SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K
[MARK ONE]
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________.
Commission File No. 1-10489
---------------------
KIMMINS CORP.
(Exact name of registrant as specified in its charter)
Florida 59-3598343
(State of Incorporation) (I.R.S. Employer Identification No.)
1501 Second Avenue, East, Tampa, Florida 33605
(Address of registrant's principal executive offices,
including zip code)
(Registrant's telephone number, including area code): (813) 248-3878
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange
Title of Each Class on Which Registered
Common Stock, $.001 par value None
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by a 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 a check mark if disclosure of delinquent filers pursuant to
Item 405 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. [ ]
As of March 15, 2000 there were outstanding 4,872,135 shares of Common
Stock and 1,666,569 shares of Class B common stock. The aggregate market value
of the voting stock held by non-affiliates of the registrant as of April 6,
2000, was $2,436,068.
------------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
<PAGE>
KIMMINS CORP.
Form 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
No.
PART I
Item 1 Business........................................................................................3
Item 2 Properties......................................................................................8
Item 3 Legal Proceedings...............................................................................8
Item 4 Submission of Matters to a vote of Security Holders.............................................8
PART II
Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters.......................9
Item 6 Selected Financial Data........................................................................10
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................................11
Item 7A Quantitative and Qualitative Disclosures about Market Risk.....................................19
Item 8 Financial Statements and Supplementary Data....................................................20
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.......................................................................51
PART III
Item 10 Directors and Executive Officers of the Registrant.............................................52
Item 11 Executive Compensation.........................................................................54
Item 12 Security Ownership of Certain Beneficial Owners and Management.................................56
Item 13 Certain Relationships and Related Transactions.................................................57
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K................................59
</TABLE>
2
<PAGE>
Note: The discussions in this Form 10-K contain forward-looking statements
that involve risks and uncertainties. Statements contained in this Form 10-K
that are not historical facts are forward looking statements that are subject to
the safe harbor created by the Private Securities Litigation Reform Act of 1995.
A number of important factors could cause future results of Kimmins Corp. and
its subsidiaries to differ materially and significantly from those expressed or
implied in past results and in any forward looking statements made by, or on
behalf of, the Company. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as those discussed elsewhere in this Form 10-K. These
factors include, without limitation, those listed in "Risk Factors" in the
Company's Registration Statement on Form S-1 (File No. 33-12677).
PART I
Item 1. Business
THE COMPANY
Kimmins Corp. and its subsidiaries (collectively, the "Company") provide
specialty-contracting services in the south, mainly in Florida, including
earthwork; infrastructure development; underground construction; roadwork; site
remediation services such as excavation, removal and disposal of contaminated
soil; facilities demolition and dismantling; and asbestos abatement. The Company
has historically operated two business segments: solid waste management services
and specialty contracting services. The Company previously provided solid waste
management services through its TransCor Waste Services, Inc., ("TransCor")
subsidiary to commercial, industrial, residential, and municipal customers in
the state of Florida. As a result of TransCor's sale of its wholly owned
subsidiary Kimmins Recycling Corp. ("KRC") in August 1998, the Company no longer
provides solid waste management services.
The Company's specialty contracting services are as follows:
* Earthwork and utility contracting - Earthwork activities including
commercial and residential site work and earthwork activities for the
phosphate mining industry. Utility contracting, including
infrastructure services such as sewer lines, water lines, and roads.
* Industrial demolition, dismantling, and abatement - Dismantling of
facilities or structures including draining liquid wastes from pipes
and tanks; asbestos removal, cleanup, disposal, and reinsulation;
removal of above- and below-ground tanks; removal and disposal or sale
of other equipment; and sale of scrap materials.
* Hazardous waste services - Containment, excavation and removal.
The Company's services may be used individually or in combination as
required to meet the specific needs of customers. The Company's business
strategy is to draw upon its contracting experience to perform complex projects
requiring a broad range of services. Although each of the Company's business
lines can operate independently from the other related services, the Company
believes that integration of these services gives it a competitive advantage by
relieving the customer of the burden of coordinating activities of multiple
contractors.
During its initial years of operation, the Company emphasized, among other
services offered, a broad range of contracting services. As the need for
waste-related and specialty contracting services has grown in response to
heightened public concern and government regulation, the Company has used its
capabilities in facilities demolition and dismantling and in the management of
complex construction projects to become increasingly involved in
project-oriented activities.
The Company's strategy is to continue to focus on specialty contracting
projects for private and governmental customers. The Company does not consider
its business to be highly seasonable.
3
<PAGE>
SERVICES
Specialty Contracting:
Earthwork and Utility Contracting Services
Since 1988, the Company has directed its focus toward environmental and
utility contracting, including infrastructure and reconstructive service work.
The Company, through its subsidiary, Kimmins Contracting Corp., continues to
provide comprehensive non-hazardous contracting services, including
infrastructure services such as water and sewer line installation, replacement
and repair to private and governmental customers primarily in the state of
Florida. Related infrastructure development includes road installation, repair
and widening, and installation, repair and enhancement of drainage and
wastewater services.
Kimmins Contracting Corp. has broadened its array of services by adding
earthwork operations. These operations are mainly directed toward the private
sector in the state of Florida and include land reclamation, dam construction
and other earthwork operations for the phosphate mining industry, and
residential and commercial site work services.
Industrial Demolition, Dismantling, and Abatement Services
The Company offers demolition and dismantling of facilities or structures;
asbestos removal; cleanup, disposal, and reinsulation; removal of above and
below ground storage tanks; removal and disposal or sale of industrial
equipment; and the sale of equipment and scrap materials.
Demolition and dismantling projects result from the closing or retooling of
facilities due to such factors as technological obsolescence of facilities,
corporate mergers and consolidations of operations, and the relocation of
manufacturing operations to low-cost labor areas or areas subject to less
stringent regulation, primarily in foreign countries. In addition, site
remediation, particularly in the case of environmental contamination of a site,
frequently requires the demolition or dismantling of a contaminated facility.
Dismantling is the precise disassembly of a manufacturing or production
facility on a piece-by-piece basis to recover equipment as complete operating
units that can be reinstalled at another location. Dismantling enhances the
value of the facility above scrap market values. The Company is paid a fee for
dismantling services and, usually, a commission on the sale of non-relocated
equipment.
Demolition usually requires wrecking services for which the Company is paid
a fee by the customer. In certain projects, the Company may also receive
additional revenue from selling the scrap material. The Company's services in
these areas include dismantling large structures (including refineries, and
utility plants); draining liquid wastes from pipes and tanks; removing above and
below-ground tanks; cleaning and disposing of contaminated equipment; and
controlled demolition.
Certain demolition projects also involve asbestos removal, cleanup and
disposal. The Company is continuing to de-emphasize its asbestos abatement
services and generally will only perform these services in conjunction with
other environmental demolition activities.
Hazardous Waste Services
The Company offers a range of services for the removal and disposal of
hazardous materials. The services offered include construction of containment
systems and the excavation and removal of contaminated material. The Company has
de-emphasized its hazardous waste services and will only perform these services
in conjunction with other environmental demolition activities.
4
<PAGE>
Containment. Containment systems are constructed to prevent the migration
of hazardous materials from a site to the surrounding groundwater, surface
water, soil or air. While containment can be a permanent remedial solution, it
is also used as an interim step followed by excavation and removal or on-site
treatment. The Company installs containment systems that include containment
cells, surface caps, and slurry walls.
Excavation and removal. Excavation and removal involve the excavation of
contaminated materials for containment or off-site disposal. When off-site
disposal is required, the Company subcontracts with licensed third parties for
the transportation of the material for off-site disposal. As part of its quality
control program, the Company regularly samples and analyzes excavated materials
to verify that the contaminants are consistent with those identified in the
remediation plan.
DISCONTINUED OPERATIONS
Solid Waste Management Services:
TransCor adopted a formal plan to dispose of its solid waste management
services operations on July 17, 1998 by selling its wholly owned subsidiary KRC
to Eastern Environmental Services, Inc. (EESI). On August 31, 1998 the Company
completed the sale of the solid waste management services (SWMS) operations. The
assets sold consisted primarily of accounts receivables, contracts, property and
equipment and goodwill. The selling price was approximately $57,800,000 in the
form of cash and EESI common stock. On December 31, 1998, EESI was acquired by
Waste Management, Inc. and the Company received stock of Waste Management, Inc.
in exchange for its EESI stock.
The Company, through its majority-owned subsidiary, TransCor, formerly
provided solid waste management services to commercial, industrial, residential,
and municipal customers. In connection with such services, the Company owned and
operated fully permitted construction and demolition ("C&D") transfer and
recycling ("T&R") facilities in four of the largest metropolitan regions in the
state of Florida; Jacksonville, Clearwater, Tampa and Miami. In addition to its
T&R operations, the Company collected and disposed of all types of non-hazardous
solid waste for industrial and commercial customers in its T&R regions. The
Company also provided residential garbage collection services for several
municipalities located in Lee County and Hillsborough County, Florida. The
Company also engaged, pursuant to several municipal contracts, in the
residential curbside collection of a variety of already segregated recyclable
forms of solid waste, including such materials as newspapers, cardboard,
plastic, metals, and glass.
PERFORMANCE BONDS
The Company is required to post performance bonds in connection with
certain asbestos abatement, waste remediation, demolition, and construction
contracts. For the years ended December 31, 1998 and 1999 most of the Company's
revenue was derived from contracts or projects that required the Company to post
performance bonds. The Company's current bonding capacity for qualification
purposes is $60,000,000 for individual projects and $120,000,000 in the
aggregate. This capacity is not intended to be either a limitation or a
commitment as to the Company's bond capacity, but rather guidelines for
qualification purposes. It is customary for surety bond companies to underwrite
each surety obligation individually; therefore, the potential for more or less
capacity exists based on the merits of the obligation. Historically, the Company
has obtained surety bond support for individual projects in the $53,000,000
range while the aggregate approached $100 million. The Company has obtained
bonding coverage in amounts up to $8,500,000 for environmental projects.
However, some environmental projects either do not require a bond or
require a bond for less than the complete contract price of the project value.
The Company has obtained bonding coverage for environmental projects for more
than $8,500,000 as a result of personal surety bonds or collateral furnished by
Mr. Francis M. Williams, President of the Company. Mr. Williams has no
obligation to provide surety bonds, collateral or otherwise to assist the
Company in connection with bonding coverage. Management believes that bonding
coverages are adequate for the size and scope of projects being performed.
5
<PAGE>
MARKETING
The Company's specialty contracting business results primarily from
customers for whom the Company has previously provided services, prior
customer's references, and from direct marketing efforts. In particular, the
Company believes its national reputation as a leading demolition and dismantling
contractor has contributed significantly to its ability to attract specialty
service business.
The Company's specialty contracting subsidiaries direct their marketing
activities through the home office in Tampa, Florida. This office is located in
an area with a high concentration of industrial facilities. The Company believes
that accurate bidding is crucial in securing new contracting projects and
completing them profitably. The Company uses computerized bidding systems in
conjunction with site visits to develop bids for contracting projects. While bid
price is an important factor in obtaining contracts, potential clients also
consider the reputation, experience, safety record and financial strength of the
bidders in awarding contracts.
The Company also obtains contracts for its services through the process of
competitive bidding, purchase orders, or negotiations. The Company's marketing
efforts include door-to-door sales, monitoring trade journals and other industry
sources for bid solicitations by various entities, including government
authorities and related instrumentalities, and responding to such bid
solicitations, which may include requests for proposals ("RFPs") and requests
for qualifications ("RFQs"). The Company also attempts to be included on lists
of qualified bidders frequently contained in RFPs and RFQs. In response to an
RFP or RFQ, the soliciting entity requires a written response within a specified
period. Generally, in the case of an RFP, a bidder submits a proposal detailing
its qualifications, the services to be provided, and the cost of the services to
the soliciting entity; then, such entity, based on its evaluation of the
proposals submitted, awards the contract to the successful bidder. In the case
of an RFQ, a bidder submits a response describing its experience and
qualifications, the soliciting entity then selects the bidder believed to be the
most qualified, and then negotiates all of the terms of the contract, including
the cost of the services.
CUSTOMERS
The primary private customers for the Company's specialty contracting
services are Fortune 500 corporations engaged in heavy manufacturing, such as
chemical mining, petroleum, petrochemical, paper, and steel companies as well as
public utilities and federal, state and local government agencies. For the years
ended December 31, 1997, 1998 and 1999, the following table summarizes the
revenue earned on contracts with significant customers that aggregated more than
10 percent of the continuing operations revenues:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(In thousands)
1997 1998 1999
---- ---- ----
Governmental infrastructure $ 10,648 $ 6,950 $ -0-
Phosphate mining 25,061 17,594 14,372
Commercial real estate developer 12,070 10,039 -0-
------------ -------------- -------------
Total from above customers $ 47,779 $ 34,583 $ 14,372
============ ============== =============
Percentage of total revenue 46.5% 46.7% 22.6%
============ ============== =============
</TABLE>
For the year ended December 31, 1999, 69 percent and 31 percent,
respectively, of the Company's gross revenue were derived from private and
governmental customers, respectively. This represents a 1% increase in the
amount of private sector revenue as compared to total revenue for the year ended
December 31, 1999. Government contracts, which represent a significant portion
of the Company's gross revenue, are subject to legislation mandating a balanced
budget; delays in funding; lengthy review processes for awarding contracts;
delay or termination of contracts at the convenience of the government; and
termination, reduction or modification of contracts in the event of changes in
the government's policies or because of budgetary constraints. Furthermore,
increased or unexpected costs could result in losses or reduced profits under
fixed-price government as well as commercial contracts. The Company continues to
focus efforts on securing more private customers.
6
<PAGE>
BACKLOG
As of December 31, 1999, the Company had a backlog of uncompleted projects
under contract aggregating approximately $20,250,000 (compared to approximately
$33,237,000 as of December 31, 1998), of which approximately $10,009,000 is
attributable to earthwork and utility contracting services, approximately
$9,768,000 is attributable to demolition and dismantling services, approximately
$1,000 is attributable to asbestos abatement and other services. The Company
anticipates that it will recognize approximately 99% of the revenues from these
projects by the end of 2000.
COMPETITION
The Company believes that its ability to offer a broad range of specialty
contracting services provides it with significant competitive advantage.
Nevertheless, the Company faces substantial competition from national, regional
and local competitors, many of which are well established and have much greater
marketing, financial, technological and other resources than the Company.
The Company believes the principal competitive factors in the specialty
contracting services industry are safety, reputation, technical proficiency,
surety bonding capability, managerial experience, price, and breadth of services
offered.
INSURANCE COVERAGE
The Company currently maintains comprehensive general liability insurance,
with total coverage of $11,000,000 for any single occurrence and $13,000,000 for
aggregate claims relating to damage to persons or property. These policies cover
all activities of the Company and its subsidiaries except for its
asbestos-related activities and certain non-asbestos related liabilities such as
pollution liability damage (sudden or gradual) caused by the discharge or
release of any irritant or contaminant. In addition, the Company has
comprehensive general liability coverage that covers, among other things,
specific asbestos-related risks up to $1,000,000.
GOVERNMENT REGULATION
The Company is subject to an extensive and frequently changing statutory
and regulatory framework of federal, state, and local environmental, health,
safety, and transportation authorities, which framework imposes significant
compliance burdens and risks upon the Company. The Company believes it is in
substantial compliance with all material federal, state, and local laws
governing its material business operations. Nevertheless, amendments to existing
statutes and regulations, adoption of new statutes and regulations and the
Company's expansion into other jurisdictions and types of operations could
result not only in the additional risk of noncompliance, but also in the
increase in regulatory burden that could cause related increases in costs and
expenses.
The federal regulations is of most importance to the Company are governed
by the Occupational Safety and Health Administration ("OSHA"), the Mine Safety
and Health Administration ("MSHA"), and the Department of Transportation
("DOT"). We are substantially in compliance with all regulations. The Company
conducts regular training programs and inspections on a regular basis. In
addition, our brokers and insurance carriers also conduct inspections.
PERMITS AND LICENSES
Many states license such areas of the Company's operations as asbestos
abatement and general contracting. Licensing requires that workers and
supervisors receive training from EPA approved and state certified organizations
and pass required tests. The Company is currently licensed to perform its
services in approximately a dozen states. The Company also operates in certain
states that do not have a special asbestos abatement or general contracting
license requirement; however, these states have adopted regulations regarding
worker safety with which the Company must comply.
7
<PAGE>
The Company may need additional licenses to expand its operations. Although
there can be no assurance, based upon the level of training of its employees and
its experience, the Company currently believes that it can obtain all such
required licenses.
EMPLOYEES
The Company has approximately 384 employees, of which 4 are employed in
executive capacities, 30 in professional capacities, 10 in administrative
capacities, 75 as field supervisors and 265 in field operations. None of the
Company's employees are union members or covered by collective bargaining
agreements. The Company has not experienced any strikes or work stoppages and
considers its relationship with its employees to be satisfactory.
The Company, through its subsidiaries, has implemented employee safety
programs that require each employee to complete a general training and safety
program. Training topics include approved work procedures and instruction on
personal safety and the use of protective equipment. In addition, all employees
engaged in asbestos abatement activities are required to attend a minimum
three-day to four-day course approved by the EPA and Occupational Safety and
Health Administration, and all supervisors of abatement projects are required to
attend a 40-hour safety course annually. Moreover, employees are issued detailed
training materials and are required to attend ongoing safety seminars.
The Company's subsidiaries also conduct job safety analysis in the job
bidding stage. Besides the precautions taken with respect to projects, the
Company takes additional measures to protect its asbestos and site remediation
workers, including providing them with additional protective equipment and
sponsoring periodic medical examinations.
Item 2. Properties
The Company owns its principal executive offices that are located in
approximately 20,600 square feet of office space at 1501 and 1502 Second Avenue,
East, Tampa, Florida 33605. The offices are subject to a mortgage, securing
indebtedness evidenced by a promissory note with an outstanding principal amount
at December 31, 1999, of approximately $1,765,000. This variable rate note
matures on October 1, 2004 and currently bears interest at the base rate plus
1/2%.
The Company will place its new shop in service during the first quarter of
2000. The shop is approximately 9,000 square feet and is located at 1617 Second
Avenue East, which is adjacent to the Company's principal executive offices. The
new shop has been under construction for the past two years at a cost of
approximately $610,000 which is included in construction in progress. The total
capitalized cost will be transferred to buildings when placed into service
during the first quarter of 2000.
The Company's subsidiary, TransCor, owns vacant property outside of
Nashville, Tennessee. The land is undeveloped and listed for sale.
In August 1998, the Company sold its solid waste management subsidiary,
Kimmins Recycling Corp. and as part of the sale, the following properties were
transferred to EESI: land and buildings in Clearwater (Pinellas County), Fort
Myers (Lee County), Fort Pierce (St. Lucie County), Miami (Dade County) and
Tampa (Hillsborough County).
Item 3. Legal Proceedings
The Company is involved in various legal actions and claims arising in the
ordinary course of its business, none of which is expected to have a material
adverse effect on the Company's financial position or results of operations.
8
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Item 4. Submission of Matters to a Vote of Security Holders
None.
9
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is currently traded on the National Association
of Securities Dealers, Inc., (NASD) Over-the-Counter (OTC) Bulletin Board. The
Company's common stock was traded on the New York Stock Exchange (NYSE) under
the symbol "KVN" prior to March 1999.
As a result of the Company no longer meeting the continued listing criteria
of the New York Stock Exchange ("NYSE"), the Company was delisted from the NYSE
after the close of business on March 1, 1999. On March 10, 1999, the Company's
application for registration on the National Association of Securities Dealers
(NASD) Over the Counter Bulletin Board (OTCBB) was cleared. On March 11, 1999
the Company began trading on the OTCBB under the symbol "KVNM". The OTCBB is a
regulated quotation service that displays real-time quotes, last-sale prices,
and volume information in over-the-counter (OTC) equity securities. An OTC
equity security generally is any equity that is not listed or traded on Nasdaq
or a national securities exchange. OTCBB securities include national, regional,
and foreign equity issues, warrants, units, American Depository Receipts (ADRs)
and Direct Participation Programs (DPPs). The OTCBB is a quotation medium for
subscribing members, not an issuer listing service, and should not be confused
with the Nasdaq Stock Market. OTCBB securities are traded by a community of
Market Makers that enter quotes and trade reports through a highly sophisticated
closed computer network, which is accessed through Nasdaq Workstation II. The
OTCBB is unlike the NYSE in that it:
* does not impose listing standards;
* does not provide automated trade executions
* does not maintain relationships with quoted issuers; and
* does not have the same obligations for Market Makers.
The following table sets forth for the periods indicated high and low sales
prices of the Company's common stock as reported by the NYSE or the NASD OTCBB:
1998 High Low
---- ---- ---
First Quarter $ 5.3750 $ 4.1875
Second Quarter $ 4.3750 $ 3.0000
Third Quarter $ 5.3125 $ 3.0000
Fourth Quarter $ 3.5000 $ 2.0000
1999 High Low
---- ---- ---
First Quarter $ 2.5625 $ 0.3750
Second Quarter $ 1.5000 $ 0.3750
Third Quarter $ 1.2188 $ 0.4375
Fourth Quarter $ 0.7188 $ 0.2800
The closing stock price for the Company's stock on March 31, 2000, was
$0.45. On March 31, 2000 there were approximately 747 holders of record of the
common stock. Certain record holders are brokers and other institutions holding
shares in "street name" for more than one beneficial owner.
Dividends
The payment by the Company of dividends, if any, in the future is within
the discretion of its Board of Directors and will depend upon the Company's
earnings, capital requirements (including working capital needs), and financial
condition, as well as other relevant factors. Certain agreements between the
Company and its lending institutions prohibit the Company from paying cash
dividends without the lenders' consent. Other than a three and one-third cent
per share of a common stock cash dividend paid in July 1989, the Company has not
paid any cash dividends since its inception, and the Board of Directors does not
plan to declare or pay any cash dividends in the future.
10
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Recent Sales of Unregistered Securities
The following information relates to equity securities of the Company
issued or sold during the year ended December 31, 1999, that were not registered
under the Securities Act in 1993, as amended (the "Securities Act").
The Company issued no securities during 1999 that were exempt from
registration under the Securities Act by virtue of Section 4(2) as a transaction
not involving a public offering.
Item 6. Selected Financial Data
The following selected financial data are derived from the consolidated
financial statements of Kimmins Corp. The data should be read in conjunction
with the consolidated financial statements, related notes, and other financial
information included herein.
