 proceeds from the sale of its coal
subsidiaries (see Note 3a to the consolidated financial statements) to repay in
full all outstanding borrowings under the line of credit, thereby increasing the
amount available under the line of credit to $39,749. The maximum amount of this
line of credit, which expires in May, 1997, is $50,000 and the Company has
letters of credit issued against this line of $10,251 as of September 30, 1995.
The Company has various operating leases for transportation and other equipment.
Total noncancelable minimum lease payments for the following twelve month period
approximate $2,996.
During 1994, the Company acquired a landfill near Macon, Georgia. At the time of
acquisition, the existing landfill operation was permitted solely to accept
construction and demolition waste and certain industrial wastes. A new permit
allowing the landfill to accept municipal solid waste was issued in June 1994.
After legal challenges, the permit became final and nonappealable in October,
1995 and an additional payment of approximately $3,600 is required to be made to
the seller.
The Company has experienced lower than expected ore grades and other significant
startup problems at its Gold Road project. During 1994, the Company's gold
mining subsidiary (Addwest) entered into a loan agreement guaranteed by the
Company pursuant to which $9,330 was borrowed to finance the development of the
project. The Company paid off $2,000 of the loan during October 1995. Pursuant
to amended loan terms, the remaining balance of $7,330 is due upon the earlier
of the closing of the proposed sale of Addwest (see Note 4 to the consolidated
financial statements) or December 29, 1995. In connection with the proposed sale
of Addwest, the buyer is to repay $3,000 of the $7,330. The Company will fund
the repayment of the balance of this loan from its environmental line of credit,
as well as from the proceeds of hedging contracts and gold sales.
24
<PAGE>
There are certain environmental contingencies, primarily consisting of landfill
closure obligations, related to the Company's integrated solid waste disposal
system operations. The Company estimates and records its costs associated with
closure and postclosure monitoring and maintenance for operating landfills based
upon relevant government regulations. Accruals for these closure and postclosure
costs are provided as permitted airspace of the landfill is consumed. The
Company revises its estimates on a periodic basis. As of September 30, 1995, the
Company had accrued expenses for closure costs of approximately $4,480. Because
of the long-term nature of these obligations, there is a possibility that such
obligations, when ultimately paid, may differ substantially from the recorded
accrued expense, thus affecting the Company's liquidity.
Considering the existing accruals with respect to the Company's landfills at
September 30, 1995, approximately $56,000 of additional expense accruals are to
be provided over the remaining lives as permitted airspace of these facilities
is consumed. Such additional accruals to be provided have been estimated on
current costs and existing regulatory requirements and assume that the landfills
will be filled to capacity. Due to uncertainties and significant judgments used
in determining the amounts of additional accruals to be provided, the actual
amounts to be expended may differ substantially.
The Company is required to provide financial assurance to various regulatory
bodies for certain of its estimated closure and post-closure monitoring and
maintenance costs. The Company has established irrevocable trust funds and
issued letters of credit in response to such requirements.
The Company believes that its present financial condition, considering the funds
available under the existing financing agreements and internal financial
resources, provides adequate capital reserves and liquidity.
Inflation has not had a significant effect on the Company's business, primarily
because the United States economy has been experiencing a period of relatively
low inflation.
The Company's capital needs, earnings and cash flow are somewhat dependent on
events beyond the Company's control, such as the state of the economy, and
changes in existing governmental and environmental regulations.
25
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
None.
Item 2. Changes in Securities.
---------------------
None.
Item 3. Defaults upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
Item 5. Other Information.
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) List of Exhibits Filed.
-----------------------
Exhibit 10.1 Amendment dated as of October 17, 1995 to the
Employment Agreement between the Company and
R. Douglas Striebel.
Exhibit 10.2 First Amendment to the Credit Agreement between
Addwest Minerals, Inc. and NM Rothschild & Sons
Limited dated as of October 31, 1995.
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K.