<TABLE>
<CAPTION>
HISTORICAL OPERATING STATEMENT DATA:
Years ended December 31,
(In thousands, except per share data)
-------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999
----------- ----------- ------------ ------------ ------------
Gross revenue $ 78,978 $ 78,552 $ 102,717 $ 74,051 $ 63,450
Net revenue 63,058 63,288 80,932 59,302 56,241
Operating income (loss) 3,201 (6,930) (2,524) (14,850) (2,112)
Income (loss) from continuing operations 879 (7,231) (5,611) (15,088) (3,340)
Income (loss)from discontinued operations 464 (1,452) (2,907) 19,431 -0-
Net income (loss) 1,343 (8,683) (8,518) 4,343 (3,340)
PER SHARE DATA :
Income (loss) from continuing operations
per share:
Basic $ .20 $ (1.63) $ (1.30) $ (3.51) $ (0.73)
Diluted $ .19 $ (1.63) $ (1.30) $ (3.51) $ (0.73)
Income (loss) from
discontinued operations
per share:
Basic $ .10 $ (.33) $ (.67) $ 4.52 $ -0-
Diluted $ .10 $ (.33) $ (.67) $ 4.52 $ -0-
Net income (loss) per share:
Basic $ .30 $ (1.96) $ (1.97) $ 1.01 $ (0.73)
Diluted $ .29 $ (1.96) $ (1.97) $ 1.01 $ (0.73)
Weighted average
number of shares of
common stock used
in the calculation:
Basic 4,445 4,420 4,318 4,297 4,576
Diluted 4,578 4,420 4,318 4,297 4,576
Dividends per share None None None None None
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL BALANCE SHEET DATA:
As of December 31,
------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1999
----------- ----------- ------------ ------------ ------------
Current assets $ 44,202 $ 41,381 $ 38,322 $ 47,205 $ 27,655
Working capital (deficiency) 22,477 16,898 (633) 6,053 (5,574)
Net assets of discontinued operations 6,691 6,073 7,091 -0- -0-
Total assets 66,816 66,493 110,330 114,300 88,614
Long term debt 10,571 16,556 54,595 50,769 43,767
Stockholder's equity 26,381 17,853 9,393 14,671 7,692
</TABLE>
11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The Company conducts its business in one segment: specialty-contracting
services. This segment provides comprehensive services including earth moving,
land reclamation and site preparation, facilities demolition and dismantling;
installation of sewer lines, water lines and roads; excavation, removal and
disposal of contaminated soil, groundwater treatment and asbestos abatement.
Results of Operations
The following table sets forth for the periods indicated (i) the percentage
of net revenue represented by certain items in the financial statements of the
Company, and (ii) the percentage change in the dollar amount of such items from
period to period.
<TABLE>
<CAPTION>
Percentage of Net Revenue Percentage Increase (Decrease)
Year Ended December 31, Year ended December 31,
------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
1997 1998 1999 1998 vs. 1997 1999 vs. 1998
---------- ---------- ------------- -------------- --------------
Gross revenues 126.9% 124.9% 112.8% (27.9%) (14.3%)
Outside services 26.9% 24.9% 12.8% (32.3%) (51.1%)
---------- ---------- ------------- -------------- --------------
Net revenue 100.0% 100.0% 100.0% (26.7%) (5.2%)
Cost of revenue earned 93.7% 113.1% 90.9% (11.6%) (23.8%)
---------- ---------- ------------- -------------- --------------
Gross profit 6.3% (13.1%) 9.1% (253.5%) 165.7%
Selling, general and
administrative expense 9.4% 11.9% 12.8 (6.8%) 2.1%
---------- ---------- ------------- -------------- --------------
Operating income (loss) (3.1%) (25.0%) (3.7%) 488.4% 85.8%
Income from marketable
securities 4.4%
Minority interest in net
(income) loss of subsidiary (0.6%) 6.1% 0.2%
Interest expense, net 3.7% 10.9% 8.9% 114.4% (22.9%)
---------- ---------- ------------- -------------- --------------
Income (loss) before
provision for income taxes
(benefit) (6.2%) (42.1%) (8.4%) 398.2% 80.9%
Provision for income taxes
(benefit) 0.7% (16.6%) (2.5%) (1,738.9%) 85.7%
---------- ---------- ------------- -------------- --------------
Net income (loss) from
continued operations (6.9%) (25.5%) (5.9%) 168.9% 77.9%
Net income (loss) from
discontinued operations (3.6%) 32.8% 0.0% (768.4%) (100.0%)
---------- ---------- ------------- -------------- --------------
Net income (loss) (10.5%) 7.3% (5.9%) (151.0%) (176.9%)
========== ========== ============= ============== ==============
</TABLE>
Year Ended December 31, 1999, Compared to Year Ended December 31, 1998
CONTINUING OPERATIONS
Net revenue for the year ended December 31, 1999, decreased by
approximately $3,061,000 or 5 percent to $56,241,000 from $59,302,000 for the
same period in 1998. The decrease is due primarily to decreases in the Company's
mining services ($3,697,000 decrease in net revenue), demolition services
($334,000 decrease in net revenue) and to decreases in other services ($185,000
decrease in net revenue). These decreases were somewhat offset by increases in
the Company's utility contracting services ($1,155,000 increase in net revenue).
12
<PAGE>
The Company continues to focus on securing more private customers. During
the year ended December 31, 1999, the Company's percentage of gross revenues
from private customers increased from 68 percent to 69 percent. The increase in
private work is mainly attributable to earthwork projects including land
reclamation and site preparation. The decrease in the percentage of government
work from 32% to 31% for the year ended December 31, 1999 is mainly attributable
to fewer road construction projects with the Florida Department of
Transportation and local municipalities.
Outside services, which largely represent subcontractor costs, decreased,
as a percentage of net revenue to approximately 13 percent for the year ended
December 31, 1999 from approximately 25 percent for the same period in 1998. The
Company will use the services of a subcontractor when it determines that it is
more economical to do so than internally providing the services. The Company
utilized the services of subcontractors to a lesser extent during 1999 than 1998
due to the specific contracts in progress and the associated work requirements,
especially due to the increase in land reclamation work where little or no
subcontracting is utilized and the decrease in road construction work which
requires significant use of subcontractors.
Cost of revenue earned as a percentage of net revenue for the year ended
December 31, 1999 decreased to 91 percent from 113 percent for the same period
in 1998. As a result, the gross profit for the year ended December 31, 1999 was
approximately $5,110,000 (9 percent of net revenue) compared to ($7,777,000)
(negative 13 percent of net revenue) gross loss for the same period in 1998. The
increase in the dollar amount $12,887,000 and percentage of gross margin (22
percent) is primarily associated with the Company's utility contracting services
($7,038,000 increase in gross profit), and mining services ($2,458,000 increase
in gross profit), demolition services ($1,224,000 increase in gross profit) and
other services ($2,167,000 increase in gross profit).
Depreciation and amortization decreased to approximately $9,197,000 in 1999
from approximately $9,871,000 in 1998. The decrease relates primarily to the
sale of some underutilized heavy construction equipment which was sold in late
1998 and 1999.
Included in the Company's operating results for the years ended December
31, 1998 and 1999 is the activity related to the settlement and/or resolution of
contract claims and unapproved change orders. This activity can be summarized as
follows:
Years ended December 31,
-------------------------------
1998 1999
-------------- --------------
Claim recoveries $ 1,058,000 $ 1,400,000
Cost of recoveries 2,311,000 1,013,000
-------------- --------------
Excess of recovery over cost $ (1,253,000) $ 387,000
============== ==============
In addition, the Company incurred costs associated with unresolved claims
of approximately $500,000 and $763,000 during 1998 and 1999 respectively. The
Company also recorded a reserve of approximately $387,000 during 1999.
13
<PAGE>
The Company had the following balances recorded relating to contract claims
and unsigned change orders at December 31, 1998 and 1999.
Years ended December 31,
-------------------------------
1998 1999
-------------- --------------
Claims $ 9,678,000 $ 9,337,000
Unapproved change orders -0- -0-
-------------- --------------
$ 9,678,000 $ 9,337,000
============== ==============
Cumulative external claim
Preparation costs included $ -0- $ -0-
above
============== ==============
During the year ended December 31, 1999, selling, general and
administrative expenses increased to approximately $7,221,000 (13 percent of net
revenue) from $7,072,000 (12 percent of net revenue) for the same period in
1998. The dollar decrease and percentage increase is attributable to reduced
revenues.
Interest expense, net of interest income for the year ended December 31,
1999 was approximately $5,000,000 as compared to approximately $6,489,000 for
the year ended December 31, 1998. The average amount of debt decreased between
periods, since debt payments during the year exceeded borrowings by $8,679,000.
The Company's income tax benefit for continuing operations was calculated
using a rate of approximately 30 percent for the year ended December 31, 1999.
The Company's income tax provision for continuing operations was calculated
using a rate of approximately 40 percent for the year ended December 31, 1998.
As a result of the foregoing, the Company recorded a loss from continuing
operations of approximately $2,993,000 and $15,088,000 for the years ended
December 31, 1999 and 1998 respectively.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
CONTINUING OPERATIONS
Net revenue for the year ended December 31, 1998, decreased by $21,630,000
or 27 percent to $59,302,000 from $80,932,000 for the same period in 1997. The
decrease is due primarily to decreases in the Company's utility contracting
services ($11,217,000 decrease in net revenue, caused by weather related
delays), demolition services ($3,455,000 decrease in net revenue) and to
decreases in remediation services ($6,092,000 decrease in net revenue, caused by
the closing of its New York Operations). In addition, abatement and other
services decreased net revenues by $866,000.
The Company continues to focus on securing more private customers. During
the year ended December 31, 1998, the Company's percentage of gross revenues
from private customers increased from 56 percent to 68 percent. The increase in
private work is mainly attributable to earthwork projects including land
reclamation and site preparation. The decrease in the percentage of government
work from 44% to 31% for the year ended December 31, 1998 is mainly attributable
to fewer road construction projects with the Florida Department of
Transportation and local municipalities.
Outside services, which largely represent subcontractor costs, decreased,
as a percentage of net revenue to 25 percent for the year ended December 31,
1998 from 27 percent for the same period in 1997. The Company will use the
services of a subcontractor when it determines that it is more economical to do
so than internally providing the services. The Company utilized the services of
subcontractors to a lesser extent during 1998 than 1997 due to the specific
contracts in progress and the associated work requirements, especially due to
the increase in land reclamation work where little or no subcontracting is
utilized and the decrease in road construction work which requires significant
use of subcontractors.
Cost of revenue earned as a percentage of net revenue for the year ended
December 31, 1998 increased to 113 percent from 94 percent for the same period
in 1997. As a result, the gross loss for the year ended December 31, 1998 was
$7,777,000 (negative 13 percent of net revenue) compared to $5,067,000 (6
percent of net revenue) gross profit for the same period in 1997. The decrease
in the dollar amount ($12,844,000) and percentage of gross margin (negative 253
percent) is primarily associated with cost overruns (caused by weather related
delays) in the Company's utility contracting services ($11,465,000 decrease in
gross profit), and demolition services ($1,774,000 decrease in gross profit).
These decreases are partially offset by increases in remediation, asbestos
abatement and other services ($395,000 decrease in gross loss) attributable to
the Company's closure of the northeastern operations.
14
<PAGE>
Depreciation and amortization, included in cost of revenue, increased to
approximately $9,871,000 in 1998 from approximately $4,722,000 in 1997. The
increase relates primarily to depreciation expense, and resulted from the
purchase during the fourth quarter of 1997 of approximately $28,000,000 of heavy
construction equipment that had previously been leased under operating leases.
Included in the Company's operating results for the years ended December
31, 1997 and 1998 is the activity related to the settlement and/or resolution of
contract claims and unapproved change orders. This activity can be summarized as
follows:
Years ended December 31,
-------------------------------
1997 1998
-------------- --------------
Claim recoveries $ 431,000 $ 1,058,000
Cost of recoveries 1,278,000 2,311,000
-------------- --------------
Gain (loss) on resolved claims $ (847,000) $ (1,253,000)
============== ==============
In addition, the Company incurred costs associated with unresolved claims
of $3,216,000 and $500,000 during 1997 and 1998 respectively. The Company also
recorded a reserve of $500,000 during 1998.
The Company had the following balances recorded relating to contract claims
and unsigned change orders at December 31, 1997 and 1998.
Years ended December 31,
-------------------------------
1997 1998
-------------- --------------
Claims $ 11,989,000 $ 9,678,000
Unapproved change orders -0- -0-
============== ==============
$ 11,989,000 $ 9,678,000
============== ==============
Cumulative external claim
Preparation costs included
above $ -0- $ -0-
============== ==============
During the year ended December 31, 1998, selling, general and
administrative expenses decreased to $7,072,000 (12 percent of net revenue) from
$7,591,000 (9 percent of net revenue) for the same period in 1997. The dollar
decrease and percentage increase is attributable to reduced revenues.
Interest expense, net of interest income for the year ended December 31,
1998 was approximately $6,489,000 as compared to approximately $3,027,000 for
the year ended December 31, 1997. The average amount of debt increased between
periods, mainly due to approximately $28,000,000 in equipment notes executed
during the fourth quarter of 1997.
The Company's income tax benefit for continuing operations was calculated
using a rate of approximately 40 percent for the year ended December 31, 1998.
The Company's income tax provision for continuing operations was calculated
using a rate of approximately negative 12 percent for the year ended December
31, 1997.
As a result of the foregoing, the Company recorded a loss from continuing
operations of approximately $15,088,000 and $5,611,000 for the years ended
December 31, 1998 and 1997 respectively.
DISCONTINUED OPERATIONS
Discontinued operations from solid waste management services experienced a
34 percent decrease in revenue of $11,068,000 to approximately $21,526,000 for
the year ended December 31, 1998, compared to approximately $32,594,000 in 1997.
The decrease was primarily the result of the August, 1998 sale of Kimmins
Recycling Corp. to EESI and other sales of operating assets, including customer
contracts.
15
<PAGE>
Operating expenses, including depreciation, for the year ended December 31,
1998 were approximately $18,176,000 representing a decrease of $9,593,000 or 35
percent, from approximately $27,769,000 for the year ended December 31, 1997.
This decrease in the percentage of operating expenses was attributable primarily
to the August, 1998 sale of Kimmins Recycling Corp.
Selling, general and administrative expenses, including management fees for
the year ended December 31, 1998 were approximately $4,002,000 representing a
decrease of $4,091,000 or 51 percent, from approximately $8,093,000 for the same
period in 1997. The dollar and percentage decrease in selling, general and
administrative expenses is primarily attributable to reduced overhead costs,
such as administrative, sales, marketing and labor costs that are associated
with facilities that have been closed or sold and from management's actions to
reduce overhead costs.
The Company incurred losses from discontinued solid waste management
services operations of approximately $180,000 for the year ended December 31,
1998 representing a decrease of $2,762,000 or 94 percent from approximately
$2,942,000 for the year ended December 31, 1997. The dollar and percentage
decrease in losses is primarily attributable to reduced overhead costs such as
administrative, sales, marketing and labor costs as a result of facility
closures and management's actions to reduce overhead costs.
In May 1998, the Company sold its Jacksonville area solid waste collection
and recycling operating assets and certain assets of the Miami front-end load
and rear-load commercial waste and recycling business to EESI for approximately
$11,600,000 in cash. This transaction combined with the Company's sale of
certain other vehicles, waste containers and equipment resulted in a gain of
approximately $5,263,000. These assets were primarily utilized in the Company's
commercial and residential waste collection services. This gain is included in
gain on sale of discontinued operations for the year ended December 31, 1998.
The Company's sale of Kimmins Recycling Corp. to EESI for approximately
$57,800,000 resulted in a gain, when combined with the gain in the preceding
paragraph, of $19,611,000 net of taxes of $11,861,000.
The Company reported income from discontinued operations of approximately
$19,431,000 for the year ended December 31, 1998 compared with a loss of
approximately $2,907,000 for the same period during 1997. The increase in income
from discontinued operations is mainly attributable to the gain on the sale of
Kimmins Recycling Corp. in August 1998.
Liquidity and Capital Resources
Cash provided by (used in) operating activities was approximately
($2,452,000), ($20,333,000) and $5,426,000 for the years ended December 31,
1997, 1998 and 1999. Cash provided by operations in 1999 was primarily the
result of a significant decrease in accounts receivable.
During 1999, the Company generated cash from investing activities of
approximately $3,065,000. This amount was primarily the result of cash proceeds
from the sale of property and equipment used by specialty contracting operations
of approximately $5,888,000 as well as the net proceeds from the sale of options
and marketable securities of $1,996,000 and $1,411,000, respectively. The
proceeds were partially offset by capital expenditures of $5,029,000.
Effective May 31, 1998, certain assets, businesses and contracts of the
waste management segment, with a net book value of approximately $6,100,000,
were sold for cash of approximately $11,600,000. Cash from this transaction was
used to pay approximately $3,800,000 of TransCor debt and $1,300,000 was
advanced to Kimmins. The remaining cash is unrestricted and available to the
Company for use in operations.
The August 31, 1998 sale of the common stock of the solid waste management
services operations to EESI for approximately $57,800,000, combined with the May
31, 1998 asset sale of $11,600,000 resulted in cash proceeds of $26,869,000 net
of debt payoffs of $18,507,000, funding of working capital adjustment of
$6,669,000 and closing costs of $351,000 and stock in EESI of $17,000,000.
The Company made capital expenditures of approximately $8,341,000,
$6,459,000 and $5,029,000 in 1997, 1998, and 1999, respectively. These
expenditures in 1999 were primarily related to the acquisition of equipment
associated with the Company's utility contracting operations. In addition to
cash expenditures for equipment, the Company acquired approximately $39,000,000
of heavy construction equipment during the first and fourth quarters of 1997
that, as further discussed below, were previously leased under operating leases.
Since the equipment was financed by the former lessor, the equipment
acquisitions were accounted for as a non-cash financing and investing
activities. Management believes future capital expenditures will be financed by
available cash resources, cash flow from operations and available credit
resources, as needed.
16
<PAGE>
During 1999, the Company used cash in financing activities of approximately
$10,156,000. The 1999 borrowings and the related debt payments resulted in a
decrease in the total indebtedness of the Company to approximately $60,567,000
at December 31, 1999 (approximately $69,849,000 at December 31, 1998). Current
maturities of total indebtedness amount to approximately $16,800,000 at December
31, 1999 (approximately $18,270,000 at December 31, 1998). 1999 payments on long
term debt of approximately $18,334,000 included payoff of the ESOP note of
approximately $809,000. These payments were partially offset by new borrowings
of approximately $8,224,000.
The Company is currently in default on the bank line of credit since the
Company did not have sufficient excess cash to make the payments required
December 31, 1999, February 15, 2000 and March 31, 2000. The Company is
currently in negotiations with the financial institution to restructure these
debt payments.
The Company was subject to a variety of restrictive covenants under various
debt agreements with one of its institutional lenders. In 1998 the Company
failed to meet the consolidated net income requirement under approximately
$4,235,000 of its bank debt and approximately $54,000,000 of other financial
institution debt. As of December 31, 1998, the Company obtained waivers for
these covenants. The Company's current debt agreement with this institutional
lender no longer includes debt covenants.
As a result of the Company no longer meeting the continued listing criteria
of the New York Stock Exchange ("NYSE"), the Company was delisted from the NYSE
after the close of business on March 1, 1999. On March 10, 1999, the Company's
application for registration on the National Association of Securities Dealers
(NASD) Over the County Bulletin Board (OTCBB) was cleared. On March 11, 1999 the
Company began trading on the OTCBB under the symbol "KVNM".
During the years ended December 31, 1998 and 1999, the Company's average
contract and trade receivables were outstanding for 122 and 92 days,
respectively. This significant improvement is primarily the result of the
Company's 1999 mix of business as well as the concentrated effort by the senior
management team to accelerate cash collections. The Company continues to seek
more private customers who generally pay more quickly than municipal entities.
The Company anticipates sustaining the current rate of collection for the year
ended December 31, 2000. Management believes that the number of days outstanding
for its receivables approximates industry norms. Part of the Company's
contracting operations is subcontracted, and any delay in collections of
receivables relating to primary contracts will generally result in a delay of
payment to subcontractors.
In addition to the sales above, the Company has discontinued the use of
certain assets with a net book value of approximately $1,083,000 and has placed
them for sale. Of these assets, approximately $1,800,000 net of $1,127,500 of
deposits received relates to assets from the discontinuance of a certain
remediation business in the specialty-contracting segment. The remaining balance
of approximately $411,000 represents the net book value of land for sale located
in Nashville, Tennessee.
As a result of significant write-downs of marketable securities to fair
market value during 1999, the Company has negative working capital of $5,573,639
as of December 31, 1999. Management of the Company anticipates that its
projected operations, coupled with the cash and marketable securities resulting
from the aforementioned sale of the solid waste business, will provide
sufficient levels of cash to fulfill its current and future obligations in the
normal course of business.
The Company had a note receivable in an original amount of $3,638,696 from
the Apartments, of which Mr. Francis M. Williams is the sole shareholder of the
corporate general partner and the sole limited partner. The note receivable
accrued interest at prime plus 1.375 percent, increasing to prime plus 2
percent, with principal and interest payable in monthly installments through
December 31, 1998, and was guaranteed by Mr. Williams. The Company did not
receive any interest or principal payments during 1997 relating to this note
receivable, and the Company has not recognized interest income since 1996. The
amount due from the Apartments at December 31, 1996, was approximately
$3,851,000. On October 22, 1997, the Company contributed its note receivable in
an amount of approximately $3,851,000 from the Apartments and other receivables
of $3,059,000 for a non-controlling 49 percent preferred limited partnership
interest in the Apartments and a receivable of $900,000 from the Apartments. The
amount of $12,066,000 in excess of the underlying equity was attributed to
17
<PAGE>
goodwill and is being amortized over thirty years. The Company will be allocated
49 percent of operating income, losses and cash flow. The preference in the
Company's equity interest in the Apartments occurs upon the sale of the
underlying partnership properties. Upon the occurrence of a capital transaction,
the Company would receive cash flows from the sale or refinancing of the
Apartments' assets equal to its capital contribution prior to any other partner
receiving any proceeds. The Company accounts for its investment in the
Apartments using the equity method.
The Company's current bonding coverage for non-environmental projects is
$60,000,000 for an individual project and $120,000,000 in the aggregate.
Historically, the Company has obtained bonding coverage in amounts up to
$8,500,000 for environmental projects and $53,000,000 for non-environmental
projects. However, bonding coverage is not guaranteed on projects up to the
above limits because each project has its own distinct and separate bond
requirements, and it is customary for surety bonding companies to underwrite
each surety obligation individually. Management believes that bonding coverages
are adequate for the size and scope of projects being performed.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities. The Financial
Accounting Standards Board has issued Statement No. 137 Accounting for
Derivative Instruments and Hedging Activities - Deferral of the effective date
of SFAS No. 133, which delays the implementation date of SFAS 133 for one year,
to fiscal years beginning after June 15, 2000. The Statement requires the
companies to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives are either offset against the change in fair value
of assets, liabilities or firm commitments through earnings or recognized in
other comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. Because of the Company's minimal use of derivatives,
management does not anticipate the adoption of the statement to have a
significant effect on earnings or the financial position of the Company.
Given the complexity of the new Standard and that the impact hinges on
market values at the date of adoption, it is extremely difficult to estimate the
impact of adoption unless adoption is imminent.
Impact of Year 2000
Some of the Company's older computer programs were written using two digits
rather than four digits to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
18
<PAGE>
The Company completed an assessment and had to modify or replace portions
of its software so that its computer systems will function properly with respect
to dates in the year 2000 and thereafter. The total cost of the Year 2000
project was approximately $15,000.
The majority of software used by the Company is licensed from various
software providers who updated their programs to be Year 2000 compliant.
In-house developed programs comprise a small portion of the total software
utilized, and the majority of these programs are believed to be Year 2000
compliant.
The project was completed in September 1999, which was prior to any
anticipated impact on the Company's operating system. The Company initiated
formal communications with all of its significant suppliers and large customers
to determine the extent to which the Company's interface systems are vulnerable
to those third parties' failure to remediate their own Year 2000 Issues.
There were no material system failures or disruption to the Company's
transaction processing as a result of the Year 2000 conversion. The Company has
also experienced no business interruptions as a result of our large suppliers
and customers Year 2000 conversions.
Forward-Looking Information
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements that reflect management's current views with respect to future events
and financial performance. Such statements involve risks and uncertainties, and
there are certain important factors that could cause actual results to differ
materially from those anticipated. Some of the important factors that could
cause actual results to differ materially from those anticipated include, but
are not limited to, economic conditions, competitive factors, changes in market
prices of the Company's investments and other uncertainties, all of which are
difficult to predict and many of which are beyond the control of the Company.
Due to such uncertainties and risk, readers are cautioned not to place undue
reliance on such forward-looking statements, which speak only as of the date
hereof.
Effect of Inflation
Inflation has not had, and is not expected to have, a material impact upon
the Company's operations. If inflation increases, the Company will attempt to
increase its prices to offset its increased expenses. No assurance can be given,
however, that the Company will be able to adequately increase its prices in
response to inflation.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
During 1998, the Company did not enter into any transactions using
derivative financial instruments or derivative commodity instruments. As of
December 31, 1999, the Company has debt of approximately $60,504,000 of which
$58,740,000 has a fixed interest rate. The remaining debt of $1,764,000 has
variable interest rates. However, an increase in the rates of 1% would have an
effect of only $18,000, exclusive of the effect of income taxes. Accordingly,
the Company believes its exposure to market risk is not material. As of December
31, 1999, the Company held for other than trading purposes marketable equity
securities of publicly traded companies having a value of approximately
$11,521,000 ($6,114,000 related to Waste Management, Inc.). These securities are
subject to price risk.
Beginning in January 1999, the Company began trading covered options on
Waste Management, Inc. common stock. As of December 31, 1999, the Company had no
funds invested in covered options. These securities are subject to price risk.
19
<PAGE>
Item 8. Financial Statements and Supplementary Data
KIMMINS CORP.
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Page
Report of Independent Certified Public Accountants.........................21
Consolidated balance sheets at December 31, 1998 and 1999..................23
Consolidated statements of operations for each of the three years
in the period ended December 31, 1999...................................25
Consolidated statements of comprehensive income for each
of the years in the period ended December 31, 1999......................27
Consolidated statements of stockholders' equity for each of the
three years in the period ended December 31, 1999.......................28
Consolidated statements of cash flows for each of the three years
in the period ended December 31, 1999...................................29
Notes to consolidated financial statements.................................30
Financial statement schedule:
Schedule II - Valuation and qualifying accounts............................51
All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the financial statements and notes
thereto.
20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Kimmins Corp.
We have audited the accompanying consolidated balance sheet of Kimmins
Corp. as of December 31, 1999, and the related consolidated statement of
operations, comprehensive income, stockholders' equity and cash flows for the
year then ended. Our audit also included the financial statement schedule listed
in the index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Kimmins Corp. at December 31, 1999, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ GIUNTA, FERLITA & WALSH, P.A.
Tampa, Florida
March 31, 2000
21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Kimmins Corp.
We have audited the accompanying consolidated balance sheet of Kimmins
Corp. as of December 31, 1998, and the related consolidated statement of
operations, comprehensive income, stockholders' equity and cash flows for each
of the two years in the period ended December 31, 1998. Our audit also included
the financial statement schedule listed in the index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the schedule based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Kimmins Corp. at December 31, 1998, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1998, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
Tampa, Florida
April 7, 1999
22
<PAGE>
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1999
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents, including restricted cash of $ 1,859,275 $ 194,202
$1,154,399 in 1999
Marketable securities 22,022,296 11,520,739
Accounts receivable, net
Contract and trade 17,550,528 12,680,628
Affiliates 282,903 63,702
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,743,644 148,782
Deferred income tax, net 1,437,707 1,814,725
Property and equipment held for sale 2,083,083 1,083,182
Other current assets 225,677 148,906
---------------- ----------------
Total current assets $ 47,205,113 $ 27,654,866
---------------- ----------------
Property and equipment, net 45,646,719 37,247,209
Non-current portion of costs and estimated earnings in
excess of billings on uncompleted contracts 8,804,728 8,088,928
Non-current portion of accounts receivable, net contract
and trade 874,048 794,495
Deferred income tax, non-current -0- 2,624,170
Accounts receivable - affiliate 900,000 900,000
Note receivable - affiliate 1,010,764 1,110,764
Investment in the Apartments 5,231,080 4,440,840
Investment in Cumberland Technologies, Inc. 4,628,019 4,881,069
---------------- ----------------
Total assets $ 114,300,471 $ 87,742,341
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
KIMMINS CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 11,799,293 $ 8,338,812
Income tax payable 489,353 247,829
Accrued expenses 6,080,388 5,496,312
Billings in excess of costs and estimated earnings on
uncompleted contracts 4,152,522 2,345,977
Current portion of long-term debt 18,270,156 16,799,575
Current portion of Employee Stock Ownership Plan
Trust debt 360,000 -0-
---------------- -----------------
Total current liabilities 41,151,712 33,228,505
---------------- -----------------
Long term debt 50,768,960 43,767,033
Capital lease obligations 1,242,101 413,719
Employee Stock Ownership Plan Trust debt 449,498 -0-
Deferred income taxes 1,812,182 -0-
Minority interest in subsidiary 4,204,938 1,641,517
Related party debt to be converted to common stock -0- 1,000,000
Stockholders' equity:
Common stock, $.001 par value; 32,500,000 shares
authorized; 4,447,397 and 5,072,397 shares issued;
4,288,956 and 4,872,135 shares outstanding as
of December 31, 1998 and 1999, respectively 4,447 5,072
Class B common stock, $.001 par value; 10,000,000
shares authorized, 2,291,569 shares issued and 2,291,569
and 1,666,569 outstanding as of December 31, 1998 and
1999, respectively 2,292 1,667
Capital in excess of par value 19,114,603 20,607,687
Unrealized gain (loss) on securities (net of tax) 101,064 (5,825,934)
Retained earnings (deficit) (2,947,063) (6,287,140)
Unearned employee compensation from Employee Stock
Ownership Plan Trust (840,000) -0-
---------------- -----------------
15,435,343 8,501,352
Less treasury stock, at cost (158,441 shares and 200,262
shares) (764,263) (809,785)
---------------- -----------------
Total stockholders' equity 14,671,080 7,691,567
---------------- -----------------
Total liabilities and stockholders' equity $ 114,300,471 $ 87,742,341
================ =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenue:
Gross revenue $ 102,717,119 $ 74,051,465 $ 63,450,166
Outside services, at cost (21,785,161) (14,749,222) (7,209,407)
---------------- ---------------- ----------------
Net revenue 80,931,958 59,302,243 56,240,759
Costs and expenses:
Cost of revenue earned 75,864,915 67,079,477 51,131,206
---------------- ---------------- ----------------
Gross profit (loss) 5,067,043 (7,777,234) 5,109,553
Selling, general and administrative expenses 7,591,346 7,072,487 7,221,221
---------------- ---------------- ----------------
Operating loss (2,524,303) (14,849,721) (2,111,668)
Minority interest in net operations of subsidiary 541,904 (3,615,248) (131,369)
Income from marketable securities, including
$51,279 of dividends -0- -0- 2,495,029
Interest expense (net of interest income of
approximately $169,000, $427,000, and $182,000
for the years ended December 31, 1997, 1998,
and 1999) 3,027,090 6,489,329 5,000,457
---------------- ---------------- ----------------
Loss before provision for income taxes (benefit) (5,009,489) (24,954,298) (4,748,465)
Provision for income taxes (benefit)
Current 601,517 (11,232,732) -0-
Deferred -0- 1,366,733 (1,408,389)
---------------- ---------------- ----------------
601,517 (9,865,999) (1,408,389)
---------------- ---------------- ----------------
Loss from continuing operations (5,611,006) (15,088,299) (3,340,076)
Discontinued operations:
Loss from discontinued solid waste division
operations- net of tax benefits of
$1,770,226 in 1997, and $81,593 in 1998 (2,907,234) (180,043) -0-
Gain on sale of discontinued solid waste division
net of tax of $11,860,848 -0- 19,611,352 -0-
---------------- ---------------- ----------------
Income (loss) from discontinued operations (2,907,234) 19,431,309 -0-
---------------- ---------------- ----------------
Net income (loss) $ (8,518,240) $ 4,343,010 $ (3,340,076)
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Share data:
Basic and diluted income (loss) per $ (1.30) $ (3.51) $ (0.73)
share from continuing operations ================ ================ ================
Basic and diluted income (loss) per $ (.67) $ 4.52 $ 0.00
share from discontinued operations ================ ================ ================
Total basic and diluted income (loss) $ (1.97) $ 1.01 $ (0.73)
per share ================ ================ ================
Weighted average number of shares outstanding
used in computations:
Basic and diluted 4,318,481 4,296,969 4,575,545
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net income (loss) $ (8,518,240) $ 4,343,010 $ (3,340,076)
Unrealized net gains (losses) on
investments in marketable securities, net of
tax (benefit)of $126,975 and ($3,479,430) for
1998 and 1999, respectively -0- 198,603 (5,997,654)
Less minority interest -0- (28,639) 403,614
Allocable share of unrealized loss on
investments in marketable securities
held by Cumberland 10,909 (97,539) 70,656
---------------- ---------------- ----------------
Comprehensive income (loss) $ (8,507,331) $ 4,415,435 $ (8,863,460)
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned
Employee
Compensation
from
Common Stock Class B Common Employee Unrealized
Stock Capital Retained Stock Gain/(Loss) Total
---------------- ------------------ in Excess (Deficit) Ownership on Treasury Stockholders
of Marketable
Shares Amount Shares Amount Par Value Earnings Plan Trust Securities Stock Equity
--------- ------ ---------- ------- ----------- ------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1996 4,447,397 $4,447 2,291,569 $2,292 $18,730,173 $ 1,228,167 $(1,800,000) $ -0- $(311,783) $17,853,296
Employee compensation
from Employee Stock
Ownership Trust 480,000
Purchase of treasury
stock, at cost (421,680) (421,680)
Net loss $(8,518,240) (8,518,240)
--------- ------ ---------- ------- ----------- ------------ ------------ ------------ ---------- ------------
Balance at December
31, 1997 4,447,397 4,447 2,291,569 2,292 18,730,173 (7,290,073) (1,320,000) -0- (733,463) 9,393,376
Net income 4,343,010 4,343,010
Employee compensation
from Employee Stock
Ownership Trust 480,000 480,000
Unrealized gain on
marketable
securities, net of
tax 101,064 101,064
Changes in ownership
percentage of
subsidiary due to
treasury stock
purchased by
subsidiary 384,430 384,430
Purchase of Treasury
Stock, at cost (30,800) (30,800)
--------- ------ ---------- ------- ----------- ------------ ------------ ------------ ---------- ------------
Balance at December
31, 1998 4,447,397 $4,447 2,291,569 $2,292 $19,114,603 $(2,947,063) $ (840,000) $ 101,064 $(764,263) $14,671,080
Net loss (3,340,077) (3,340,077)
Conversion of Class B
Common Stock to
Common Stock 625,000 625 (625,000) (625) -0-
Employee compensation
from Employee Stock
Ownership Trust 840,000 840,000
Unrealized loss on
marketable
securities, net of
tax (5,926,998) (5,926,998)
Change in ownership
percentage of
subsidiary due to
treasury stock
purchased by
subsidiary 1,493,084 1,493,084
Purchase of Treasury
Stock, at cost (45,522) (45,522)
========= ====== ========== ======= =========== ============ ============ ============ ========== ============
Balance at December
31, 1999 5,072,397 $5,072 1,666,569 $1,667 $20,607,687 $(6,287,140) $ -0- $(5,825,934) $(809,785) $ 7,691,567
========= ====== ========== ======= =========== ============ ============ ============ ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
KIMMINS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twelve months ended December 31,
----------------------------------------------------
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations $ (5,611,006) $ (15,088,299) $ (3,340,076)
Adjustments to reconcile net income from
continuing operations to net cash provided
(used) by operating activities:
Depreciation and amortization 4,721,987 9,871,206 9,197,194
Provision for uncollectible accounts
receivable 772,522 87,275 40,000
Deferred income taxes (1,112,944) 1,366,733 (1,408,389)
Minority interest in operations of
subsidiary (541,904) 1,306,161 131,369
Gain on sale of investments -0- -0- (513,404)
Gain on sale of options -0- -0- (1,996,445)
(Gain)/loss on disposal of property
and equipment 350,112 (596,465) (90,431)
Equity in losses of equity investees 29,556 330,361 24,693
Unearned employee compensation from
Employee Stock Ownership Plan Trust 480,000 480,000 840,000
Changes in operating assets and liabilities:
Accounts receivable (4,013,391) 1,264,554 5,028,654
Costs and estimated earnings in
excess of billings on uncompleted
contracts 1,403,660 4,015,841 2,310,662
Income tax refund receivable and
payable 952,214 736,914 (23,973)
Other (29,957) (438,065) 76,771
Accounts payable 245,866 (3,784,313) (3,460,481)
Accrued expenses 2,012,955 496,179 415,924
Billings in excess of costs and
estimated earnings on uncompleted
contracts 3,831,246 (431,011) (1,806,545)
---------------- ---------------- ----------------
Total adjustments 9,101,922 14,705,370 8,765,599
---------------- ---------------- ----------------
Net cash provided by (used in) continuing
operations 3,490,916 (382,929) 5,425,523
Net loss from discontinued operations (2,907,234) (180,043) -0-
Net book value of assets of discontinued
operations (3,035,821) (7,909,434) -0-
Taxes on gain of sale of assets of
discontinued operations -0- (11,860,848) -0-
---------------- ---------------- ----------------
Net cash provided by (used in) operating
activities (2,452,139) (20,333,254) 5,425,523
---------------- ---------------- ----------------
<PAGE>
Cash flows from investing activities:
Purchase of TransCor stock -0- -0- (1,201,706)
Purchase of options -0- -0- (7,609,897)
Sale of options -0- -0- 9,606,343
Purchase of marketable securities -0- -0- (1,641,289)
Proceeds from the sale of marketable securities -0- -0- 3,052,191
Capital expenditures (2,169,546) (6,459,245) (5,028,601)
Proceeds from sale of property and equipment 99,589 3,224,897 5,888,273
Cash proceeds on sale of assets of
discontinued operations -0- 26,868,891 -0-
Purchase of marketable securities -0- (4,696,719) -0-
---------------- ---------------- ----------------
Net cash provided by (used in) investing
activities (2,069,957) 18,937,824 3,065,314
---------------- ---------------- ----------------
Cash flows from financing activities:
Proceeds from long-term debt 19,320,110 12,573,508 8,223,772
Repayments of long-term debt and capital
leases (11,190,945) (11,331,528) (17,524,662)
Repayments of Employee Stock Ownership Plan (480,000) (630,502) (809,498)
Cash loan to Cumberland Technologies, Inc. -0- (1,000,000) -0-
Purchase of treasury stock (421,680) (30,800) (45,522)
---------------- ---------------- ----------------
Net cash provided by (used in) financing
activities 7,227,485 (419,322) (10,155,910)
---------------- ---------------- ----------------
Net increase (decrease) in cash 2,705,389 (1,814,752) (1,665,073)
Cash, beginning of period 968,638 3,674,027 1,859,275
---------------- ---------------- ----------------
Cash, end of period $ 3,674,027 $ 1,859,275 $ 194,202
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and summary of significant accounting policies
Organization - Kimmins Corp. and its subsidiaries (collectively, the
"Company") operate one business segment: specialty-contracting services. The
Company provides specialty-contracting services in the southeastern United
States, primarily Florida, including earthwork; infrastructure development;
underground construction; roadwork; site remediation services such as
excavation, removal and disposal of contaminated soil; facilities demolition and
dismantling; and asbestos abatement. The Company formerly provided solid waste
management services through its subsidiary, TransCor Waste Services, Inc.
("TransCor"), (See Note 20).
Principles of consolidation - The consolidated financial statements include
the accounts of Kimmins and its subsidiaries, including TransCor, an 93 percent
owned subsidiary. All material intercompany transactions have been eliminated.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Concentrations of credit risk - Financial instruments which subject the
Company to concentrations of credit risk consist primarily of trade receivables
in the State of Florida. Trade receivables are comprised primarily of amounts
due from solid waste management customers and on specialty contracting
contracts. Credit is extended based on an evaluation of the customer's financial
condition. Collateral is generally not required; however, the Company has the
ability to file for a mechanic's lien to protect its interest in contract
accounts receivable. Credit losses are provided for in the financial statements
and have been within management's expectations.
Accounts receivable - contract and trade, includes $18,245,000 and
$13,475,000 net of allowance for doubtful accounts of approximately $739,000 and
$551,000, respectively at December 31, 1998 and 1999. The Company's policy for
allowance for doubtful accounts is to provide for specific accounts considered
to be uncollectible.
Marketable Securities - As a result of the sale of Kimmins Recycling corp.
(KRC) to Eastern Environmental Services, Inc. (EESI), the Company received
555,329 shares of common stock of EESI. Subsequent to the sale of Kimmins
Recycling Corp. to EESI, Waste Management, Inc. acquired EESI. Accordingly, the
Company now holds 355,742 shares of Waste Management, Inc. common stock.
Additionally, commencing in September 1998, the Company began purchasing common
stocks and other marketable securities with a portion of the cash proceeds
received from the sale of KRC. In accordance with the Statement of Financial
Accounting Standards No. 115. "Accounting for Certain Investments in Debt and
Equity Securities", the investments are classified as available-for-sale
securities. Such securities are carried at an aggregate market value of
approximately $11,521,000 as of December 31, 1999. The Company's cost basis in
these investments is approximately $20,813,000 and the unrealized loss of
approximately $5,799,000, net of deferred income taxes of approximately
$3,479,000 is reported as a separate component of shareholder's equity.
Additionally, the Company's allocable share of the unrealized gains and (losses)
on marketable securities held by Cumberland Technologies, Inc. ("Cumberland") is
approximately $11,000, ($98,000) and $71,000 for the years ended December 31,
1997, 1998 and 1999, respectively. The balance of unrealized gains and losses
net of deferred tax is $5,826,000 at December 31, 1999.
30
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets - Intangible assets consisted primarily of the excess of
cost over fair market value of the net assets of the acquired businesses, which
were being amortized on a straight-line basis over twenty years, and customer
contracts, which were being amortized on a straight-line basis over five years.
Amortization expense was $109,000 and $37,000, for the years ended December 31,
1997 and 1998, respectively. The intangible assets were all related to the
Company's solid waste management services operations which were disposed of in
1998 (See Note 20). Consequently, these assets were included in net assets of
discontinued solid waste operations in the balance sheet and were written off in
the sale of these operations.
Investments - The Company's 31.6 percent investment in Cumberland is
accounted for using the equity method of accounting. The Company's 49 percent
investments in Summerbreeze Apartments, Ltd., and Sunshadow Apartments, Ltd.
(the "Apartments"), are also accounted for using the equity method of
accounting. The original carrying amounts in excess of the underlying equity in
these companies is amortized over the estimated useful life of the investment.
The estimated useful lives of these intangibles are twenty years for Cumberland
and thirty years for the Apartments.
Other assets - Other assets consisted primarily of pre-contract costs
associated with residential solid waste management contracts obtained during
1997 and 1998, which were being amortized on a straight-line basis over five
years, the term of the contracts, and loan costs, which were amortized over the
term of the loans. Amortization expense was $236,000 and $365,000 for the years
ended December 31, 1997 and 1998. The other assets were all related to the
Company's solid waste management services operations which were disposed of in
1998 (See Note 20). Consequently, these assets were included in net assets of
discontinued solid waste operations in the balance sheet and were written off in
the sale of these operations.
Income taxes - The Company accounts for income taxes using the asset and
liability method pursuant to Statement of Financial Accounting Standards 109,
"Accounting for Income Taxes" (Statement No. 109). Under this 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. 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. Under Statement No. 109, 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.
Contracts and revenue recognition - Contracts generally range from 6 to 12
months in duration, and earnings from contracting operations are reported under
the percentage-of-completion method for financial statement purposes. The
estimated earnings for each contract reflected in the accompanying financial
statements represent the percentage of estimated total earnings that costs
incurred to date bear to estimated total costs, based on the Company's current
estimates. With respect to contracts that extend over one or more accounting
periods, revisions in costs and earnings estimates are reflected in the period
the revisions become known. When current estimates of total contract costs
indicate a loss, provision is made for the entire estimated loss in the period
indications of a loss become known. The estimates can be affected by
uncertainties, such as weather related delays, and it is reasonably possible
that a change in estimate could occur in the near term.
31
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Change orders are modifications to an original contract that effectively
change the scope and/or price of the contract. They may include changes in
specifications or design, method or manner of performance, facilities,
equipment, materials, site, or period for completion of the work. Certain change
orders may be priced under the terms of the contract. Other change orders are
unpriced; that is, the work to be performed is defined; however, the adjustment
to the contract price is negotiated subsequent to performance. Finally, in some
cases, both scope and price of a change order may be unapproved or in dispute.
Accounting for change orders depends on the underlying circumstances, which may
differ for each change order depending on the customer, the contract, and the
nature of the change. The Company evaluates each change order according to its
characteristics and the circumstances in which they occur.
Contract revenue and associated profit are recognized for change orders
that have been approved by the customer and the contractor regarding both scope
and price to the extent performance related to the change order has occurred.