--------------------
Since June 30, 1995, the Registrant has filed the following
Current Reports on Form 8-K:
(i) Current Report on Form 8-K dated July 11, 1995, Item 5 Other
Events (reporting the withdrawal of the proposal of March 1,
1995 of Larry, Robert and Bruce Addington to exchange their
common stock of the Registrant and other consideration for the
Registrant's non-environmental operations and the resignation
of certain members of the Board of Directors and the Special
Committee).
26
<PAGE>
(ii) Current Report on Form 8-K dated August 2, 1995, Item 5 Other
Events (reporting amendments to the agreement in principle to
sell the Registrant's precious metals mining subsidiary).
(iii) Current Report on Form 8-K dated August 4, 1995, Item 5 Other
Events (reporting the appointment of four new members to the
Registrant's Board of Directors and the sale of shares of the
Registrant's common stock by Larry, Robert and Bruce Addington
to HPB Associates, L.P.).
(iv) Current Report on Form 8-K dated September 22, 1995, Item 5
Other Events (reporting the execution of an agreement to sell
the Registrant's coal mining subsidiaries and its mining
equipment manufacturing and licensing subsidiary to Larry,
Robert and Bruce Addington and the execution of an agreement to
sell the Registrant's citrus operations in Belize to Larry and
Bruce Addington).
(v) Current Report on Form 8-K dated November 1, 1995 and amended on
November 17, 1995, Item 2 Acquisition or Disposition of Assets
(reporting the consummation of the sale of the Registrant's coal
mining subsidiaries, mining equipment manufacturing and
licensing subsidiary and citrus operations and the execution of
a letter agreement relating to the sale of the Registrant's gold
and industrial minerals operations to a private Canadian
business group). As amended, the Form 8-K contained the
following financial statements (including the notes thereto),
each of which is unaudited: (1) Pro Forma Condensed Consolidated
Balance Sheet as of September 30, 1995; (2) Pro Forma Condensed
Consolidated Statement of Operations for the Nine Months Ended
September 30, 1995; and (3) Pro Forma Condensed Consolidated
Statement of Operations for the Year Ended December 31, 1995.
Other than as set forth in paragraph (v) of this Item 6(b), no
financial statements were filed with any of the above-referenced
reports.
27
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
ADDINGTON RESOURCES, INC.
(Registrant)
Date: November 20, 1995 By: /s/ R. Douglas Striebel
----------------------- -----------------------------------
R. Douglas Striebel
Vice President, Chief
Financial Officer and
duly authorized officer
28
<PAGE>
ADDINGTON RESOURCES, INC.
1500 North Big Run Road
Ashland, Kentucky 41105
As of October 17, 1995
Mr. R. Douglas Striebel
2317 Abbeywood Road
Lexington, Kentucky 40515
Dear Doug:
This letter will confirm our understanding that your employment agreement,
dated May 31, 1988 (the "Initial Agreement"), as amended as of December 6, 1989
(the "Amendment" and, together with the Initial Agreement, the "Agreement") is
hereby further amended as set forth below:
1. Effective August 4, 1995, your annual salary is increased to $150,000
per year.
2. For calendar 1995 and subsequent years, you shall receive such bonus or
bonuses which the Board of Directors in its sole discretion may award for
services during such year. The foregoing shall be in lieu of the provisions of
paragraph 1 of the Amendment.
3. In lieu of the provisions of paragraph 6 of the Initial Agreement the
following provisions shall apply:
(i) other than during a "Potential Change of Control", if prior
to the consummation of a "Change of Control" your employment is terminated by
the Company without Cause or you quit for Good Reason, you shall be entitled to
receive all amounts of base salary payable to the date of termination plus an
amount equal to one year's base salary as in effect immediately prior to your
termination.