Accounting for change orders, where either scope or price have not been
determined, depends on careful consideration of the underlying characteristics
and the circumstances in which they occur. For all unpriced change orders,
recovery is deemed probable if the terms of the contracts or other applicable
legal principles provide a legal basis for recoverability, the costs incurred
are objective and verifiable, and, finally, all future events necessary for
recovery are more likely than not to occur. The Company considers the following
factors in evaluating whether recovery is probable: the customer's written
approval of the scope and/or price of the change order, the objectivity,
verifiability, and reasonableness of underlying accounting documentation for
change order costs, and the Company's experience in negotiating change orders in
similar instances.
The following guidelines are utilized by the Company in accounting for
change orders under which either the scope or price have not been approved by
the customer.
A. Costs directly attributable to change orders whose scope and/or price
is not determinable are charged directly to operations in the period
in which the costs are incurred if it is not probable that the costs
will be recovered through a change in the contract price.
B. If it is probable that the costs will be recovered through a change in
the contract price, the costs are treated as costs of contract
performance in the period in which they are incurred and contract
revenue is recognized to the extent of the costs incurred. Costs
incurred in excess of amounts that are probable of recovery are
charged directly to operations when incurred.
C. In the case of change orders that are approved as to scope but not
price, profit recognition is deferred until receipt of the priced
change order.
Contract claims are amounts incurred by the Company related to contract
changes that are unapproved as to both scope and price, or are directly disputed
or contested as to either, by the customer. Claims are amounts in excess of the
agreed upon contract price (or amounts not included in the original contract
price) that are due to customer-caused delays, errors in specification and
designs, contract terminations, or other causes of unanticipated additional
costs. The Company recognizes contract revenue relating to claims to the extent
of its costs incurred only if it is probable that the claim will result in
additional contract revenue and if the amount of contract revenue and related
costs can be reliably estimated. Those two requirements are satisfied by the
existence of all of the following conditions:
A. Thecontract or other applicable legal principles provides a legal
basis for the claim; or a legal opinion has been obtained, stating
that the Company is entitled to recover amounts under the contract or
other applicable legal principles.
B. Additional costs are caused by circumstances that were unforeseen at
the contract date and are not the result of deficiencies in the
contractor's performance.
32
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C. Costs incurred by the Company that are associated with the claim are
identifiable and reasonable in view of the work performed.
D. The evidence supporting the claim is objective and verifiable.
In evaluating the probability of recovery and the estimation of the amounts
that will be recovered, the Company consults with outside consultants and legal
counsel as the claims progress through the stages of negotiations, actual filing
of formal claims, and/or litigation. Legal counsel has been engaged for the
majority of the claims, both in number and recorded amounts.
For those claims (see Note 5) where outside counsel has been engaged to
review the claim, the recorded amount is not in excess of the amounts estimated
by outside counsel to be recoverable.
Except in rare circumstances, claim preparation and legal costs are
expensed as incurred. Exceptions include instances in which the contract
document provides for their recovery or legal costs are incurred to pursue
approved settlements by court ruling, binding arbitration, and otherwise. In all
instances where such amounts are recorded, it is probable that the amounts
associated with claim preparation and legal costs will be recovered. As of
December 31, 1998 and 1999, no claim preparation and legal costs were deferred.
Fees arising from services other than contracting activities are recognized
when the negotiated services are provided.
Advertising costs - Advertising costs are expensed as incurred. For the
years ended December 31, 1997, 1998 and 1999, TransCor expensed approximately
$536,000, $40,000, and $-0-, respectively in advertising costs. All of the
advertising costs are associated with the discontinued solid waste management
operations.
Stock based compensation - The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair value of
the shares at the date of grant. The Company accounts for stock option grants in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"), and, accordingly, recognizes no
compensation expense for the stock option grants.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123 ("SFAS No. 123"), "Accounting and Disclosure of Stock-Based
Compensation," which encourages, but does not require, companies to recognize
stock awards based on their fair value at the date of grant. Pro forma
information regarding net income and earnings per share, as calculated under the
provisions of SFAS No. 123, are disclosed in Note No. 13.
Earnings (loss) per share - In February 1997, the FASB issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128"),
which establishes standards for computing and presenting earnings per share. The
Company adopted the provisions of SFAS No. 128 effective December 31, 1997 and
all earnings per share amounts for all periods presented, and where appropriate,
have been restated to conform to SFAS No. 128 requirements.
Comprehensive income - In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130").
SFAS No. 130 requires that total comprehensive income be displayed in a
financial statement with equal prominence as other financial statements.
Comprehensive income is defined as changes in stockholders' equity exclusive of
transactions with owners such as capital contributions and dividends. The
Company adopted the provisions of SFAS effective January 1, 1998.
33
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Segments - In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"), which supersedes Financial Accounting Standards
No. 14. SFAS No. 131 uses a management approach to report financial and
descriptive information about a Company's operating segments. Operating segments
are revenue-producing components of the enterprise for which separate financial
information is produced internally for the Company's management. During the
fourth quarter of 1998, the Company adopted the provisions of SFAS No. 131. The
adoption of SFAS No. 131 did not affect the results of operations or financial
position of the Company.
The Company's continuing operations are specialty contracting. See Note 20
for a discussion of discontinued operations. The Company's specialty contracting
is performed for third parties located primarily in the state of Florida. The
Company evaluates the performance of each of its contracts. However, because
each of the contracts have similar economic characteristics, the contracts have
been aggregated into a single dominant segment. All segment measurements are
disclosed in the Company's consolidated financial statements.
Proposed accounting standards - In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Financial Accounting Standards Board has issued
Statement No. 137, Accounting for Derivative Instruments and Hedging Activities
deferral of the effective date of SFAS No. 133, which delays the implementation
date of SFAS 133 for one year, to fiscal years beginning after June 15, 2000.
The Statement requires companies to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives are either offset against
the change in fair value of assets, liabilities, or firm commitments through
earnings, or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption of
the Statement to have a significant affect on earnings or the financial position
of the Company.
2. Supplemental statements of cash flows information
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Cash paid:
Interest $ 4,543,000 $ 7,013,000 $
Income taxes 30,000 54,815
Non-cash investing and financing activity:
Capitalized leases $ -0- $ 2,020,000 $ -0-
Seller financing of equipment addition $ 39,408,000 $ -0- -0-
Receipt of EESI stock $ -0- $17,000,000 $ -0-
Unrealized gain/(loss) on marketable
securities $ -0- $ 325,578 $ (9,278,000)
Transfer to property held for sale from
from discontinued operations $ -0- $ 397,195 $ -0-
Transfer to discontinued operations $ -0- $ 267,696 $ -0-
from property and equipment
</TABLE>
34
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Related party transactions
Mr. Francis M. Williams, the Company's President and majority stockholder,
also controls Cumberland, a property and casualty insurance company that
provides insurance for specialty sureties and performance and payment bonds for
contractors. Through Cumberland, the Company has obtained performance and
payment bonds in connection with certain of its contracts and projects. The fees
that the Company paid for these services for the years ended December 31, 1997
and 1998, were approximately $43,000 and $29,000, respectively. There were no
related fees paid to Cumberland for the year ended December 31, 1999.
The Company recorded bond fees of approximately $82,000 during 1999
although none were paid. The Company also has a 31.6 percent investment in
Cumberland (see Note 8 of the Notes to the Consolidated Financial Statements).
Qualex, which is controlled by Mr. Francis M. Williams, provides some
services, including legal counsel to the Company. During 1999, the Company
recorded approximately $97,000 for these services.
Effective July 1, 1997, employees associated with TransCor's demolition
contracting services unit were transferred to Kimmins Contracting Corp. ("KCC"),
a wholly-owned subsidiary of the Company, for administrative and accounting
purposes. As a result, contracting services previously performed by employees of
TransCor were subcontracted to KCC. For the year ended December 31, 1998,
TransCor paid $2,761,000 to KCC for services rendered by KCC as a subcontractor.
In addition, TransCor rented equipment from KCC for use in performing demolition
contracts. TransCor incurred approximately $2,573,000 and $1,822,000 in
equipment rental charges with KCC for the years ended December 31, 1997 and
1998. All demolition projects which started in 1999 were performed by Kimmins
Contracting Corp.
On August 14, 1998 the Company acquired an additional 297,200 shares of
common stock in TransCor for $3,031,000 from Mr. Francis M. Williams, President
and Chief Executive Officer of the Company. The acquisition increased the
Company's ownership percentage to 81 percent in 1998 from 74 percent and
resulted in the ability to consolidate the Company and TransCor for federal
income tax purposes on a prospective basis.
On November 10, 1998, the Company loaned $1,000,000 to Cumberland which is
controlled by Mr. Francis M. Williams, Kimmins' President and majority
stockholder. Cumberland is a property and casualty insurance company. The
$1,000,000 is evidenced by a convertible term note, which is due November 10,
2001. Quarterly interest payments are due beginning January 1, 1999 at a rate of
one half of one percent over the prime rate established by NationsBank. The
Company has the right, after six months, to convert the principal amount of the
note into shares of Common Stock of Cumberland at $3.00 per share. The balance
of the convertible term note, including accrued interest of $110,764 at December
31, 1999, is $1,110,764.
During the year ended December 31, 1998, TransCor contributed $1,000,000 to
the Kimmins Terrier Foundation, a private foundation controlled by Mr. Francis
M. Williams.
Effective with the sale of Kimmins Recycling during 1998, the Company
accrued $1,000,000 payable to Mr. Francis M. Williams for a 10-year non-compete
agreement. In 1999, the accrual amount remained unchanged. There is an agreement
to convert the $1,000,000 payable to common stock during the year 2000. As part
of the agreement, the Class B stock owned by Mr. Francis M. Williams will be
retired (see footnote 15).
35
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Accounts receivable
December 31,
------------
1998 1999
---- ----
Contract and trade:
Billed contract receivables
Completed and uncompleted contracts $ 8,561,529 $ 8,984,641
Retainage 4,045,971 3,673,932
Unbilled contract receivables 5,986,709 886,550
Trade receivables 569,590 481,355
------------- -------------
19,163,799 14,026,478
Less allowance for doubtful accounts (739,223) (551,355)
------------- -------------
18,424,576 13,475,123
Less noncurrent portion 874,048 794,495
------------- -------------
Net accounts receivable -
contract and trade $ 17,550,528 $ 12,680,628
============= =============
All unbilled receivables relate to work performed or material shipped by
the balance sheet date and are billed as soon as administratively feasible. The
portion at December 31, 1998 and 1999 that was not expected to be collected
within twelve months was classified as a non-current asset.
The Company had a note receivable in an original amount of $3,638,696 from
Sunshadow Apartments, Ltd., and Summerbreeze Apartments, Ltd., two Florida real
estate limited partnerships (collectively, the "Apartments"). The note
receivable originally accrued interest at prime plus 1.375 percent, increasing
to prime plus 2 percent on July 1, 1995, with principal and interest payable in
monthly installments through December 31, 1998, and was guaranteed by Mr.
Francis M. Williams, majority owner of the Company. The Company did not receive
any interest or principal payments during 1997 relating to this note receivable,
and management of the Company discontinued recognition of interest income in
1996. The amount due from the Apartments at December 31, 1996, was approximately
$3,851,000.
During 1997, the note receivable and other receivables were contributed to
the Apartments in exchange for 49 percent non-controlling preferred limited
partnership interests in the Apartments. See Note 8 of Notes to Consolidated
Financial Statements for additional information.
Most of these receivables were contributed as an investment in the
Apartments as described above. At December 31, 1998 and 1999, the balance of
accounts receivable - affiliates was $1,182,903 and $963,702, of which $900,000
is classified as a long-term receivable and is guaranteed by Mr. Francis M.
Williams.
36
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Costs and estimated earnings in excess of billings on uncompleted contracts
December 31,
------------
1998 1999
---- ----
Expenditures on uncompleted contracts $ 140,139,011 $ 148,053,761
Estimated earnings (loss) on uncompleted (1,242,975) 1,417,689
contracts -------------- --------------
138,896,036 149,471,450
Less actual and allowable billings on
uncompleted contracts 132,500,186 143,579,717
-------------- ---------------
$ 6,395,850 $ 5,891,733
=============== ===============
Costs and estimated earnings in excess of
billings on $ 10,548,372 $ 8,237,710
uncompleted contracts
Billings in excess of costs and estimated
earnings on uncompleted contracts (4,152,522) (2,345,977)
--------------- ---------------
$ 6,395,850 $ 5,891,733
=============== ===============
During the year ended December 31, 1997, the Company recognized revenue
from contract claims of approximately $56,000. The Company recognized no revenue
from contract claims during the years ended December 31, 1998 and 1999. During
1997 and 1998, the Company settled contract claims that resulted in net losses
of approximately ($847,000) and ($1,253,000), respectively. During 1999, the
Company settled claims that resulted in approximately $386,000 in excess of the
recorded amount. The $386,000 is being held in reserve for other claims.
As of December 31, 1998 and 1999, the costs and estimated earnings in
excess of billings on uncompleted contracts includes the Company's cost
associated with unapproved or disputed contract change orders and costs claimed
from customers on completed contracts of approximately $10,000,000 and
$8,000,000, respectively. During the performance of these contracts, the Company
encountered site conditions that differed from bid specifications. As a result,
the Company incurred additional labor and equipment costs in performing the
contract. By their nature, recovery of these amounts is often subject to
negotiation with the customer and, in certain cases, resolution through
litigation. As a result, the recovery of these amounts may extend beyond one
year. The portions at December 31, 1998 and 1999, that were not expected to be
collected within twelve months are classified as a non-current asset.
6. Property and equipment held for sale
As a result of management's decision to cease operations in the northeast
and to de-emphasize the performance of certain environmental services within the
specialty-contracting segment, the Company decided to sell its transportable
incineration system. This asset has a carrying value of approximately $1,800,000
as of December 31, 1999 and 1998. A purchase agreement for the sale of the
incinerator for $1,800,000 was executed in February 1998. The Company wrote down
the carrying value of the asset by $40,000 in 1997 to reflect the fair market
value based on the purchase agreement. During the years ended December 31, 1997
and 1998, the Company received approximately $566,000 from the buyer towards the
purchase. The Company received approximately $561,500 during 1999. The sale of
the transportable incineration system will be completed upon full receipt of the
purchase price by the Company, which is expected during 2000. The deposits of
$1,127,500 have been netted against the carrying value of the asset resulting in
$672,500 being included in "property held for sale" at December 31, 1999.
The Company also has real estate for sale in Nashville, Tennessee, which
has a net book value of approximately $411,000. This amount is also included in
"property held for sale".
37
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Property and equipment
December 31,
------------
1998 1999
---- ----
Land $ 1,058,234 $ 1,058,234
Buildings and improvements 2,166,984 2,166,984
Construction and recycling equipment 60,752,336 58,455,431
Furniture and fixtures 698,628 680,485
Construction in progress - Building 548,816 616,742
-------------- --------------
65,224,998 62,977,876
Less accumulated depreciation (19,578,279) (25,730,667)
-------------- --------------
Net P&E $ 45,646,719 $ 37,247,209
============== ==============
Property and equipment is recorded at cost. Depreciation is provided using
the straight-line method over estimated useful lives ranging from 3 to 30 years.
Depreciation expense was approximately $8,000,000, $11,202,000 and $8,630,000
for the years ended December 31, 1997, 1998 and 1999, respectively.
Approximately $3,625,000 and $2,248,000 for the years ended December 31, 1997
and 1998 respectively, of depreciation expense was attributable to discontinued
operations, with the remaining depreciation attributable to continuing
operations. Construction in progress - Building will be depreciated over the
estimated useful lives of respective assets when placed into service during the
first quarter, 2000.
8. Investments in Cumberland Technologies, Inc., Summerbreeze Apartments,
Ltd., and Sunshadow Apartments, Ltd.
Cumberland - In 1988, Cumberland Casualty & Surety Company ("CCS") issued a
surplus debenture to the Company that bears interest at 10 percent per annum in
exchange for $3,000,000. In 1992, such debenture was assigned to Cumberland
Technologies, Inc. ("Cumberland"), a holding company that provides, among other
services, reinsurance for specialty sureties and performance and payment bonds
for contractors. Cumberland entered into a term note agreement with the Company
for the outstanding amount of the debenture, including accrued interest.
Interest accrued on the term note was $506,755 at December 31, 1995 ($372,066 in
1996 prior to the conversion discussed below).
On November 5, 1996, the Company received 1,723,290 shares, or 30 percent
of the outstanding common stock, of Cumberland common stock in exchange for the
term note from affiliate. The Cumberland common stock had a fair market value of
$3.00 per share on the date of the exchange, based upon the quoted market price.
This investment is accounted for under the equity method. The amount of
$3,300,000 in excess of the underlying equity was attributed to goodwill and is
being amortized over twenty years. At December 31, 1999, the market value of the
Cumberland common stock held by the Company was approximately $2,585,000 based
on a stock price of $1.50.
38
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the financial position of Cumberland at
December 31, 1998 and 1999:
December 31, 1998 December 31, 1999
----------------- -----------------
Cash and cash equivalents $ 4,202,000 $ 2,000,000
Investments in various marketable 3,987,000 8,394,000
securities
Accounts receivable - trade, net 1,810,000 1,907,000
Reinsurance recoverable 2,306,000 2,899,000
Intangibles 1,456,000 1,267,000
Other 2,584,000 2,946,000
-------------- --------------
Total assets $ 16,345,000 $ 19,413,000
============== ==============
Policy liabilities and accruals $ 8,085,000 $ 9,788,000
Long-term debt 2,331,000 2,282,000
Other 580,000 1,117,000
-------------- --------------
Total liabilities 10,996,000 13,187,000
Stockholders' equity 5,349,000 6,226,000
-------------- --------------
Total liabilities and $ 16,345,000 $ 19,413,000
stockholders' equity
=============== ==============
Cumberland's operating results included revenue of approximately
$11,455,000 and net income of approximately $727,000 during the year ended
December 31, 1999. The Company's equity in this net income amounted to
approximately $230,000. In addition, approximately $165,000 of amortization
expense was recorded by the Company related to the investment.
Apartments - On October 22, 1997, the Company contributed its note
receivable in an amount of approximately $3,851,000 from the Apartments and
other receivables of $3,059,000 for a non-controlling 49 percent preferred
limited partnership interest in the Apartments and a receivable of $900,000 from
the Apartments. The amount of approximately $12,066,000 in excess of the
underlying equity was attributed to goodwill and is being amortized over thirty
years. The Company will be allocated 49 percent of operating income, losses and
cash flow. The preference in the Company's equity interest in the Apartments
occurs upon the sale of the underlying partnership properties. Upon the
occurrence of a capital transaction, the Company would receive cash flows from
the sale or refinancing of the Apartments' assets equal to its capital
contribution prior to any other partner receiving any proceeds. The Company
accounts for its investment in the Apartments using the equity method.
During the years ended December 31, 1998 and December 31, 1999, the
Apartments recognized revenue of approximately $4,495,000 and $4,402,000. During
the same periods, the Apartments recognized net losses of approximately $467,000
and $402,000, respectively. The Company has recorded its 49 percent share of the
net results of operations. In addition, approximately $402,000 and $402,000 of
amortization expense was recorded by the Company related to the investments in
the Apartments. At December 31, 1998 and 1999, the Company's balance in its
total investment in the Apartments was approximately $6,131,000 and $5,398,000,
respectively.
39
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the financial position (unaudited) of the
Apartments at December 31, 1998 and 1999:
Total Investment
----------------
1998 1999
(unaudited) (unaudited)
----------- -----------
Cash and cash equivalents $ 66,000 $ 30,000
Accounts receivable - affiliate -0- 946,000
Land 3,800,000 3,800,000
Buildings, capitalized construction interest,
furniture and equipment, net 16,420,000 15,555,000
Other 638,000 602,000
------------ ------------
Total assets $ 20,924,000 $ 20,933,000
============ ============
Accounts payable and accrued expenses $ 846,000 $ 743,000
Accounts payable to affiliates 1,489,000 1,702,000
Mortgage loan payable 20,993,000 20,833,000
Note payable to partner - Francis M. Williams .. 2,860,000 2,860,000
------------ ------------
Total liabilities 26,188,000 26,138,000
Partners' deficit (5,264,000) (5,205,000)
------------ ------------
Total liabilities and partners' deficit $ 20,924,000 $ 20,933,000
============ ============
9. Accrued expenses
December 31,
------------
1998 1999
---- ----
Accrued insurance $ 2,435,280 $ 3,137,675
Accrued interest 285,780 417,067
Accrued property taxes 1,210,800 1,222,215
Accrued salaries, wages and 729,786 660,163
payroll taxes
Other 1,418,742 59,192
-------------- -------------
Total accrued expenses $ 6,080,388 $ 5,496,312
============== =============
40
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Long-term debt
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
---- ----
<S> <C> <C>
Notes payable, principal and interest payable in monthly
installments through December 1, 2004, interest at
varying rates up to 13 percent, collateralized by equipment $ 51,712,212 $ 52,859,02
Revolving term bank line of credit, including letters of credit,
$4,424,000 in 1998 (see below), due March 31, 2001 interest payable
monthly at lender's base rate plus .5 percent 1,764,003 -0-
Term Bank line of credit, due March 31, 2000 interest payable
monthly at lender's base rate plus .5%. At December 31, 1999,
the rate is 8.25% -0- 2,451,885
Revolving term line of credit, $16,000,000 maximum, due
March 31, 2000, interest payable monthly at lender's base rate
of LIBOR plus 2.5 percent, collateralized by equipment.
At December 31, 1998 the rate is 8.2656 percent 13,700,000 -0-
Line of credit secured by Waste Management Shares due and
Payable upon demand, interest payable at lender's base
rate of LIBOR plus 0.75% -0- 3,491,153
Mortgage notes, principal and interest payable in monthly
installments through December 1, 2004, interest at
varying rates up to prime plus 1.25 percent, collateralized
by land and buildings. At December 31, 1999 the average rate is
9.75 percent 1,862,901 1,764,547
------------ -----------
Total debt 69,039,116 60,566,608
Less current portion (18,270,156) (16,799,575)
------------- ------------
Net long term debt $ 50,768,960 $ 43,767,033
============= ============
</TABLE>
Annual principal maturities subsequent to December 31, 1999, are as
follows:
2000 $ 16,799,575
2001 11,284,138
2002 31,312,685
2003 610,924
2004 559,286
---------------
$ 60,566,608
===============
At December 31, 1999, there were no borrowings available under the
revolving term bank line of credit. During the year, the Company restructured
its loan arrangements with one of its financial institutions, which is secured
by a pledge of all of the stock of the Company's subsidiaries and substantially
all of the unsecured assets of the Company. The use of funds under these lines
is limited among certain subsidiaries, and repayment is guaranteed by
Cumberland. The Company's outstanding letter of credit facility of approximately
$1,100,000 is secured by a restricted cash account at a local financial
institution.