(ii) If (a) within 36 months following the occurrence of any
Change of Control or the execution of a definitive agreement by Addington
Resources, Inc. for a transaction which would result in a Change of Control, or
(b) during the period commencing on the date of a public announcement of a
proposal to effectuate a transaction that would result in a "Change of Control"
of the type specified in clauses (i), (iii) or (iv) of the definition thereof
and ending on the date that such proposal expires or is withdrawn (a "Potential
Change of Control"), either (i) the Company terminates your employment without
Cause or (ii) you terminate your employment with the Company for Good Reason
within twelve months of the occurrence of the event or circumstances
constituting Good Reason, you shall be entitled to receive all amounts of base
salary payable to the date of termination plus an amount equal to three times
the greater of (i)
<PAGE>
Mr. R. Douglas Striebel
As of October 17, 1995
Page 2
your annual salary in effect immediately prior to the Change of Control last
occurring, and (ii) your annual salary in effect immediately prior to the date
of termination. "Change of Control" means (i) the acquisition by any person or
"group" in a single transaction or series of related transactions of shares of
Common Stock or other voting securities representing 50% or more of the
outstanding voting power, entitled to vote generally in the election of
directors of the Company after giving effect to such transaction, (ii) during
any period of two consecutive years, individuals who at the beginning of such
period constitute a majority of the Board of Directors of the Company cease to
constitute a majority thereof unless the election, or the nomination for
election by the stockholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors at the
beginning of the period, (iii) the sale of all or substantially all of the
assets of the Company (other than to a wholly-owned subsidiary of the Company),
or (iv) the sale of a majority of the capital stock of Addington Environmental,
Inc. or substantially all of its assets. This paragraph 3 contemplates that
there may be multiple Changes of Control or Potential Changes of Control.
(iii) "Cause" shall mean (i) the commission of a felony or a crime
involving moral turpitude or the commission of any other act involving
dishonesty, disloyalty or fraud with respect to the Company, (ii) conduct
tending to bring the Company into substantial public disgrace or disrepute,
(iii) substantial and repeated failure to perform duties as reasonably directed
by the Board, (iv) gross negligence or willful misconduct with respect to the
Company or any of its subsidiaries or affiliates, or (v) any other material
breach of any agreement between you and the Company or its subsidiaries and
affiliates which is not cured within 15 days after written notice thereof to
you. In addition, prior to a "Change of Control" except during the pendency of a
"Potential Change of Control", Cause shall include failure to satisfactorily
perform duties and responsibilities as reasonably determined by the Board of
Directors. You shall not be deemed to have been terminated for Cause unless and
until there has been delivered to you a resolution of the Board of Directors,
adopted after you have had a reasonable opportunity to be heard, stating that in
the good faith opinion of the Board, you engaged in conduct constituting
"Cause", specifying the basis therefor in reasonable detail.
(iv) "Good Reason" means: assignment to you of any duties inconsistent
with those of a chief financial officer; reduction in base salary; or only after
a Change of Control has occurred or during the pendency of a Potential Change of
Control requiring you to be based anywhere other than a 50-mile radius of
Lexington, Kentucky, except for reasonable travel as required for Company
business.
<PAGE>
Mr. R. Douglas Striebel
As of October 17, 1995
Page 3
4. All of the terms and provisions of the Agreement shall continue in full
force and effect after the date hereof, except as modified herein.
If the foregoing correctly reflects our understanding as to the subject
matter hereof, please do indicate in the space indicated below, whereupon the
Employment Agreement shall be amended as set forth herein.
ADDINGTON RESOURCES, INC,
/S/
By: _______________________________
Chairman of the Board
/S/ R. Douglas Striebel
_________________________
R. Douglas Striebel
11-14-95
<PAGE>
AMENDMENT
TO
CREDIT AGREEMENT
This Amendment to Credit Agreement (herein called the "Amendment") is made
and entered into as of the 31st day of October, 1995 by and between Addwest
Minerals, Inc., a corporation organized under the laws of the State of Kentucky
("Borrower"), and N M Rothschild & Sons Limited, a company organized and
existing under the laws of England ("Lender").
RECITALS
A. Borrower and Lender entered into a Credit Agreement dated as of June 14,
1994, which was informally amended as provided in a letter agreement dated June
29, 1995 from Lender to Borrower (collectively referred to as the "Credit
Agreement").
B. Borrower and Lender desire hereby to provide for the further amendment
of the Credit Agreement as provided herein, and to ratify and confirm the Credit
Agreement as so amended.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined in this Amendment, all
capitalized terms used herein that are defined in the Credit Agreement shall
have the same meanings as those meanings assigned to such terms in the Credit
Agreement.