41
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There is an outstanding balance of approximately $2,452,000 on the
Company's bank line of credit scheduled to be paid off during the first quarter
of 2000. The Company is currently in default since the Company did not have
sufficient excess cash to make the payments required December 31, 1999, February
15, 2000 and March 31, 2000. The Company is currently in negotiation with the
financial institution to restructure these debt payments.
During 1998 and 1999, the revolving term bank line of credit agreement
contained certain covenants, the most restrictive of which require maintenance
of a consolidated tangible net worth, as defined, of not less than $6,500,000
and net income of not less than $1,500,000. In addition, the covenants prohibit
the Company from paying dividends without lender approval. Specifically
regarding the revolving term bank line of credit of approximately $1,764,000,
the Company met the tangible net worth and net income requirements under the
credit agreement with the bank. However, as of October 31, 1999, the Company no
longer had the revolving term bank line of credit available and is therefore, no
longer required to meet debt covenants.
Certain equipment notes and the working capital loan agreements contained
certain covenants, the most restrictive of which required maintenance of a total
liabilities to adjusted tangible net worth ratio of 7.5 to 1.0 and a current
ratio of 1.5 to 1.0. Regarding the revolving term line of credit for $13,700,000
and outstanding equipment notes of approximately $38,386,000, KCC and the
Company, as guarantor, did not meet the total liability to net worth ratio,
current ratio or net income requirements under the credit and note agreements as
of December 31, 1998. The equipment notes and working capital loan are
guaranteed by the Company and previously required the Company to maintain a
liability to adjusted tangible net worth ratio not exceeding 6.0 to 1 and a
current ratio of not less than 1.2 to 1. The Company and KCC obtained waivers of
these financial covenants for the year ended December 31, 1998. These current
debt agreements no longer include debt covenant requirements.
The Company's revolving term line of credit with a vendor supplying
financing for heavy construction equipment purchases was discontinued during
1999. The outstanding balance on the revolving term line of credit is now
classified as notes payable.
The Company established a loan and collateral account agreement with the
firm holding the majority of the Company's marketable securities during the
first quarter of 1999. The margin line of credit provides cash advances to the
Company and is based on the current value of the Waste Management shares held by
the Company.
11. Employee Stock Ownership Plan Trust Debt
In March 1990, the Company's Employee Stock Ownership Plan Trust ("ESOP")
(Note 13) originally was funded from a $5,100,000 loan. This loan was refinanced
during December 1995 and bears interest at prime plus 0.5 percent, with
quarterly principal and monthly interest payments were originally scheduled
through October 2000. The loan was guaranteed by the Company as to payment of
principal and interest and, therefore, the unpaid balance of the borrowing was
reflected as debt of the Company at December 31, 1998. An equivalent amount
representing unearned employee compensation, less the Company's accrued
contribution (Note 13), was recorded as a deduction from stockholders' equity at
December 31, 1998. This loan was repaid in full during the fourth quarter of
1999. The ESOP plan was terminated December 31, 1999.
12. Leasing arrangements
The Company rents equipment and machinery as needed, as well as office
space, under operating leases for varying periods not to exceed one year. Rental
expense for the years ended December 31, 1997, 1998, and 1999, was approximately
$11,853,000, $11,858,000 and $7,741,000, respectively. During 1999, some of the
heavy construction equipment previously leased was purchased by the Company
which was the primary reason for the significant decrease in 1999 rental
expense.
42
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company leases some of its heavy construction equipment under capital
leases. The economic substance of each lease is that the Company is financing
the acquisition of the assets through the lease, and accordingly, it is recorded
in the Company's assets and liabilities.
The following is an analysis of the leased assets included in property and
equipment:
12/31/98 12/31/99
-------- --------
Machinery and equipment 2,020,042 1,234,500
Less: accumulated depreciation (349,312) (411,501)
------------- --------------
Net book value of leased equipment $ 1,670,730 $ 822,999
============ ==============
The following is a schedule by year of future minimum payments required
under the lease together with their present value as of December 31, 1999.
Year ending December 31, 2000 $ 432,000
Total minimum lease payments $ 432,000
Less: Amount representing interest (95,057)
------------------
Present value of minimum lease payments $ 336,943
==================
13. Pension and other benefit plans
Employee Stock Ownership Plan. On January 1, 1989, the Company, for the
benefit of its employees, formed the ESOP to purchase shares of the Company's
common stock from time to time in the open market or in negotiated transactions
at prices deemed to be attractive. Contributions to the ESOP are made at the
discretion of the Board of Directors. During 1989, the ESOP acquired from the
Company's President 257,371 shares of common stock at a cost of $5,100,000. The
shares were acquired in exchange for a note payable to the Company's President.
Simultaneous with this purchase, the Company's President purchased certain
receivables and interests in certain investments from the Company for a purchase
price of approximately $5,100,000, which was paid by the assignment to the
Company of the note received from the ESOP. The note originally was funded
during March 1990, through a long-term bank financing agreement guaranteed by
the Company (Note 11). As the debt is repaid, shares are released from
collateral and allocated to active employees, based on the proportion of debt
service paid in the current year. Debt of the ESOP is recorded as debt, and the
shares pledged as collateral are reported as unearned employee compensation in
the balance sheet. For financial statement purposes, as of December 31, 1998 and
1999, the unearned employee compensation is reflected as a reduction in
stockholders' equity. The Company's accounting treatment for the ESOP as
described above is in accordance with SOP 76-3 for grandfathered plans
established prior to 1993. The ESOP Plan was terminated effective December 31,
1999.
Interest and compensation expenses relating to the ESOP are as follows:
Years ended December 31,
------------------------
1997 1998 1999
---- ---- ----
Interest $ 133,023 $ 102,852 $ 59,335
Compensation $ 480,000 $ 480,000 $ 840,000
43
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The ESOP shares were as follows:
December 31,
------------
1998 1999
---- ----
Allocated shares 214,525 255,000
Shares released for allocation -0-
Unreleased shares 40,475 -0-
---------- ----------
Total ESOP shares 255,000 255,000
========== ==========
Market value of unreleased shares $ 83,000 $ -0-
========== ==========
Stock Option Plan. The Company originally reserved 975,000 shares of its
common stock for issuance upon the exercise of options to be granted under the
Company's 1987 Stock Option Plan (the Company Plan). The exercise price of an
incentive stock option granted under the Company Plan may not be less than the
fair market value of the common stock at the time the option is granted. The
exercise price of a non-qualified stock option granted under the Company Plan
may be any amount determined by the Board of Directors but not less than the par
value of the common stock on the date of the grant. Options granted under the
Company Plan must, in general, expire no later than ten years from the date of
the grant.
The Company's Plan has the option to acquire an aggregate of 975,000 shares
of common stock that may be granted to employees, officers, directors and
consultants of the Company. The Plan authorizes the Board of Directors (the
"Board") to issue incentive stock options ("ISOs"), as defined in Section
422A(b) of the Internal Revenue Code, and stock options that do not conform to
the requirements of that Code section ("Non-ISOs"). The Board has discretionary
authority to determine the types of stock options to be granted, the persons
among those eligible to whom options will be granted, the number of shares to be
subject to such options, and the terms of the stock option agreements. Options
may be exercised in the manner and at such times as fixed by the Board, but may
not be exercised after the tenth anniversary of the grant of such options.
The following table summarizes the transactions for the three years ended
December 31, 1999, relating to the Plan:
Number of Exercise
Shares Price
------ -----
Outstanding January 1, 1997: 157,076 $3.33 - $4.50
Granted 270,742 $2.62 - $3.94
Exercised -0- $-0-
Canceled (153,743) $3.33 - $4.50
-------- -------------
Outstanding December 31, 1997: 274,075 $2.62 - $4.50
Granted -0- $-0-
Exercised -0- $-0-
Canceled (16,476) $2.62 - $4.50
------- -------------
Outstanding December 31, 1998 257,599 $2.62 - $4.50
Granted 699,099 $0.25 -$0.275
Exercised -0- $-0-
Canceled (236,266) $2.62 - $4.50
-------- -------------
Outstanding December 31, 1999 720,432 $0.25 - $4.50
-------- -------------
Exercisable December 31, 1999 153,953 $0.25 - $4.50
======= =============
44
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro forma information regarding net income (loss) and earnings per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company had accounted for its employee stock options granted
subsequent to December 31, 1993, under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1998 and 1999; risk-free interest rates of 5.5 percent; a
dividend yield of zero; volatility factors of the expected market price of the
Company's common stock based on historical trends; and a weighted-average
expected life of the options of seven years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Proforma net income (loss) attributable to stockholders $ (8,549,501) $ 4,271,103 $ (3,371,264)
Proforma income (loss) per common share:
Basic and diluted (1.98) .99 (0.74)
</TABLE>
Multi-Employer Defined Contribution Plan. The Company made payments to
collectively bargained, multi-employer defined contribution plans covering
Company union employees. Under the Multi-Employer Pension Plan Amendment Act, a
withdrawing employer is required to continue funding its share of the plan's
unfunded vested benefits. The Company does not possess sufficient information to
determine its portion of the unfunded vested benefits, if any. Contributions to
such plans for the years ended December 31, 1997 and 1998, were not significant.
As of August 31, 1998, there were no longer any union employees.
14. Income taxes
As of December 31, 1998 and 1999, the Company had consolidated income tax
net operating loss ("NOL") carryforwards for federal tax purposes of
approximately $7,076,000 and $4,677,000 respectively. The remaining consolidated
federal tax NOL carryforward of $4,677,000 will expire through the year 2019 if
not used. For alternative minimum tax ("AMT") purposes, the NOL carryforward is
approximately $343,000. The Company also has alternative minimum tax credit
carryforwards of approximately $376,000 available to reduce future federal
regular income taxes. The AMT credit carryforwards do not expire.
Prior to August 15, 1998, TransCor and the Company were not permitted to
file consolidated income tax returns because the Company owned less than 80% of
TransCor. On August 15, 1998, the Company acquired an additional 6% of the stock
of TransCor, raising its ownership above 80% thereby permitting the filing of
consolidated tax returns prospectively.
45
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1997, the Company had net deferred tax assets of
approximately $4,500,000. Because of the Company's net cumulative losses and the
uncertainty of being able to utilize those net deferred tax assets, the Company
recorded a valuation allowance of approximately $4.5 million. Because the
Company and TransCor can now file consolidated tax returns, the Company may
utilize the net deferred tax credits of approximately $1.8 million of TransCor
to offset the deferred tax assets by that amount. Consequently, the Company
reduced the valuation allowance by $1.8 million with a corresponding reduction
in the recorded amount paid for the additional 6% interest in TransCor.
Additionally, the Company had previously recorded deferred income tax credits of
approximately $600,000 for the additional taxes on its share of TransCor's
earnings. Because the Company and TransCor can now file consolidated income tax
returns, this deferred income tax credit is no longer required. Accordingly, the
Company reduced the deferred income tax credits by $600,000 with a corresponding
reduction in the recorded amount paid for the additional 6% interest in
TransCor.
As of December 31, 1998, management has determined that a valuation
allowance is not necessary because the Company had net deferred tax credits. As
of December 31, 1999, management has determined that a valuation allowance is
not necessary because it is expected that the net deferred tax asset of
approximately $4,439,000 will be realized through future profits in operations
and settlement of pending claims.
The components of the provision for income taxes are attributable to
continuing operations as follows:
1997 1998 1999
---- ---- ----
Current $ 601,517 $ (11,232,732) $ -0-
Deferred -0- 1,366,733 (1,408,389)
-------------- -------------- --------------
$ 601,517 $ (9,865,999) $ (1,408,389)
============== ============== ==============
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
---- ----
<S> <C> <C>
Deferred tax assets
Net Operating loss carryforward $ 2,389,217 $ 4,449,317
Unrealized losses on marketable securities -0- 3,479,430
Share of Cumberland's unrealized loss -0- 16,130
Allowance for doubtful accounts 11,250 26,250
Costs deferred for tax expensed for books 509,549 611,847
Alternate minimum tax credit carryforwards 886,682 376,442
Accrued worker's compensation 942,772 1,176,628
Uncompleted long-term contracts 110,126 502,234
Tax revenue deferred for books 790,722 747,436
------------- -------------
5,640,318 11,385,714
------------- -------------
Deferred tax liabilities:
Excess of tax over book depreciation (5,878,803) (6,843,230)
Undistributed earnings in Cumberland -0- (103,589)
Unrealized gain on marketable securities (126,977) -0-
Costs deferred for book expensed for tax (9,014) -0-
------------- -------------
(6,014,792) (6,946,819)
------------- -------------
Net deferred tax asset (liability) (374,476) 4,438,895
Less current net deferred asset 1,437,707 1,814,725
------------- -------------
Net non-current deferred asset (liability) $ (1,812,183) $ 2,624,170
============= =============
</TABLE>
46
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Factors causing the effective tax rate to differ from the statutory rate
are as follows:
Years ended December 31,
------------------------
1997 1998 1999
---- ---- ----
Federal statutory rate (34.0%) (34.0%) (34.0%)
Valuation allowance 59.5% (10.0%) -0-
State income taxes, net of
federal benefit (3.1%) (2.7%) (3.5%)
Additional tax (benefit) on the
Company's shares of
TransCor's earnings (11.4%) 5.4% -0-
Other 1.0% 1.8% 7.8%
---------- ---------- ----------
Effective tax rate 12.0% (39.5%) (29.7%)
========== ========== ==========
15. Debt to be converted to common stock
The Company has a $1,000,000 payable to Mr. Francis M. Williams for a
10-year non-compete agreement associated with the sale of Kimmins Recycling.
There is an agreement to convert the $1,000,000 payable to common stock during
the year 2000. As part of the agreement, all of the Class B common stock which
is owned by Mr. Francis M. Williams will be retired.
16. Stockholders' equity
The Company's Class B common stock has the same voting rights as common
stock and is not entitled to participate in cash dividends. Upon liquidation or
dissolution of the Company, the holders of common stock are entitled to receive
up to $9.00 per share, after which the holders of Class B common stock are
entitled to receive up to $9.00 per share. Thereafter, all assets remaining for
distribution will be distributed pro rata to the holders of common stock and
Class B common stock. The right to convert Class B common stock to common stock
occurs in any fiscal year in which the Company achieves net earnings equal to a
specified amount per the Class B common stock conversion agreement (currently
$.84 per share), which is calculated by adding the total shares outstanding at
fiscal year end to the number of shares that could be converted during the
fiscal year.
The holders of the Class B common stock will thereafter have the right to
convert up to 625,000 shares of Class B common stock into common stock on a
share for share basis as follows. Each cumulative incremental increase in net
earnings in any subsequent year of $.21 per share above the specified level of
earnings previously obtained will afford holders the right to convert up to an
additional 625,000 shares of Class B common stock into common stock on a share
for share basis. Holders of Class B common stock will not be entitled to convert
more than 625,000 of such shares in any fiscal year unless the Company achieves
earnings of $1.44 per share of common stock in any fiscal year, which will
entitle holders to convert all shares of Class B common stock into common stock.
In addition, conversion occurs if a sale of part of the Company's business as to
which there is a bona fide offer to purchase would have resulted in
convertibility of any of the outstanding Class B common stock and it is
determined by the Board of Directors of the Company not to approve such a
transaction, then, upon request of the holder or holders of a majority of the
outstanding Class B common stock, the number of shares thereof which would have
become convertible had the transaction occurred would become convertible. A
similar provision provides that if there is an independent valuation of a part
of the business of the Company such that if such part of the business were sold,
the result would allow conversion of all outstanding Class B common stock and if
the Board of Directors of the Company does not authorize such sale, then, upon
request of the holder or holders of a majority of the outstanding Class B common
stock, the outstanding Class B common stock would become convertible. No shares
of Class B common stock became eligible for conversion into common stock during
the years ended December 31, 1997 or 1998.
47
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Based on 1998 earnings, 625,000 shares of Class B Common Stock became
eligible for conversion into common stock. The 625,000 Class B shares were
converted to common stock in 1999.
As a result of TransCor's sale of KRC to EESI in August 1998, the Company's
net income for the year ended December 31, 1998 exceeded the threshold amount of
$.84 per share. Thus, during 1999 the holder of the Class B Common Stock, Mr.
Francis M. Williams, converted 625,000 Class B shares into common stock.
The Company has authorized 1,000,000 shares of preferred stock with a par
value of $.001, none of which is presently outstanding. Such preferred stock may
be issued in series and will have such designations, rights, preferences, and
limitations as may be fixed by the Board of Directors.
Net unrealized losses on marketable securities of approximately $5,826,000
net of taxes of approximately $3,496,000 are recorded as a reduction to
stockholders' equity as of December 31, 1999.
During the year ended December 31, 1998 and 1999, the Company acquired
8,013 and 41,821 shares of treasury stock at a cost of $30,800 and $45,522,
respectively. At December 31, 1999, the balance of the Company's treasury stock
was $809,785.
17. Commitments and Contingencies
The Company is involved in various legal actions and claims arising in the
ordinary course of its business. After taking into consideration legal counsel's
evaluation of such actions and claims, management is of the opinion that their
outcome will not have a material adverse effect on the consolidated financial
position of the Company.
18. Fourth quarter adjustments
During the fourth quarter of 1998, the Company revised its estimates of
costs to complete certain contracts primarily as a result of work slowdowns
caused by excessive rainfall and recorded certain charges related to contract
claim and change order settlements. The aggregate effect of these revised
estimates on the Company's pretax income for 1998 was a reduction of
approximately $5,000,000.
During the fourth quarter of 1999, the Company evaluated its self insurance
accounts and determined that they were over reserved by approximately $867,000.
The reserve for insurance claims was accordingly reduced by $867,000.
The Company had a balance sheet amount at September 30, 1999 of $536,000
for equipment burden. This equipment burden amount represented the difference
between the actual equipment expense and amounts charged to specific job costs,
based on actual usage as of September 30, 1999. During the fourth quarter of
1999, this amount was expensed.
19. Fair value of financial instruments
The following estimated fair value amounts have been determined using
available market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
48
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash, accounts receivable, note receivable - affiliate, and accounts
payable. The carrying amount reported in the balance sheet for cash, accounts
receivable, and accounts payable approximates their fair value.
Marketable Securities - The carrying amount reported in the balance sheet
for marketable securities approximates their fair value based on price
quotations listed on national markets.
Long-term debt. The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. The
carrying value of the Company's long-term debt approximates the fair value.
20. Earnings (loss) per share
As required by FASB Statement No. 128, the following table sets forth the
computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Numerator:
Income (loss) from continuing $ (5,611,006) $ (15,088,299) $ (3,340,076)
operations
Adjustment for basic earnings per -0- -0- -0-
share
------------- -------------- --------------
Numerator for basic earnings per $ (5,611,006) $ (15,088,299) $ (3,340,076)
share - income (loss) available to
common stockholders from continuing
operations
Effect of dilutive securities -0- -0- -0-
Numerator for diluted earnings per
share:
Income (loss) from continuing (5,611,006) (15,008,299) -0-
operations
Income (loss) from discontinued (2,907,234) 19,431,309 -0-
operations
------------- -------------- --------------
Income (loss) applicable to common
stockholders after assumed
after assumed conversion $ (8,518,240) $ 4,343,010 $ (3,340,076)
============= ============== ==============
Denominator:
Denominator for basic earnings per 4,318,481 4,296,969 4,575,545
share - weighted-average shares
Effective of dilutive securities:
Stock options -0- -0- -0-
Dilutive potential common shares -0- -0- -0-
------------ ------------ -------------
Denominator for diluted earnings
per share - adjusted $ 4,318,481 $ 4,296,969 $ 4,575,545
weighted-average shares and
assumed conversions
============= ============== ==============
Basic and diluted earnings per
share from continuing $ (1.30) $ (3.51) $ (.73)
operations
============= ============== ==============
Basic and diluted earnings per
share from $ (.67) $ 4.52 $ -0-
discontinued operations
============= ============== ==============
Basic and diluted earnings per share $ (1.97) $ 1.01 $ (.73)
============= ============== ==============
</TABLE>
49
<PAGE>
KIMMINS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unexercised options to purchase approximately 56,000, 104,000 and 154,000
shares of common stock for 1997, 1998 and 1999, respectively, were not included
in the computations of diluted loss per share because the assumed conversion
would be antidilutive.
21. Discontinued Operations
On May 31, 1998, the Company sold its Jacksonville area waste collection
and recycling operating assets and certain assets of the Miami front-end load
and rear-load commercial waste and recycling business to Eastern Environmental
Services of Florida, Inc., for approximately $11,600,000 in cash. The proceeds
exceeded the net book value of the underlying assets sold by approximately
$5,200,000. This gain is shown in the Consolidated Statements of Operations as
part of "gain on sale of discontinued operations."
On July 17, 1998, the Company adopted a formal plan to sell its solid waste
management services operations to EESI. On August 31, 1998 the Company completed
the sale of the solid waste management services (SWMS) operations. The assets
sold consisted primarily of accounts receivables, contracts and property and
equipment. The selling price was approximately $57,800,000 in the form of cash
and EESI common stock.
Revenues and expenses of the SWMS operations for the years ending December
31, 1997, 1998 and 1999 are shown separately in the schedule below. The
consolidated statements of operations for the year ended December 31, 1997, 1998
and 1999 have been restated to show separately the operating results of the SWMS
operations. These amounts are included in the income or loss from discontinued
operations portion of the accompanying consolidated statements of operations.
Approximately $7,610,000 of these net revenues was received after the Company's
adoption of the plan to sell the SWMS operations. Information related to the
discontinued SWMS operations of KRC for the years ended December 31, 1997, 1998
and 1999, is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net revenue $ 32,594,000 $ 21,526,000 $ -0-
Operating expenses, including 27,769,000 18,176,000 -0-
depreciation
Selling, general and administrative expenses 8,093,000 4,002,000 -0-
-------------- ------------- --------------
Operating loss 3,268,000 652,000 -0-
Interest expense, net 1,409,000 913,000 -0-
-------------- ------------- --------------
Loss before provision for income tax benefit 4,677,000 1,565,000 -0-
Provision for income tax benefit 1,770,000 618,000 -0-
-------------- ------------- --------------
Loss from discontinued operations $ 2,907,000 $ 947,000 $ -0-
============== ============= ==============
</TABLE>
For the year ended December, 1998 approximately $180,000 is shown as a loss
from discontinued operations and the remainder of approximately $767,000, in
accordance with APB No. 30, income or loss incurred after the measurement date
is included in the gain on the sale of discontinued operations. Included in the
gain is a $1,000,000 charitable contribution to a private foundation controlled
by Mr. Francis M. Williams. The loss from discontinued operations included
write-offs of intangible and other assets.
Net assets sold have been separately classified in the accompanying balance
sheet at December 31, 1998.
The sale of the Company's SWMS operations resulted in a gain of
approximately $19,611,000 net of taxes approximately $11,861,000. Approximately
$15.1 million of the cash proceeds were used to pay off debt on the property and
equipment of the SWMS operations. An additional $6.6 million was used to fund
the working capital deficit of the SWMS operations at August 31, 1998.
50
<PAGE>
Schedule II - Valuation and Qualifying Accounts
<TABLE>
Allowance for Doubtful Accounts
<CAPTION>
Additions
Balance at Charged to Deductions
Beginning Costs and from Balance at
Description of Period Expenses Allowances (a) End of Period
----------- --------- -------- -------------- -------------
<S> <C> <C> <C> <C>>
Year ended December 31, 1999 $ 739,223 $ 40,000 $ (227,868) $ 551,355
Year ended December 31, 1998 $ 921,301 $ 87,275 $ (269,353) $ 739,223
Year ended December 31, 1997 $ 616,708 $ 772,522 $ (467,929) $ 921,301
</TABLE>
(a) Balance represents the write-off of uncollectible accounts.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
As reported in Kimmins Corp. Current Report on Form 8-K, filed November 18,
1999, Kimmins has changed its accountants. On November 11, 1999 the Board of
Directors of the Company approved the engagement of Giunta, Ferlita & Walsh,
P.A. as its independent auditors for the fiscal year ending December 31, 1999 to
replace the firm of Ernst & Young LLP, who were dismissed as auditors of the
Company effective November 11, 1999. The reports of Ernst & Young LLP on the
Company's financial statements for the past two years did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles. The Company has authorized
Ernst & Young LLP to discuss the results of the past two years audits with
Giunta, Ferlita & Walsh.
In connection with the audits of the Company's consolidated financial
statements for each of the two years ended December 31, 1998 and in the
subsequent interim periods, there were no disagreements with Ernst & Young LLP
on any matters of accounting principles or practices, financial statement
disclosure or auditing scope and procedures which, if not resolved to the
satisfaction of Ernst & Young LLP, would have caused Ernst & Young LLP to make
reference to the matter in their report.
Ernst & Young LLP communicated in its management letter related to its
audit of the Company's December 31, 1997 financial statements that there were
two material weaknesses in internal accounting controls. These material
weaknesses related to the allocation of equipment costs to construction-type
contracts. The Company took corrective action in 1998 in response to this
communication. Ernst & Young's management letter related to its audit of the
financial statement accurately of the Company's December 31, 1998 financial
statements did not identify any material weaknesses in internal control.
51
<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Francis M. Williams 58 President, Chief Executive Officer and Director
Norman S. Dominiak 55 Vice President
Joseph M. Williams 43 Secretary and Treasurer
Michael Gold 51 Director
R. Donald Finn 56 Director
All directors of the Company hold office until the next annual meeting of
stockholders and the election and qualification of their successors. Officers of
the Company are elected annually by the Board of Directors and hold office at
the discretion of the Board of Directors.
Francis M. Williams has been President and Chairman of the Board of the
Company since its inception and Chairman of the Board of Directors of TransCor
since November 1992. For more than five years prior to November 1988, Mr.
Williams was the Chairman of the Board and Chief Executive Officer of Kimmins
Corp. and its predecessors and sole owner of K Management Corp. From June 1981
until January 1988, Mr. Williams was also the President and a Director of
College Venture Equity Corp., a small business investment company. Mr. Williams
has also been a Director of the National Association of Demolition Contractors
and a member of the Executive Committee of the Tampa Bay International Trade
Council.
Norman S. Dominiak has been Vice President of the Company since March 1995
and has been employed by the Company as its Chief Financial Officer since
January 1994. Mr. Dominiak has also been Chief Financial Officer of TransCor
since January 1994. Mr. Dominiak served as Controller of ThermoCor Kimmins,
Inc., a subsidiary of the Company, from October 1991 until January 1994. From
May 1988 until September 1991, Mr. Dominiak served as Senior Vice President of
Creative Edge, a company engaged in the manufacturing and distribution of
educational products. From October 1982 until April 1988, Mr. Dominiak served as
Senior Vice President of Cecos Environmental Services, Inc., a company engaged
in treatment, transportation, and disposal of hazardous waste. From 1965 until
1982, Mr. Dominiak was employed in various financial capacities for the
Carborundum Company.
Joseph M. Williams has been the Secretary and Treasurer of the Company
since October 1988. Since September 1997, Mr. Williams has been President and
Chief Executive Officer of TransCor. Since November 1991, Mr. Williams has
served as President and has been a Director of Cumberland Technologies, Inc., a
holding company whose wholly owned subsidiaries provide reinsurance and
specialty sureties and performance and payment bonds. Since June 1986, Mr.
Williams has served as President and Vice President and has been a Director of
Cumberland Real Estate Holdings, Inc., the corporate general partner of
Sunshadow Apartments, Ltd. ("Sunshadow") and Summerbreeze Apartments, Ltd.
("Summerbreeze"), both of which are limited partnerships. Mr. Williams has been
employed by the Company and its subsidiaries in various capacities since January
1984. From January 1982 to December 1983, he was the managing partner of
Williams and Grana, a firm engaged in public accounting. From January 1978 to
December 1981, Mr. Williams was employed as a senior tax accountant with Price
Waterhouse & Co. Joseph M. Williams is the nephew of Francis M. Williams.
Michael Gold has been a Director of the Company since November 1987. For
more than the past five years, Mr. Gold has been a partner in the Niagara Falls,
New York law firm of Gold and Gold.
R. Donald Finn has been a Director of the Company since November 1992. For
more than the last five years, Mr. Finn has been a partner in the Law Firm of
Gibson, McAskill & Crosby located in Buffalo, New York, where Mr. Finn has
practiced law for more than the last 25 years.
52
<PAGE>
Set forth below is information regarding certain key employees of the
Company:
John V. Simon Jr., 43, has been President and General Manager of Kimmins
Contracting Corp., responsible for supervising utility construction, since May
1981, and served as a Vice President of the Company from 1981 until October
1988. From January 1978 to May 1981, Mr. Simon owned Simon Construction Company,
a company that performed site work and utilities and demolition projects.
Section 16(a) Beneficial Ownership Reporting Compliance. Pursuant to
Section 16(a) of the Securities Exchange Act of 1934 and the rules issued
thereunder, the Company's executive officers and directors and any persons
holding more than 10 percent of the Company's common stock are required to file
with the Securities and Exchange Commission and the New York Stock Exchange
reports of their initial ownership of the Company's common stock and any changes
in ownership of such common stock. Specific due dates have been established, and
the Company is required to disclose in its Annual Report on Form 10-K and Proxy
Statement any failure to file such reports by these dates. Copies of such
reports are required to be furnished to the Company. Based solely on its review
of the copies of such reports furnished to the Company, or written
representations that no reports were required, the Company believes that, during
1996, all of its executive officers (including the Named Executive Officers),
directors and persons owning more than 10 percent of its common stock complied
with the Section 16(a) requirements, except that Forms 5 were not timely filed
for Francis M. Williams, Joseph M. Williams, and John V. Simon, Jr.
Item 11. Executive Compensation
Summary Compensation Table. The following table provides certain summary
information concerning compensation paid or accrued by the Company and its
subsidiaries to the Chief Executive Officer and all other executive officers
whose salary and bonus exceeded $100,000 for the year ended December 31, 1999
(the "Named Executives"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards
------------------- ------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options/SAR's (#) Compensation (1)
- ------------------ ---- ------ ----- ------------ ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Francis M. Williams 1999 $ 126,345 $ -0- $ -0- 420,000 $ 1,775
Chairman of the Board 1998 $ 119,991 $193,217 $ -0- -0- $ 996
President and 1997 $ 172,120 $ -0- $ -0- -0- $ 996
Chief Executive Officer
John V. Simon, Jr. 1999 $ 126,353 $ -0- $ -0- 21,333 (2) $ 1,612
President of Kimmins 1998 $ 126,069 $ 30,000 $ -0- -0- $ 1,698
Contracting Corp. 1997 $ 100,019 $108,032 $ -0- 71,666 (2) $ 1,698
Contracting
Corp.
</TABLE>
(1) Represents the Company's contribution to the employee's account of the
Company's 401(k) Plan and premiums paid by the Company for term life insurance
and long-term disability. These plans, subject to the terms and conditions of
each plan, are available to all employees.
(2) Reflects 21,333 options granted during 1999 upon cancellation of 21,333
options originally granted in 1997.
<PAGE>
Grant of Options. During 1999, options were granted to Francis M. Williams
in recognition of his performance. In addition, options were cancelled and
regranted for Mr. Simon. No stock appreciation rights (SARs) have been granted
by the Company. The following table sets forth information regarding the grant
of options in 1999:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1999)
% of
Total
Number of Options/SARs
Securities Granted Potential Realizable
Underlying to Value at Assumed
Options/SARs Employees Exercise Annual Rates of
Granted in Fiscal Price Expiration Appreciation for
Name (#) Year ($/Sh)(3) Date(4) Option Term
-----------------------
5%($) 10%($)
------------------------------------ ----------- ----------- -------- ---------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Francis M. Williams 420,000(1) 60.08% $ .275 03-15-09 72,637 184,077
John V. Simon, Jr. 21,333(2) 3.05% .25 03-15-09 11,268 28,554
_____________
</TABLE>
(1) The options vest and become exercisable on a cumulative basis on each
anniversary following the grant date at the rate of 20% per year on the
first through fifth anniversaries.
(2) The options vest and become exercisable on a cumulative basis on each
anniversary following the grant date at the rate of 20% per year on the
first through fifth anniversaries. The options were originally granted in
1997 and were exchanged for options with an exercise price equal to the
closing market price of Kimmin' common stock on March 15, 1999.
(3) The exercise price was based upon the closing market price on the date of
grant. In the case of Mr. Williams, the exercise price was 110% of the
market price.
(4) Options are subject to earlier termination in the event of death,
disability, retirement, or termination of employment.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year- End
Option/SAR Values. The following table summarizes the net value realized on the
exercise of options in 1999 and the value of outstanding options as of December
31, 1999, for the Named Executives.
53
<PAGE>
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Year-End (#) Year-End ($) (1)
Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Francis M. Williams -0- $-0- 84,000/336,000 $3,150/12,600
John V. Simon, Jr. -0- $-0- 14,333/57,333 $896/3,583
</TABLE>
(1) Value is calculated using the Company's closing stock price on December 31,
1999, per share less the exercise price for such shares.
Compensation Committee Interlocks and Insider Participation. During the
year ended December 31, 1999, Mr. Francis M. Williams, the Company's President
and Chairman of the Board of Directors, served as President and Chairman of the
Board of Directors of TransCor, and Mr. Norman S. Dominiak served as Chief
Financial Officer of the Company and TransCor.
Compensation of Directors. During the year ended December 31, 1999, the
Company paid non-officer Directors an annual fee of $5,000 and $1,000 per board
meeting attended. Directors are reimbursed for all out-of-pocket expenses
incurred in attending Board of Directors and committee meetings. In addition,
Mr. Gold received $20,000 as compensation for option buyouts.
Stock Option and Other Plans
- ----------------------------
1987 Stock Option Plan
The Company adopted a stock option plan (the "Plan") pursuant to which
975,000 shares of common stock were originally reserved for issuance to persons
upon exercise of options designated as "incentive stock options," within the
meaning of Section 422A of the Internal Revenue code of 1986 (the "Code"), and
non-qualified stock options. The purpose of the Plan is to attract, retain, and
motivate officers and other full-time employees of the Company, and certain
other persons instrumental to the success of the Company, and to provide them
with a means to acquire a proprietary interest in the Company.
The Plan is administered by a committee consisting of three members of the
Board of Directors. The exercise price of an incentive stock option granted
under the Plan may not be less than the fair market value of the common stock at
the time the option is granted (110 percent of fair market value in the case of
an incentive stock option granted to an employee owning more than 10 percent of
the voting stock of the Company). The exercise price of a non-qualified stock
option granted under the Plan may be any amount determined by the Board of
Directors but not less than the par value of the common stock on the date of the
grant. Options granted under the Plan must, in general, expire no later than ten
years from the date of the grant (five years from the date of grant in the case
of an incentive stock option granted to an employee owning more than 10 percent
of the voting stock of the Company). All options granted to date provide that
54
<PAGE>
the grantees' rights vest over five years from the date of grant. At December
31, 1999, Francis M. Williams held 420,000 options to purchase the Company's
Stock at $0.275 per share of which 84,000 shares are exercisable. At December
31, 1999, Joseph M. Williams held 113,333 options to purchase the Company's
stock at $0.25 per share of which 22,667 shares are exercisable. At December 31,
1999, John V. Simon, Jr., held 71,666 options to purchase the Company's stock at
$0.25 per share, of which 14,333 shares are exercisable. At December 31, 1999,
Norman S. Dominiak held 7,500 options to purchase the Company's common stock at
$0.25 per share of which 1,500 options are exercisable.
Savings and Profit-Sharing Plan
- -------------------------------
The Company offers a savings and profit sharing plan (the "401(k) Plan"),
which qualifies under Sections 401(a) and (k) of the Code. Employees of the
Company and certain affiliates who have been employed for a specified period of
time are eligible to participate in the 401(k) Plan. All contributions made by
the employees' vest immediately. Amounts contributed by the Company vest 20
percent after three years of service and 20 percent each year thereafter.
Employee Stock Ownership Plan
- -----------------------------
Effective January 1, 1989, the Company formed the ESOP for the benefit of
the employees of the Company and its subsidiaries to purchase shares of the
Company's common stock from time to time on the open market or in negotiated
transactions at prices deemed to be attractive and, simultaneously, the Profit
Participation Plan was merged into the ESOP. Contributions to the ESOP are made
at the discretion of the Board of Directors. During 1989, the ESOP acquired from
the Company's President approximately 772,000 shares of common stock at a cost
of $5,100,000. The shares were acquired in exchange for a note payable to the
President. Simultaneously with such purchase, the President purchased certain
receivables and interests in certain investments from the Company for a purchase
price of $5,100,000, which was paid by the assignment to the Company of the note
received from the ESOP. The note was funded, during March 1990, through a
long-term bank financing agreement guaranteed by the Company. Expenses with
respect to the ESOP include the recognition of interest expense relating to the
ESOP debt and to earned compensation. For the year ended December 31, 1999,
interest expense and compensation expense relating to the ESOP were $59,335 and
$840,000, respectively. There was no unpaid ESOP debt as of December 31, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of shares of the Company's common
stock beneficially owned as of March 31, 2000, by (i) persons known by the
Company to own more than 5 percent of the Company's outstanding common stock,
(ii) by each Named Executive and director of the Company, and (iii) all
executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
Percent of
Percent Total
Name and Address of of Voting
Beneficial Owner(1) Title of Class Number of Shares Class Power
- ------------------- -------------- ---------------- ----- -----
<S> <C> <C> <C> <C>
Francis M. Williams Common Stock 2,602,735 53.4%
Class B Common Stock 1,666,569 (2) 100.0% 65.3%
Joseph M. Williams Common Stock 399,417 (3) 8.2% 6.1%
John V. Simon, Jr. Common Stock 42,095 (4) 0.9% 0.7%
Michael Gold Common Stock 13,523 (5) * *
George Chandler Common Stock 8,554 (6) * *
Norman S. Dominiak Common Stock 2,588 (8) * *
All executive officers and Common Stock 3,067,212 (2)(3) 63.0%
Directors as a group (5)(7) 72.4%
(five persons) Class B Common Stock 1,666,569 (8) 100.0%
</TABLE>
55
<PAGE>
(1) The addresses of all officers and directors of the Company above are in
care of the Company at 1501 Second Avenue, East, Tampa, Florida 33605.
(2) Includes 2,130,236 shares owned directly by Mr. Francis M. Williams;
includes 84,000 shares issuable upon exercise of currently exercisable
stock options; 133,333 shares owned by Summerbreeze and 121,750 shares
owned by Sunshadow, both of which Mr. Williams is the sole shareholder of
the corporate general partner and a 50 percent limited partner (see Item
13, "Certain Relationships and Related Transactions"); 48,909 shares owned
by Mr. Williams' wife; 30,493 shares held by Mr. Williams as Trustee for
his wife and children; 37,913 shares held by Mr. Williams as Custodian
under the New York Uniform Gifts to Minors Act for his children; 1,067
shares held by Kimmins Realty Investment, Inc., which is owned 100 percent
by Mr. Williams; and 15,034 shares held by the Company's 401(k) and ESOP
Plans of which Mr. Williams is fully vested.
(3) Includes 32,500 shares owned by Mr. Joseph M. Williams; 22,667 shares
issuable upon exercise of currently exercisable stock options; 3,030 shares
held by the Company's 401(k) and ESOP Plans of which Mr. Williams is fully
vested; and 3,030 shares held by the Company's 401(k) Plan and ESOP of
which Mr. Williams is a trustee with shared voting and investment power.
(4) Includes 1,500 shares owned by Mr. Simon; 14,333 shares issuable upon
exercise of currently exercisable stock options; and 26,262 shares held by
the Company's 401(k) and ESOP plans of which Mr. Simon is fully vested.
(5) Includes 1,150 shares owned by Mr. Gold; 5,775 shares currently owned by
Mr. Gold's wife; 2,898 held by Mr. Gold as trustee for Mr. Gold's minor
children; and 3,700 shares issuable upon exercise of currently exercisable
stock options.
(6) Includes 5,154 shares owned by Mr. Finn; and 1,700 shares issuable upon
exercise of currently exercisable stock options.
(7) Includes 131,095 shares issuable upon exercise of currently exercisable
stock options; 41,844 shares held by the Company's 401(k) and ESOP Plans of
which certain officers of the Company are fully vested; and 341,220 shares
held by the Company's 401(k) and ESOP Plans of which the Secretary of the
Company is a trustee.
(8) Includes 1,500 shares that may be purchased by Mr. Dominiak pursuant to
immediately exercisable options; and 1,088 shares held by the Company's
ESOP Plan, of which Mr. Dominiak is fully vested.
*Less than one percent.
Item 13. Certain Relationships and Related Transactions
The Company had a note receivable in an original amount of $3,638,696 from
Sunshadow Apartments, Ltd., and Summerbreeze Apartments, Ltd., two Florida real
estate limited partnerships (collectively, the "Apartments"), of which Mr.
Francis M. Williams is the sole shareholder of the corporate general partner and
was the sole limited partner. The note receivable originally accrued interest at
prime plus 1.375 percent, increasing to prime plus 2 percent on July 1, 1995,
with principal and interest payable in monthly installments through December 31,
1999, and was guaranteed by Mr. Williams. The Company did not receive any
interest or principal payments during 1997 relating to this note receivable, and
management of the Company discontinued recognition of interest income of
approximately $551,000 for the year. Amounts due from the Apartments at December
31, 1996, were approximately $3,851,000.
56
<PAGE>
On October 22, 1997, the Company contributed its note receivable in an
original amount of approximately $3,851,000 from Sunshadow Apartments, Ltd., and
Summerbreeze Apartments, Ltd., and other receivables of approximately $3,059,000
for a non-controlling 49 percent preferred limited partnership interest in the
Apartments. The Company will be allocated 49 percent of operating income, losses
and cash flow. The preference in the Company's equity interest in the Apartments
occurs upon the sale of the underlying partnership properties. Upon the
occurrence of a capital transaction, the Company would receive cash flows from
the sale or refinancing of the Apartments' assets equal to its capital
contribution prior to any other partner receiving any proceeds. See Note 8 of
Notes to Consolidated Financial Statements for additional information.
Mr. Francis M. Williams, the Company's President and majority stockholder,
also controls Cumberland, a property and casualty insurance company that
provides insurance for specialty sureties and performance and payment bonds for
contractors. Through Cumberland, the Company has obtained performance and
payment bonds in connection with certain of its contracts and projects. The fees
that the Company paid for these services for the years ended December 31, 1997
and 1998, were approximately $43,000 and $29,000, respectively. There were no
related fees paid to Cumberland for the year ended December 31, 1999.
The Company recorded bond fees of approximately $82,000 during 1999
although none were paid.
On November 5, 1996, the Company received 1,723,290 shares of Cumberland
common stock in exchange for the term note of $5,169,870 due from Cumberland.
The Cumberland common stock had a fair market value of $3.00 per share on the
date of the exchange, based upon the quoted market price. This investment is
accounted for under the equity method, and the Company's interest in Cumberland
represents an ownership share of approximately 31.6 percent. At December 31,
1998 and 1999, the market value of the Cumberland common stock held by the
Company was approximately $3,447,000 and $2,585,000, respectively.
On November 10, 1998, TransCor loaned $1,000,000 to Cumberland. The
TransCor loan to Cumberland is evidenced by a convertible term note which is due
November 10, 2001. Quarterly interest payments are due beginning January 1, 1999
at a rate of one half of one percent over the rate established by NationsBank.
TransCor has the right, after six months, to convert the principal amount of
note into shares of common stock of Cumberland at $3.00 per share. Effective
July 1, 1997, employees associated with TransCor's demolition contracting
services unit was transferred to Kimmins Contracting Corp. ("KCC"), a wholly
owned subsidiary of the Company, for administrative and accounting purposes. As
a result, contracting services previously performed by employees of TransCor
were subcontracted to KCC. For the year ended December 31, 1998, TransCor paid
$2,716,000 to KCC for services rendered by Kimmins as a subcontractor. In
addition, TransCor rented equipment from KCC for use in performing demolition
contracts. TransCor incurred approximately $2,573,000 and $1,822,000 in
equipment rental charges with KCC for the years-ended December 31, 1997 and
1998. All new demolition projects were handled directly by KCC in 1999.
On August 14, 1998, the Company acquired an additional 297,200 shares of
common stock in TransCor from Francis M. Williams, President and Chief Executive
Officer. The acquisition increased the Company's ownership percentage to 81
percent from 74 percent and results in the ability to consolidate the Company
and TransCor for federal income tax purposes on a prospective basis.
During the year ended December 31, 1998, TransCor contributed $1,000,000 to
the Kimmins Terrier Foundation, a private foundation controlled by Francis M.
Williams.
Effective with the sale of Kimmins Recycling during 1998, the Company
accrued $1,000,000 payable to Mr. Francis M. Williams for a 10-year non-compete
agreement.
Qualex, which is controlled by Mr. Francis M. Williams, provides some
services, including legal counsel to the Company. During 1999, the Company
recorded approximately $97,000 for these services.
<PAGE>
Effective with the sale of Kimmins Recycling during 1998, the Company
accrued $1,000,000 payable to Mr. Francis M. Williams for a 10-year non-compete
agreement. In 1999, the accrual amount remained unchanged. There is an agreement
to convert the $1,000,000 payable to common stock during the year 2000. As part
of the agreement, the Class B stock owned by Mr. Francis M. Williams will be
retired (see Notes 3 and 15 to Consolidated Financial Statements for additional
information).