2. Amendments to Credit Agreement Provisions.
a. Section 1.1 of the Credit Agreement is hereby amended by deleting
the definitions of "Completion Guarantee," "Installment Payment Date," "Loan
Documents" and "Scheduled Maturity Date" and substituting the following in their
place and stead:
"Completion Guarantee" means the Guarantee of the Guarantor in the
form of Exhibit E hereto, as may be subsequently amended, modified or
ratified with the consent of the Guarantor and Lender.
"Installment Payment Date" means October 31, 1995.
"Loan Documents" means this Agreement, the Note, the Hedging
Agreement, the Requests for Loans, the Conversion/Interest Period
Notices, the Security Documents and each other Instrument executed by
Borrower and delivered to Lender in connection
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with this Agreement or any of the foregoing Instruments, and any
amendment, modification or ratification thereto or thereof, whether or
not specifically identified in this paragraph."
"Scheduled Maturity Date" means the earlier to occur of (i) December
29, 1995 or (ii) the date on which the capital stock of the Borrower
or substantially all of the Borrower's assets are sold to a third
party.
b. Section 1.1 is hereby further amended by deleting the definitions
"Completion," "Completion Date" and "Completion Test" therefrom.
c. Section 3.4 of the Credit Agreement is hereby amended by deleting
the paragraph in its entirety and substituting the following in its place and
stead:
3.4 Principal and Interest Payments Generally. Unless Lender shall
otherwise consent in its sole discretion, all principal and interest
payments of Gold Loans shall be made in Gold, and all principal and
interest payments of Dollar Loans shall be made in Dollars; provided,
however, that the Scheduled Principal Payment to be made by Borrower as of
October 31, 1995 shall be made as follows notwithstanding the fact that the
Loans are outstanding as Gold Loans:
(a) Borrower shall deliver to Lender at Mettalor, which is an
Acceptable Delivery Location, and otherwise in the manner provided in
Section 3.14, 2,289.529 ounces of Gold, having an agreed Dollar Value of
$879,179.14;
(b) The ounces of Gold delivered by Borrower to Lender pursuant
to clause (a) above shall be deducted from the outstanding Principal Amount
of the Gold Loans as a partial payment of the Scheduled Principal Payment
Due as of October 31, 1995;
(c) Borrower has heretofore requested Lender to close out all
existing hedging contracts established by Borrower pursuant to the Hedging
Agreement, except such hedging contracts maturing in November and December,
1995, resulting in a profit of $424,099.48, which amount shall be retained
by Lender as a partial payment of the Scheduled Principal Payment Due as of
October 31, 1995;
(d) Borrower shall remit to Lender the sum of $696,721.38 as
provided in Section 3.14 in payment
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of the balance of the Scheduled Principal Payment due as of October 31,
1995; and
(e) The cash amounts specified in clauses (c) and (d) above will
be valued as ounces of Gold by Lender by reference to the London Price for
Gold in effect on October [27], 1995, and the number of ounces of Gold so
calculated shall be deducted from the outstanding Principal Amount of the
Gold Loans.
d. Clauses (a) and (b) of Section 3.5 are hereby amended by deleting
such clauses in their entirety and substituting the following therefor:
3.5 Interest.
(a) General. Borrower shall pay interest on the outstanding
Principal Amount of the Loans calculated on a 360-day year basis, at the
Gold Loan Interest Rate if the Loans are Gold Loans or at the Dollar Loan
Interest Rate if the Loans are Dollar Loans, in either case subject to
Section 3.5(c) below. Interest payable shall be calculated daily. Interest
shall be payable on the last day of each Interest Period.
(b) Interest Periods. The Loans shall have interest periods (an
"Interest Period") of 30 days, or such other period as Lender shall
approve in its sole discretion, and all Loans shall have the same Interest
Period.
e. Section 3.6(b) of the Credit Agreement is hereby amended by
deleting the paragraph in its entirety and substituting the following in its
place and stead:
(b) Scheduled Principal Payments. Subject to the other terms
hereof pertaining to mandatory prepayments of the Loans, Borrower will make
payment in full of the unpaid Principal Amount of the Loans not later than
the Maturity Date. Prior thereto, Borrower shall make a mandatory partial
repayment of the Loans on October 31, 1995 as provided in Section 3.4
above.
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f. Schedule 3.6(b) to the Credit Agreement is hereby amended by
deleting the schedule in its entirety.
g. Section 3.6 of the Credit Agreement is hereby amended by inserting
a new subparagraph (c), which shall read as follows:
(c) Sale of the Project. Lender shall not be required to consent
to the sale of the Project unless Borrower makes payment in full of amounts
due to Lender pursuant to the Loan Documents, including but not limited to
the Principal Amount, accrued interest, The Commitment Fee, the Management
Fee, the reasonable fees and expenses of legal counsel and any independent
consultants to Lender, and all other out-of-pocket expenses.
h. Section 7.1(f) of the Credit Agreement is hereby amended by
deleting the paragraph in its entirety and substituting the following in its
place and stead:
(f) Financial Statements; No Material Adverse Change. The
consolidated balance sheet of Guarantor as of December 31, 1994, and the
related consolidated statements of income and retained earnings of
Guarantor for the period then ended, audited by Arthur Andersen, copies of
which have been furnished to Lender, fairly present the financial condition
of Guarantor as at such date and the results of the operations of Guarantor
for the period ended on such date, all in accordance with GAAP consistently
applied. Guarantor does not have on the date hereof any material Contingent
Liability or liability for taxes, long-term leases or unusual forward or
long-term commitments that are not reflected in such financial statements.
Since such date, except as previously disclosed in writing to Lender,
neither the business, operations or prospects of Guarantor, nor any of its
properties or assets, have been affected by any occurrence or development
(whether or not insured against) that would result, either in any case or
in the aggregate, in a Materially Adverse Effect on Guarantor.
i. Sections 7.1(g), 7.1(h), 7.1(i), 7.1(l), 7.1(o), 7.1(p), 7.1(q),
7.1(r) and 7.1(u) of the Credit Agreement are deleted therefrom in their
entirety.
j. Sections 8.2(a), 8.2(c), 8.2(f), 8.2(g), 8.2(h), 8.2(i), 8.2(j)
and 8.2(k) of the Credit Agreement are deleted therefrom in their entirety.
k. Section 11.1 of the Credit Agreement is deleted therefrom in its
entirety.
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3. Confirmation of Obligations Concerning Interest and Management Fee
Payments. For avoidance of doubt, and not in limitation of any other
obligations of Borrower under the Credit Agreement, Borrower and Lender agree
that the foregoing agreements concerning the Scheduled Principal Payment to be
made by Borrower on October 31, 1995 do not modify the obligations of Borrower
under the Credit Agreement to make the Interest payments due as of such date or
at any time thereafter, or modify the obligations of Borrower to make the
Management Fee payments due November 1, 1995 or at any time thereafter.
4. Certain Waivers and Agreements of Lender. Upon satisfaction of the
conditions precedent set forth in Section 6 below, (a) Lender will have waived
all Events of Default of Borrower under the Credit Agreement which are in
existence as of the date hereof, or which may arise between the date hereof and
the Maturity Date, under Sections 9.6, 9.7, 9.8 an9.9 of the Credit Agreement,
and (b) Lender will have agreed to the sale by Borrower of the assets comprising
the Project, notwithstanding the provisions of Section 9.12 of the Credit
Agreement.
5. Representations and Warranties. Borrower hereby represents and warrants
as follows:
a. all representations and warranties made by Borrower in the Credit
Agreement are true and correct as of the date hereof;
b. there does not exist a Default under the Credit Agreement, as
amended hereby;
c. the proceeds of all Advances as of the date hereof were used
exclusively in accordance with the Development Plan; and
d. Borrower has performed and complied with all other agreements and
conditions in the Credit Agreement and in this Amendment required to be
performed or complied with by Borrower on or prior to the date hereof.