Subsequent Events
- -----------------
The Company received two settlements on the Pascagoula claim during the
first quarter of 2000. On January 3, 2000, the Company received $874,048 which
paid the outstanding Accounts Receivable, including retainage, related to the
Pascagoula claim. This amount was included in the Accounts Receivable balance at
December 31, 1999. During February 2000, the Company received $801,000 on the
Pascagoula claim, which represented interest and penalties on the claim amount.
This amount was not included in the Company's financial statements at December
31, 1999.
57
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement, Schedules, and Reports on Form 8-K
(a) List of documents filed as part of this Report
1. Financial Statements
- Report of Independent Certified Public Accountants - Consolidated
balance sheets at December 31, 1998 and 1999
- Consolidated statements of operations for each of the three years in
the period ended December 31, 1999
- Consolidated statements of comprehensive income for each of the three
years in the period ended December 31, 1999
- Consolidated statements of stockholders' equity for each of the three
years in the period ended December 31, 1999
- Consolidated statements of cash flows for each of the three years in
the period ended December 31, 1999
- Notes to consolidated financial statements
2. Financial Statement Schedule
II- Valuation and Qualifying Accounts
All other Schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
Schedules, or because the information required is included in the financial
statements and notes thereto.
3. The following documents are filed as exhibits to this Annual Report on
Form 10-K:
2.1 -Plan and Agreement of Merger (incorporated by reference to
Appendix A to the Company's definitive Proxy Statement for
its 1999 Annual Meeting of Stockholders, dated August 16,
1999, filed with the Commission on August 16, 1999 (the
"Proxy Statement")).
3.1 -Articles of Incorporation of the Registrant (incorporated
by reference to Appendix B to the Proxy Statement).
3.2 -Bylaws of the Registrant (incorporated by reference to the
Registrant's Current Report on Form 8-K dated October 19,
1999 as filed with the Securities and Exchange Commission).
10.1 1 -Stock Option Plan
10.2 1 -Form of Stock Option Agreement for Executives
10.3 2 -The Apartments Partnership Agreements
10.4 2 -Term Notes for equipment financed with Caterpillar
Financial Services
10.5 3 -Stock Purchase Agreement dated August 14, 1998 between
the Company and Francis M. Williams
10.6 4 -Stock Purchase Agreement between TransCor and Eastern
Environmental Services dated July 17, 1998
10.7 -Second Amended and Restated Loan Agreement between
Registrant and SouthTrust Bank, N.A.
10.8 -Amendment to Second Amended and Restated Loan Agreement
16.1 -Letter re Change in Certifying Accountant (incorporated by
reference to Exhibit 99.1 of the Registrant's Current Report
on Form 8-K dated November 18, 1999 as filed with the
Securities and Exchange Commission)
21 -Subsidiaries of the Registrant
23.1 -Consent of Ernst & Young LLP
23.2 -Consent of Giunta, Ferlita & Walsh, PA
27 -Financial Data Schedule (for SEC use only)
1 Previously filed on June 29, 1989, as part of Registrant's Form S-8,
File No. 33-29612, and incorporated herein by reference thereto.
2 Previously filed on July 2, 1998 as part of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997, File No.
1-10489 and incorporated herein by reference thereto.
3 Previously filed on April 15, 1999 as part of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998, File No.
1-10489 and incorporated hereby by reference thereto.
4 Previously filed as part of TransCor's amended Form 8-K, File No.
1-11822, filed on August 4, 1998
(b) Reports on Form 8-K.
The Registrant filed a Report on Form 8-K dated October 19, 1999 reporting
the completion of the Registrant 's reincorporation merger.
The Registrant filed a Report on Form 8-K dated November 18, 1999 reporting
that the Registrant changed its accountants.
58
<PAGE>
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, thereunder duly authorized.
KIMMINS CORP.
Date: April 11, 2000 By: /s/ Francis M. Williams
---------------------------- -----------------------------------
Francis M. Williams
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: April 11, 2000 /s/ Francis M. Williams
---------------------------- -----------------------------------
Francis M. Williams
President and Director
(Chief Executive Officer)
Date: April 11, 2000 /s/ Joseph M. Williams
---------------------------- -----------------------------------
Joseph M. Williams
Secretary/Treasurer
Date: April 11, 2000 /s/ Norman S. Dominiak
---------------------------- ----------------------------------
Norman S. Dominiak
Vice President and Chief Financial
Officer
(Principal Accounting and Financial
Officer)
Date: April 11, 2000 /s/ Michael A. Gold
---------------------------- -----------------------------------
Michael A. Gold, Director
Date:
---------------------------- -----------------------------------
R. Donald Finn, Director
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Plan and Agreement of Merger (incorporated by reference to Appendix A
to the Company's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders, dated August 16, 1999, filed with the
Commission on August 16, 1999 (the "Proxy Statement")).
3.1 Articles of Incorporation of the Registrant (incorporated by reference
to Appendix B to the Proxy Statement).
3.2 Bylaws of the Registrant. (incorporated by reference to the
Registrant's Current Report on Form 8-K dated October 19, 1999 as
filed with the Securities and Exchange Commission).
10.1 1 Stock Option Plan
10.2 1 Form of Stock Option Agreement for Executives
10.3 2 The Apartments Partnership Agreements
10.4 2 Term Notes for equipment financed with Caterpillar Financial
Services
10.5 3 Stock Purchase Agreement dated August 14, 1998 between the Company
and Francis M. Williams
10.6 4 Stock Purchase Agreement between TransCor and Eastern Environmental
Services dated July 17, 1998
10.7* Second Amended and Restated Loan Agreement between Registrant and
SouthTrust Bank, N.A.
10.8* Amendment to Second Amended and Restated Loan Agreement
16.1 Letter re Change in Certifying Accountant (incorporated by reference
to Exhibit 99.1 of the Registrant's Current Report on Form 8-K dated
November 18, 1999 as filed with the Securities and Exchange
Commission)
21* Subsidiaries of the Registrant
23.1* Consent of Ernst & Young LLP
23.2* Consent of Giunta, Ferlita & Walsh, PA
27* Financial Data Schedule (for SEC use only)
- ---------------------------------
* Filed herewith.
1 Previously filed on June 29, 1989, as part of Registrant's Form S-8,
File No. 33-29612, and incorporated herein by reference thereto.
2 Previously filed on July 2, 1998 as part of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997, File No.
1-10489 and incorporated herein by reference thereto.
3 Previously filed on April 15, 1999 as part of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998, File No.
1-10489 and incorporated hereby by reference thereto.
4 Previously filed as part of TransCor's amended Form 8-K, File No.
1-11822, filed on August 4, 1998.
EXHIBIT 10.7
SECOND AMENDED AND RESTATED LOAN AGREEMENT
(COMPANY LOAN)
This Second Amended and Restated Loan Agreement (this "Agreement"), dated
as of January 12, 1998, is between KIMMINS CORP., a Delaware corporation, and
all of its undersigned partially and wholly owned subsidiaries, as Borrowers,
and SOUTHTRUST BANK, NATIONAL ASSOCIATION, with its principal office in
Birmingham, Alabama, as lender.
BACKGROUND
Pursuant to a Loan Agreement dated August 26, 1994, Bank made available to
Borrowers three credit facilities in the aggregate amount of up to $14,000,000
allocated as follows: (1) a Revolving Loan in the amount of $5,000,000; (2) a
loan in the amount of $7,000,000 for the refinancing of Borrowers' loans from
Fleet Bank and from Chase Bank ("Term Loan"); and (3) a Real Estate Loan of
$2,000,000. Pursuant to a First Amended and Restated Loan Agreement dated
December 8, 1995, Bank renewed the Revolving Loan and increased the amount of
the Revolving Loan to $15,000,000, reduced by the outstanding principal balances
of a new loan in the amount of $5,000,000 to fund equipment and corporate
acquisitions ("Non-Revolving Line of Credit"). Bank also renewed the $7,000,000
Term Loan and the $2,000,000 Real Estate Loan. Also, pursuant to an Assignment
dated the same date as the First Amended and Restated Loan Agreement, Bank
acquired a $2,400,000 loan from Fleet Bank to an ESOP established by Borrowers,
which loan is guaranteed by Borrowers, thereby resulting in the termination of
the Intercreditor Agreement dated August 26, 1994, between Bank and Fleet Bank
and Bank's status as collateral agent for both Fleet Bank and Bank. On October
28, 1996, Borrowers repaid the $7,000,000 Term Loan. The $5,000,000
Non-Revolving Line of Credit was never funded and has been terminated. By
Amendment to Loan Documents dated as of December 30, 1996, the First Amended and
Restated Loan Agreement was amended to join as Borrowers and Guarantors two
additional partially or wholly-owned subsidiaries of Kimmins Corp.
Borrowers request that Bank renew the Revolving Loan at an amount equal to
$8,000,000, subject to Borrowers' commitment to reduce this balance in
accordance with this Agreement. Bank is willing to make these credit facilities
available to Borrowers on the terms and conditions set forth in this Agreement.
OPERATIVE TERMS
The recitals set forth above are incorporated into this Agreement and Bank
and Borrowers agree as follows:
1. Defined Terms. As used in this Agreement, the following terms shall have
the following meanings:
1.1 Accounts -- has the meaning set forth in the Security Agreement.
1.2 Affiliate -- any director or officer of Borrowers or any Person who
directly, indirectly or beneficially, owns 5% or more of the capital stock of
any Borrower, or 5% of the voting stock or rights of any Borrower, or any member
of the immediate family of any such officer, director, or stockholder, or any
corporation or other entity which is controlled by, controls, or is under common
control with, any Borrower, including the Guarantor.
1.3 Agreement -- this Second Amended and Restated Loan Agreement.
1.4 Bank -- SouthTrust Bank, National Association, and its successors and
assigns, a party to this Agreement.
1.5 Base Rate -- the rate of interest designated by Bank periodically as
its Base Rate. The Base Rate is not necessarily the lowest interest rate charged
by Bank.
1.6 Borrower or Borrowers -- Kimmins Corp., a Delaware corporation, Kimmins
Contracting Corp., a Florida corporation, Kimmins Ltd., a Canadian corporation,
Kimmins Industrial Service Corp., a Delaware corporation, Kimmins Abatement
Corp., a Delaware corporation, ThermoCor Kimmins, Inc., a Florida corporation,
TransCor Waste Services, Inc., a Florida corporation, Kimmins Recycling Corp., a
Florida corporation, Kimmins Incorporated, a Texas corporation, Kimmins
International Corporation, a Florida corporation, Fourth Avenue Holdings, Inc.,
a Florida corporation, 40th Street, Inc., a Florida corporation, Lantana Eighth
Avenue Corp., a Florida corporation, Factory Street Corporation, a Tennessee
corporation, Kimmins Associates, Inc., a Delaware Corporation, Kimmins Specialty
Contracting, Inc., a Florida corporation, and Kimmins Equipment Leasing Corp., a
Florida corporation, each a party to this Agreement and other Subsidiaries that
from time to time become parties to this Agreement.
1.7 Cash Capital Expenditures -- cash expenditures made for the acquisition
of any fixed assets or improvements, replacements, substitutions, or additions
thereto which have a useful life of more than one year.
1.8 Capitalized Lease Obligations -- any Debt represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP. The amount of such Debt shall be the
capitalized amount of such obligations determined in accordance with GAAP.
1.9 Chattel Paper -- has the meaning set forth in the Security Agreement.
1.10 Code -- the Uniform Commercial Code, as in effect in Florida from time
to time.
1.11 Collateral - collectively, Borrowers' Accounts, Deposit Accounts,
Documents, Instruments, Chattel Paper, Equipment, General Intangibles, and
Inventory, the Subsidiary Stock, the Notes Receivable, and Real Estate, and the
other property and interests described in the Collateral Documents and elsewhere
in the Loan Documents, wherever located and whether now owned by Borrowers or
hereafter acquired, and the parts, proceeds, products, profits, replacements,
and substitutions of each, as the case may be.
1.12 Collateral Documents -- the Mortgage, the Pledge Agreement, the
Security Agreement, this Agreement (to the extent it constitutes a security
agreement), and all other documents executed from time to time evidencing Bank's
security interest in the Collateral.
1.13 Collected Underbillings -- 50% of the amounts (net of associated legal
costs) received by Borrowers as described in Exhibit "G."
1.14 Contractual Obligation -- any provision of any security issued by a
Person or of any agreement, instrument, or undertaking to which such Person is a
party or by which it or any of its property is bound.
1.15 Current Assets -- at any date means the amount at which all of the
current assets of a Person (or Persons on a consolidated basis) would be
properly classified as current assets shown on a balance sheet at such date in
accordance with GAAP, except that amounts due from Affiliates and Subsidiaries
and investments in Affiliates and Subsidiaries shall be excluded.
1.16 Current Liabilities -- at any date means the amount of the current
liabilities of a Person (or Persons on a consolidated basis) that would be
properly classified as current liabilities on a balance sheet at such date in
accordance with GAAP.
1.17 Debt -- the sum of (a) indebtedness for borrowed money or for the
deferred purchase price of property or services, (b) Capitalized Lease
Obligations, (c) the aggregate amount of outstanding and unpaid Letters of
Credit issued by Bank, and (d) all other items which in accordance with GAAP
would be included in determining total liabilities as shown on a balance sheet
of a Person (or Persons on a consolidated basis) as at the date as of which Debt
is to be determined.
1.18 Default Rate -- the highest lawful rate of interest per annum
specified in any Note to apply after a default under such Note or, if no such
rate is specified, a rate equal to the lesser of (a) two percent over the
interest rate specified to be the applicable contract interest rate in this
Agreement or (b) the highest rate of interest allowed by law.
1.19 Agency Account -- has the meaning set forth in the Account Pledge
Agreement in the form attached as Exhibit "H", to be executed by certain of the
Borrowers in favor of Bank as secured party.
1.20 Documents -- has the meaning set forth in the Security Agreement.
1.21 Environmental Regulations -- all federal, state, and local laws,
rules, regulations, ordinances, programs, permits, guidances, orders, and
consent decrees relating to the environment or to public health, safety, and
environmental matters, including the Resource Conversation and Recovery Act, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Toxic Substances Control Act, the Clean Water Act, the Clean Air Act, the River
and Harbor Act, the Water Pollution Control Act, the Marine Protection Research
and Sanctuaries Act, the Deep-Water Port Act, the Safe Drinking Water Act, the
Superfund Amendments and Reauthorization Act of 1986, the Federal Insecticide,
Fungicide and Rodenticide Act, the Mineral Lands and Leasing Act, the Surface
Mining Control and Reclamation Act, the Oil Pollution Act of 1990, state and
federal super lien and environmental cleanup programs and laws, U.S. Department
of Transportation regulations, laws regulating hazardous, radioactive and toxic
materials and underground petroleum products storage tanks, and all similar
state, federal, and local laws and regulations.
1.22 Equipment -- has the meaning set forth in the Security Agreement.
1.23 ERISA -- the Employee Retirement Income Security Act of 1974 and all
rules and regulations promulgated thereunder.
1.24 ESOP -- the Employee Stock Ownership Plan of Parent, as evidenced by
the Employee Stock Ownership Trust Agreement dated December 29, 1989.
1.25 ESOP Loan -- the loan in the approximate principal amount of
$2,400,000, from Bank to the trustees of the Parent's Employee Stock Ownership
Plan, guaranteed by Borrowers, which Bank acquired from Fleet Bank pursuant to
an Assignment dated December 8, 1995.
1.26 Event of Default -- any one of the events enumerated in Article 10
("Events of Default").
1.27 Fixed Charge Coverage -- a fraction in which the numerator is the sum
of the net income of Borrowers (after provision for federal and state taxes) for
the 12-month period preceding the applicable date, plus the interest, lease, and
rental expenses of Borrowers for said period, plus the unearned employee
compensation paid to the Parent's Employee Stock Ownership Plan Trust, plus the
sum of non-cash expenses or allowances for such period (including amortization
or write-down of intangible assets, depreciation, depletion, and deferred taxes
and expenses) and the denominator is the sum of the current portion of the long
term debt of Borrowers as of the applicable date, plus the interest, lease, and
rental expenses for the 12-month period preceding the applicable date.
1.28 GAAP -- generally accepted accounting principles in the United States
of America as defined by the Financial Accounting Standards Board or its
successor, as in effect from time to time consistently applied.
1.29 General Intangibles -- has the meaning set forth in the Security
Agreement. -------------------
1.30 Governmental Authority -- means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions pertaining to
government.
1.31 Guarantor -- Cumberland Holdings, Inc., a Florida corporation.
1.32 Instrument -- has the meaning set forth in the Security Agreement.
1.33 Inventory -- has the meaning set forth in the Security Agreement.
1.34 Letters of Credit -- the Letters of Credit provided for in Section
2.11 of this Agreement.
1.35 Lien -- any interest in property (real, personal, or mixed, and
tangible or intangible) securing an obligation owed to, or a claim by, a Person
other than the owner of the property, whether such interest is based on the
common law, statute or contract, and including a security interest, security
title or Lien arising from a security agreement, mortgage, deed of trust, deed
to secure debt, encumbrance, pledge, conditional sale or trust receipt or a
lease, consignment or bailment for security purposes. The term "Lien" shall
include covenants, conditions, restrictions, leases, and other encumbrances
affecting any property. For the purpose of this Agreement, Borrowers shall be
deemed to be the owners of any property which they have acquired or hold subject
to a conditional sale agreement or other arrangement pursuant to which title to
the Property has been retained by or vested in some other Person for security
purposes.
1.36 Loan or Loans -- all loans from Bank to Borrowers, including the
Revolving Loan and the Real Estate Loan.
1.37 Loan Account -- the loan account established on the books of Bank
pursuant to Section 2.4 ("Loan Account").
1.38 Loan Documents -- this Agreement, and each and every mortgage, deed of
trust, note, security agreement, financing statement or other instrument
executed and delivered to evidence the Loans, the ESOP Loan, or any other
Obligation, to constitute collateral for the Loans, the ESOP Loan, or any other
Obligation, and any and all other agreements, instruments, and documents
heretofore, now or hereafter, executed by Borrowers and delivered to Bank in
respect to the transactions contemplated by this Agreement.
1.39 Material Adverse Effect -- with respect to a Person, a material
adverse effect on its business, assets, properties, prospects, results of
operation, or condition (financial or other).
1.40 Mortgage -- the mortgages executed by Parent granting Bank a first
lien on the Real Estate to secure repayment of the Real Estate Loan.
1.41 Multiemployer Plan -- has the meaning set forth in Section 400(a)(3)
of ERISA.
1.42 Net Income -- Net income of Borrowers for the relevant period on a
consolidated basis as set forth in Parent's financial statements.
1.43 Note(s) -- each promissory note executed and delivered by Borrowers to
Bank evidencing all or part of the Loans, as further described hereinafter.
1.44 Notes Receivable -- the following promissory notes executed in favor
of Parent: (a) Subordinated Note dated March 25, 1993, in the approximate amount
of $1,600,000, executed by TransCor Waste Services, Inc.; (b) Promissory Note
dated June 30, 1993, in the approximate principal amount of $3,588,000, executed
by Sunshadow Apartments, Ltd. and Summerbreeze Apartments, Ltd.; (c) Promissory
Note dated May 1, 1993, in the approximate principal amount of $1,204,000,
executed by Sunforest Apartments, Ltd.; and (d) Term Note dated October 1, 1992,
in the approximate initial principal amount of $4,291,049, executed by Guarantor
and all associated collateral, guarantees, and other contract rights.
1.45 Obligations -- all Loans and all other advances, debts, liabilities,
obligations, covenants, and duties owing, arising, due or payable from Borrowers
or the ESOP to Bank of any kind or nature, present or future, whether or not
evidenced by any note, guaranty, or other instrument, whether arising under this
Agreement or any of the other Loan Documents or otherwise, whether direct or
indirect (including those acquired by assignment), absolute or contingent,
primary or secondary, due or to become due, now existing or hereafter arising
and however evidenced or acquired. The term includes, without limitation, all
interest, charges, expenses, fees, attorneys' fees and any other sums chargeable
to Borrowers under any of the Loan Documents and all rights Bank may at any time
or times have to reimbursement in connection with any Letter of Credit or
guaranty issued for Borrowers' benefit.
1.46 Parent -- Kimmins Corp., a Delaware corporation and a party to this
Agreement.
1.47 Permitted Liens -- any Lien of a kind specified as permitted in
Section 7.2 ("Liens and Security Interests").
1.48 Person -- an individual, partnership, corporation, joint stock
company, firm, land trust, business trust, unincorporated organization, limited
liability company, or other business entity, or a government or agency or
political subdivision thereof.
1.49 Plan -- an employee benefit plan now or hereafter maintained for
employees of Borrowers that is covered by Title IV ---- of ERISA.
1.50 Pledge Agreement -- the Second Amended and Restated Pledge Security
Agreement dated December 8, 1995, executed by Parent, TransCor, Recycling, and
Guarantor in favor of Bank as secured party.
1.51 Prohibited Transaction -- any transaction set forth in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986.
1.52 Quarterly Reductions -- permanent reductions in the Revolving Loan in
the amounts of $250,000 per calendar quarter, beginning July 1, 1997, described
in Section 2.1.
1.53 Real Estate -- the improved real property of Parent and described in
and encumbered by the Mortgage.
1.54 Real Estate Loan -- has the meaning set forth in Section 2.2 ("Real
Estate Loan").
1.55 Registration Rights Agreement -- the Registration Rights Agreement
dated April 30, 1993, between Fleet Bank and TransCor Waste Services, Inc.,
providing for registration of the shares of common stock of TransCor pledged by
Parent to Bank as collateral for the Loans, as assigned pursuant to the
Assignment of Registration Rights Agreement dated August 26, 1994, and as
further amended pursuant to the First Amendment to Registration Agreement dated
December 8, 1995.
1.56 Reportable Event -- any of the events set forth in Section 4043(b) of
ERISA.
1.57 Requirement of Law -- as to any Person, the articles of incorporation
and bylaws or other organizational or governing documents of the Person, and any
law, treaty, rule or regulation, or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding on the
Person or any of its property or to which the Person or any of its property is
subject.
1.58 Revolving Loan -- has the meaning set forth in Section 2.1 ("Revolving
Loan").
1.59 Security Agreement -- the Second Amended and Restated General Security
Agreement dated December 8,' 1995, executed by certain Borrowers in favor of
Bank as secured party.
1.60 Solvent -- as to any Person, means such Person (a) owns property,
real, personal, and mixed, whose aggregate fair saleable value is greater than
the amount required to pay all of such Person's Debt and Contingent Obligations,
and (b) is able to pay all of its Debt as such Debt matures, and (c) has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage.