6. Conditions Precedent. The effectiveness of Sections 2 and 4 hereof is
subject to the receipt by Lender of the following documents:
a. the Consent and Ratification of Guarantee in the form of Exhibit A
hereto, duly executed by Guarantor;
b. a certificate of Borrower in the form of Exhibit B hereto, duly
executed by Borrower; and
c. a certificate of Guarantor in the form of Exhibit C hereto, duly
executed by Guarantor.
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7. Miscellaneous.
a. This Amendment is an amendment to the Credit Agreement, and the
Credit Agreement as hereby amended, is ratified, approved and confirmed by
Borrower and Lender in each and every respect. All references to the Credit
Agreement in any other document, instrument, agreement or writing shall
hereafter be deemed to refer to the Credit Agreement as amended hereby.
b. In accordance with Section 11.6 of the Credit Agreement, Borrower
shall pay on demand all reasonable costs and expenses in connection with the
preparation, execution, delivery and administration of this Amendment and the
other documents to be delivered hereunder, including, without limitation, the
reasonable fees and expenses of legal counsel and any independent consultants to
Lender and all other out-of-pocket expenses of Lender, and all costs and
expenses, if any, in connection with the enforcement of this Amendment.
c. This Amendment shall be governed by, and construed in accordance
with, the laws of the State of Colorado, including the conflicts of law
provisions thereof.
d. No failure on the part of Lender to exercise, and no delay in
exercising, any rights hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right.
e. The Credit Agreement, as amended on June 29, 1995, the Loan
Documents and this Amendment constitute the entire agreement between the parties
and such agreements supersede all prior and contemporaneous agreements,
representations, warranties and understandings between the parties. No further
supplement, modification or amendment of the Credit Agreement or any Loan
Document shall be binding unless executed in writing by all parties affected
thereby.
f. Borrower hereby waives any and all defenses Borrower may have
through the date hereof to Lender's enforcement of Borrower's obligations under
the Credit Agreement, the Note, the Hedging Agreement, and the Security
Documents.
g. Captions used in this Amendment are for the convenience of
reference only and shall not affect the construction of this Agreement.
h. This Amendment shall be binding upon Borrower and Lander, and their
respective successors and assigns, and shall inure the benefit of Borrower and
its successors and assigns.
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i. This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
Balance of page intentionally left blank.
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written, to be effective as of such date.
ATTEST: ADDWEST MINERALS, INC.
- ------------------------------ By /s/ R. Douglas Striebel
Secretary ---------------------------------
Name:
------------------------------
Title:
------------------------------
PER PRO
N M ROTHSCHILD & SONS LIMITED
------------------------------------
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<PAGE>
EXHIBIT A
---------
CONSENT AND RATIFICATION OF GUARANTY
TO: N M ROTHSCHILD & SONS LIMITED
Addington Resources, Inc. ("Addington"), as guarantor under that certain
Guaranty and Agreement dated April 20, 1994 (the "Guaranty") from Addington to
N M Rothschild & Sons Limited ("NMR"), of all the obligations of Addwest
Minerals, Inc. ("Borrower") to NMR under the Credit Agreement dated as of June
14, 1994, as informally amended June 25, 1995 pursuant to a letter from NMR to
Borrower of such date (together the "Credit Agreement"), and under all documents
and instruments executed and delivered in connection therewith, in order to
induce NMR to enter into the Amendment, hereby
(a) consents to the execution by Borrower of the Amendment to Credit
Agreement dated as of October 31, 1993 (the "Amendment") and other
instruments in connection therewith,
(b) confirms and agrees that the Guaranty is, and shall continue to
be, in full force and effect, enforceable in accordance with its terms, and
that it extends to all obligations of Borrower under the Credit Agreement,
as amended by the Amendment, and
(c) ratifies and confirms the Guaranty in all respects.
All defined terms used in this Consent and Ratification of Guaranty that
are not defined herein shall have the meanings set forth in the Credit
Agreement.
Addington hereby acknowledges receipt of a copy of the Amendment.
IN WITNESS WHEREOF, Addington has caused this instrument to be executed
this ______ day of October, 1995.
ADDINGTON RESOURCES, INC.
By: /s/ R. Douglas Striebel
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
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