1.61 Subordinated Debt -- the Debt of Borrowers owed to any Affiliate, or
to any other Person which is fully subordinated to the Loans (including
principal, interest, and agreed charges) in a manner satisfactory to Bank (which
may be either according to its terms or by separate agreement) and which debt
arises from Borrowers' actual receipt of cash and not from "in-kind" or non-cash
consideration.
1.62 Subsidiary -- any corporate entity or partnership, or other business
entity, the controlling interest of which is owned by any Borrower. Subsidiary
includes every Borrower except Parent.
1.63 Subsidiary Stock -- the issued and outstanding capital stock of (i)
each Subsidiary held by Parent or a Subsidiary, including all of the stock
listed on the attached Exhibit "E," and (ii) all $2,000,000 shares of
outstanding capital stock of Cumberland Casualty and Surety Company, a Texas
corporation and a wholly-owned subsidiary of Guarantor.
1.64 Tangible Net Worth -- for any Person (or Persons on a consolidated
basis), the aggregate of the (a) par or stated value of all outstanding capital
stock; (b) capital surplus; and (c) retained earnings, less (t) any amounts due
from Affiliates; (u) any surplus resulting from any write-up of assets
subsequent to the date of this Agreement; (v) deferred assets (including
deferred development costs) other than prepaid insurance and prepaid taxes; (w)
goodwill or other amounts representing the excess of the purchase price of
assets or stock over the value assigned to them on the books of such Person; (x)
the book value of any patents, trademarks, trade names, copyrights, noncompete
agreements, franchises, experimental expenses, and other intangible assets; (y)
the amount paid for any treasury stock reflected as a reduction of the capital
surplus or retained earnings accounts, and (z) any other amounts classified as
intangible assets under GAAP. For purposes of calculating Tangible Net Worth,
cumulative unearned employee compensation from Parent's Employee Stock Ownership
Plan Trust may be eliminated as a reduction of shareholders' equity.
1.65 Certain Other Words -- All accounting terms used herein have the
respective meanings attributed to them under, and shall be construed in
accordance with, GAAP. The terms "herein," "hereof," and "hereunder," and other
words of similar import refer to this Agreement as a whole and not to any
particular section, paragraph or subdivision. Any pronouns used shall be deemed
to cover all genders. As used in this Agreement, (a) the word "including" is
always without limitation; (b) words in the singular number include words of the
plural number and vice versa; (c) the word "costs" includes all out-of-pocket
expenses, fees, costs, and expenses of experts and collection agents,
supersedeas bonds, and all attorneys' fees, costs, and expenses, whether
incurred before, during, or after demand or litigation, and whether pursuant to
trial, appellate, arbitration, bankruptcy, or judgment-execution proceedings;
and (d) the word "property" includes both tangible and intangible property,
unless the context otherwise requires. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any instruments or agreements, including
references to any of the Loan Documents, shall include any and all modifications
or amendments thereto and any and all extensions or renewals thereof. All other
terms contained in this Agreement shall, unless otherwise defined herein or
unless the context otherwise indicates, have the meanings provided for by the
Uniform Commercial Code of the State of Florida.
1.66 Directly and Indirectly. When any provision of this Agreement or any
Loan Document requires or prohibits action to be taken by a Person, the
provision applies regardless of whether the action is taken directly or
indirectly by the Person.
2. The Loans.
2.1 Revolving Loans.
(a) Subject to the terms and conditions of this Agreement and provided
no Event of Default exists, Bank agrees to loan to Borrowers on a revolving
credit basis for working capital and Letter of Credit financing, when requested
by Parent or TransCor Waste Services, Inc., Revolving Loans in principal amounts
aggregating up to $8,000,000 (but subject to reduction for Quarterly Reductions,
the Collected Underbillings, the Real Estate Loan, and the outstanding and
unpaid Letters of Credit as set forth in subsection (c) below).
(b) The Borrowers shall execute and deliver to Bank one promissory
note (the "Revolving Note") in the aggregate face amount of the Revolving Loan
payable to the order of Bank, evidencing Borrowers' joint and several obligation
to repay the Revolving Loan. The principal amount of the Revolving Loans
outstanding from time to time under this Agreement shall bear interest at a
floating annual rate equal to the Base Rate plus one-half (1/2%) percent.
Borrowers shall pay interest to Bank on the amount of the Revolving Loan
outstanding monthly in arrears on the first day of each month beginning with
February 1, 1998, and continuing on the same day of each month thereafter until
the unpaid principal balance of the Revolving Loan has been paid-in-full. The
applicable interest rate on the Revolving Loan shall change as and when the Base
Rate changes from time to time. The Base Rate on the date of this Agreement is
8.5 percent.
(c) The aggregate amount of Bank's outstanding obligations for
outstanding and unpaid Letters of Credit issued for the account of all Borrowers
will be limited to $2,600,000. The total availability of advances under the
Revolving Loan will be reduced by the following: (i) the aggregate amount of
outstanding and unpaid Letters of Credit; (ii) the outstanding and unpaid amount
of the Real Estate Loan; (iii) the Collected Underbillings; (iv) to the extent
that the Collected Underbillings are less than $2,000,000 from July 1, 1997,
through December 31, 1997, the difference between $2,000,000 and the amount of
Collected Underbillings through December 31, 1997; and (v) Quarterly Reductions.
(d) Borrowers shall repay on July 31, 1999, all outstanding principal
and accrued interest with respect to the Revolving Loan not previously paid.
2.2 Real Estate Loan.
(a) Subject to the terms and conditions of this Agreement and provided
no Event of Default exists, Bank has agreed to loan to Borrowers a Real Estate
Loan of $2,000,000.
(b) The Borrowers have executed and delivered to Bank one promissory
note (the "Real Estate Note") in the face amount of the Real Estate Loan payable
to the order of Bank, evidencing Borrowers' joint and several obligation to
repay the Real Estate Loan. The outstanding principal amount of the Real Estate
Loan shall bear interest at Base Rate plus three quarters percent (3/4%).
2.3 Terms Governing All Loans.
(a) Each borrowing under a Loan shall be effected by crediting the
amount thereof to the regular checking account of a Borrower maintained with
Bank or with another bank approved by Bank.
(b) Any payments not made as and when due with respect to any Loan
(whether at stated maturity, by acceleration, or otherwise) shall bear interest
at the Default Rate from the date until paid, payable on demand.
(c) If the outstanding principal amount of the Loans at any time
exceeds the respective maximum principal amounts specified for them, Borrowers
shall immediately pay Bank such excess as a reduction of the principal amount of
the Loan. Borrowers may request and Bank may be willing in its sole and absolute
discretion to make advances in excess of such maximum principal amounts. Bank
shall enter any such advances as debits in the Loan Account. All such advances
in excess of the maximum principal amount shall be payable on demand, bear
interest as provided in this Agreement for Revolving Loans generally, and be
secured by the Collateral, excluding the Real Estate, unless the parties
otherwise agree in writing.
(d) Interest shall be calculated based on a 360-day year.
2.4 Loan Accounts. Amounts due under the Revolving Note, under the Real
Estate Note, and under this Agreement and the other Loan Documents shall be
reflected in the Loan Account. Bank shall enter disbursements hereunder or under
a Note as debits to the Loan Account and shall also record in the Loan Account
all payments made by Borrowers and all proceeds of Collateral which are finally
paid to Bank, and may record therein, in accordance with customary accounting
practice, all charges and expenses properly chargeable to Borrowers hereunder.
2.5 Prepayment. Subject to the provisions hereof (including the termination
fee in Section 2.7), Borrowers shall have the right at any time and from time to
time to prepay any Loan, in whole or in part, without premium or penalty but
with accrued interest to the date of such prepayment on the amounts prepaid.
Such prepayments shall be made to Bank in immediately available funds and, shall
be applied to the last of the installment(s) to mature. Any such prepayment
shall not affect or vary the obligation of Borrowers to pay any installment when
due.
2.6 Use of Proceeds. Borrowers shall use the proceeds of and credit
availability under the Revolving Loan to provide working capital support and to
facilitate issuance of Letters of Credit of up to $2,600,000 for bid and
performance bonds and for workers' compensation and casualty insurance programs,
or other corporate purposes approved by Bank. Borrowers shall have used the
proceeds of the Real Estate Loan to refinance a real estate mortgage loan with
NationsBank of Florida, an equipment line of credit with Fleet Bank, and any
other credit obligations for which Borrowers submit a refinancing request before
closing that is accepted by Bank. Borrowers shall not use proceeds of the Loans
for any other purposes. The use of proceeds as approved by Bank is further
described in Exhibit "F" to this Agreement.
2.7 Term. This Agreement shall remain in force and effect until all Loans,
and any renewals or extensions, and all interest thereon and costs provided for
herein with regard to either of them have been indefeasibly paid or satisfied in
full and until Bank has no further obligation to advance funds to Borrowers
hereunder. Borrowers may terminate the Revolving Loan credit facility at any
time before the scheduled maturity date by paying all outstanding principal,
interest and costs. The indemnities provided for in Article 11
("Indemnification") shall survive the payment in full of all Loans and the Other
Obligations and the termination of this Agreement.
2.8 Payments. All sums paid to Bank by Borrowers hereunder shall be paid
directly to Bank in immediately available funds. Bank shall send Parent
statements of all amounts due hereunder, which statements shall be considered
correct and conclusively binding on Borrowers unless Parent notifies Bank to the
contrary within twenty (20) days of its receipt of any statement which it deems
to be incorrect. Bank may, in its sole discretion (a) charge against any deposit
account of any Borrower all or any part of any amount due hereunder and (b)
advance to Borrowers, and charge to the respective Loan, a sum sufficient each
month to pay all interest accrued on the respective Loan and fees due under this
Agreement during or for the immediately preceding month. Borrowers shall be
deemed to have requested an advance under the Revolving Loan, upon the
occurrence of an overdraft in any of Borrowers' checking accounts maintained
with Bank or another bank owned by SouthTrust Corporation.
2.9 Fees. Borrowers shall pay to Bank annually in advance on the date of
this Agreement and on each anniversary of it a commitment fee of one-quarter
percent (1/4%) per annum of the maximum committed amount of the Revolving Loan
credit facility (whether or not outstanding). For the partial year preceding
maturity of the Revolving Loan, Borrowers shall pay a pro rata share of the
commitment fee. In addition, Borrowers have paid to Bank an origination fee of
one-half percent (1/2%) on the Term Loan provided for in the First Amended and
Restated Loan Agreement dated December 8, 1995, and the Real Estate Loan.
2.10 Limitation on Interest Charges. Bank and Borrowers intend to comply
strictly with applicable law regulating the maximum allowable rate or amount of
interest that Bank may charge and collect on the Loans to Borrowers pursuant to
this Agreement. Accordingly, and notwithstanding anything in the Note or in this
Agreement to the contrary, the maximum, aggregate amount of interest and other
charges constituting interest under applicable law that are payable, chargeable,
or receivable under the Note and this Agreement shall not exceed the maximum
amount of interest now allowed by applicable law or any greater amount of
interest allowed because of a future amendment to existing law. Borrowers are
not liable for any interest in excess of the maximum lawful amount, and any
excess interest charged or collected by Bank will constitute an inadvertent
mistake and, if charged but not paid, will be cancelled automatically, or, if
paid, will be either refunded to Borrowers or credited against the outstanding
principal balance of the Note, at the election of Borrowers.
2.11 Letters of Credit.
(a) Standby Letter of Credit Financing. Subject to the terms and
conditions of this Agreement, Bank agrees to issue, extend, or renew standby
Letters of Credit for the account of Borrowers through December 31, 1998. The
aggregate amount available for standby Letter of Credit financing will be
subject to limitations set forth in Section 2.1 ("Revolving Loan").
(b) Payment. All payments made by Bank under the Letters of Credit
(whether or not a Borrower is the account party or drawer) and all fees,
commissions, discounts and other amounts owed or to be owed to Bank in
connection therewith (unless otherwise paid or reimbursed to Bank by Borrowers),
shall be deemed to be advances under the Revolving Note, and shall be repaid and
bear interest in accordance with its terms and the terms of this Agreement. On
the earlier of December 31, 1998, or the termination or maturity date of the
Revolving Loan (whether at stated maturity, by acceleration, or otherwise),
Borrowers shall, on demand, deliver to Bank good funds equal to 100% of Bank's
maximum liability under all outstanding Letters of Credit, to be held as cash
collateral for Borrowers' reimbursement obligations and all other Obligations.
(c) Collateralization of Letters of Credit. Borrower shall deposit
into and maintain in a money market account established at SouthTrust Securities
and pledged to Bank (and no other creditor) as security for Bank's extensions or
renewals on Borrowers' account pursuant to the Letters of Credit amounts in the
form of cash equal to $130,000 per month, beginning July 1, 1997, and continuing
until December 31, 1998 or until all outstanding Letters of Credit are fully
collateralized. If, at any time, the Bank further issues or extends Letters of
Credit for the account of Borrowers, which further issuances or extensions are
not fully collateralized, Borrower will be obligated to begin making the monthly
cash deposits of $130,000 per month, in the same manner and subject to the same
conditions.
(d) Account Pledge Agreement. Borrowers shall execute and deliver to
Bank by January 31, 1998, as a condition precedent to Bank's issuance,
extension, or renewal for the account of Borrowers pursuant to Letters of Credit
following January 31, 1998, an Account Pledge Agreement in the form attached as
Exhibit "G."
(e) Applications and Supplemental Forms. Borrowers shall complete and
sign such applications and supplemental agreements and provide such other
documentation as Bank may require. The form and substance of all Letters of
Credit shall be subject to Bank's approval. Among other requirements, the tenor
of any Letter of Credit will not extend beyond one year.
(f) Commissions and Fees. Borrowers shall pay as a commission in
connection with the issuance of Letters of Credit an amount negotiated by the
parties when the Letter of Credit is issued, of not less than one percent (1%)
of the aggregate amount available to be drawn under the Letter of Credit. In
addition to these fees, Borrowers shall pay or reimburse bank for such normal
and customary costs and expenses that are incurred or charged by Bank in
issuing, effecting payment, or administering any Letter of Credit (including,
without limitation, amendment fees, corresponding bank fees, re-issuance costs,
and cancellation fees).
(g) Requirement of Law. If any Requirement of Law or any change in the
interpretation or application thereof by any Governmental Authority charged with
the administration thereof shall either (i) impose, modify, assess or deem
applicable any reserve, special deposit, assessment or similar requirement
against Letters of Credit issued by Bank of (ii) impose on Bank any other
condition regarding any Letter of Credit, and the result of any event referred
to in clauses (i) or (ii) above shall be to increase the cost to bank of issuing
or maintaining such Letter of Credit, or its participation therein, as the case
may be (which increase in cost shall be the result of Bank's reasonable
allocation of the aggregate of such cost increases resulting from such events),
then, upon demand by Bank, Borrowers shall immediately pay to Bank from time to
time as specified by Bank additional amounts which shall be sufficient to
compensate Bank for such increased cost, together with interest on each such
amount from the date demanded until payment in full thereof at the Base Rate. A
certificate as to the fact and amount of such increased cost incurred by Bank as
a result of any event mentioned in clauses (i) or (ii) above, submitted by Bank
to Borrowers, shall be conclusive, absent manifest error.
(h) Nature of Obligations. To induce Bank to issue Letters of Credit,
Borrowers agree that neither Bank nor its agents or correspondents will be
liable or responsible for, and Borrowers' unconditional obligation to reimburse
Bank for the obligations shall not be affected by, any event or circumstance,
including: (i) the validity, enforceability, genuineness or sufficiency of
documents or of any endorsement thereon existing in connection with any Letter
of Credit, even if such documents should in fact prove in any or all respects to
be invalid, unenforceable, insufficient, fraudulent or forged; (ii) any breach
of contract or other dispute between Borrower and any beneficiary of a Letter of
Credit or holder of a draft accepted by Bank; (iii) payment by Bank upon
presentation of a draft or documents which do not comply in any respect with the
terms of such Letter of Credit or draft; (iv) loss of or damage to any
collateral; (v) the invalidity or insufficiency of any endorsements; (vi) delay
in giving or failure to give notice of arrival or any other notice; (vii)
failure of any instrument to bear any reference or adequate reference to the
Letter of Credit or draft or to documents to accompany any instrument at
negotiation; (viii) failure of any person to note the amount of any payment on
the reverse of the Letter of Credit or to surrender to or take up the Letter of
Credit or draft or to forward documents in the manner required by the Letter of
Credit or draft; or (ix) any other matter whatsoever, except that Borrowers
shall have a claim against Bank and Bank shall be liable to Borrowers, to the
extent, but only to the extent, of any direct, as opposed to consequential,
damages suffered by Borrower that Borrowers prove was caused by the gross
negligence or willful misconduct of Bank or its agent. Borrowers agree that any
action taken or permitted to be taken by Bank or its agent under or in
connection with any Letter of Credit, including related drafts, documents, or
property, unless constituting gross negligence or willful misconduct on the part
of Bank or its agent, shall be binding on Borrowers and shall not create any
resulting liability to Borrowers on the part of Bank or its agent. Borrowers
will immediately examine a copy of the Letter of Credit (and any amendments
thereof) or draft sent to it by Bank or its agent, and Borrowers will
immediately notify Bank in writing of any claim or irregularity.
In furtherance and extension and not in limitation of the foregoing, (i)
any action taken or omitted by Bank or by any of its correspondents in
connection with any of the Letters of Credit, if taken or omitted in good faith,
shall be binding upon Borrowers and not cause the Bank or its correspondents to
incur liability to Borrowers, and (ii) Bank may accept documents that appear on
their face to be in order, without further investigation, regardless of any
notice or information to the contrary.
(i) Any Letter of Credit issued hereunder shall be governed by the
Uniform Customs of Practice for Documentary Credits (1994 Rev.), International
Chamber of Commerce Publication No. 500, as revised from time to time, except as
otherwise provided in this Agreement or in any other Loan Document.
3. Conditions of Lending.
3.1 Conditions Precedent to Initial Advance. In addition to any other
requirements set forth in this Agreement, the Bank's obligation to make any of
the Loans is contingent on the satisfaction of the following conditions:
(a) Corporate Proceedings. All proper corporate proceedings shall have
been taken by Borrowers to authorize this Agreement and the transactions
contemplated hereby.
(b) Documentation. All instruments and proceedings in connection with
the transactions contemplated by this Agreement shall be satisfactory in form
and substance to Bank, and Bank shall have received on the date of this
Agreement copies of all documents including records of corporate proceedings,
which it may have requested in connection therewith, including certified copies
of resolutions adopted by the Board of Directors of Borrowers, certificates of
good standing, and certified copies of the Certificate of Incorporation or
Articles of Incorporation and Bylaws, and all amendments thereto, of Borrowers.
(c) Loan Documents. Bank shall have received executed copies of all
instruments evidencing security for the Loans and copies of the insurance
polices and related certificates of insurance referred to in Sections 6.1
("Insurance") and 9.5 ("Insurance").
(d) No Default. No event shall have occurred or be continuing which
constitutes an Event of Default or which would constitute an Event of Default
with the giving of notice or the lapse of time or both.
(e) Security Documentation. The collateral documentation evidencing
Bank's liens on the Collateral, including the Security Agreement, the Pledge
Agreement, and the Registration Rights Agreement shall have been amended to make
Bank the sole secured party, and otherwise to be in form and substance
satisfactory to the parties.
(f) Perfection of Liens. UCC-1 financing statements shall have been
amended to name Bank as sole secured party, and, if applicable, certificates of
title covering the Collateral executed by Borrowers shall have been duly
recorded or filed (endorsed and delivered to Bank in the case of certificates of
title) in the manner and places required by law to establish, preserve, protect,
perform the interests and rights created or intended to be created by this
Agreement and any other security agreement. Bank shall have received the
original Notes Receivable, endorsed in favor of Bank. Bank shall have received
certificates evidencing the Subsidiary Stock, together with blank stock transfer
powers assigning the Subsidiary Stock to Bank.
(g) Reports. Bank shall have received all reports and information from
Borrowers called for under the Agreement a and when due.
(h) Incumbency Certificate. Bank shall have received an incumbency
certificate, dated as of the date of this Agreement, executed by the Secretary
or Assistant Secretary of Borrowers, which shall identify by name and title and
bear the signature of the officer of such Borrowers authorized to sign this
Agreement and the Notes on behalf of Borrowers. Bank shall be entitled to rely
upon such incumbency certificate in completing the transactions contemplated
herein or in any Loan Document.
(i) No Adverse Change. There shall have been no material adverse
change in the condition, financial or otherwise, of any Borrower, from such
condition as it existed on the date of the most recent financial statements of
such Person delivered prior to the date of this Agreement.
(j) Fees and Expenses. Bank has received all amounts required to be
paid by Borrowers or another Person pursuant to the commitment letter delivered
by Bank to Borrowers in connection with the Loan.
(k) Additional Documents. Bank shall have received such additional
legal opinions, certificates, proceedings, instruments, and other documents as
Bank or its counsel may reasonably request to evidence (a) compliance by
Borrowers with legal requirements, (b) the truth and accuracy, as of the date of
this Agreement, of the representations of Borrowers contained herein, and (c)
the due performance or satisfaction by Borrowers, at or prior to the date
hereof, of all agreements required to be performed and all conditions required
to be satisfied by Borrowers pursuant hereto.
3.2 Conditions Precedent to Each Advance. The following conditions, in
addition to any other requirements set forth in this Agreement, must be
satisfied or performed before each advance under the Revolving Loan:
(a) Supplementary Corporate Proceedings. Any supplementary corporate
proceedings necessary to authorize the transaction have been taken by Borrowers.
(b) Accuracy of Representations. All representations and warranties
made by Borrowers in this Agreement or otherwise in writing in connection with
this Agreement are true and correct as if made on and as of the proposed date of
the advance of Loan proceeds, and to the extent requested by Bank, Borrowers
have so certified in writing.
(c) No Default. No Event of Default has occurred and is continuing,
and to the extent requested by Bank, Borrowers have so certified in writing.
(d) Further Assurances. Borrowers have delivered such further
documentation or assurances that Bank reasonably requires.
(e) Borrowing Request. To the extent required by Bank, Borrowers have
delivered to Bank a written borrowing request.
4. Security for Loan.
4.1 Security. The Revolving Loan, the Real Estate Loan and each Note shall
be secured by each of the following:
(a) A first-priority security interest in Borrowers' Accounts,
Equipment, Instruments, Documents, Chattel Paper, General Intangibles,
Inventory, the Subsidiary Stock, and the Notes Receivable, and other properties
and interests as provided for in the Collateral Documents.
The Real Estate Loan shall be further secured by a first-priority mortgage
lien on the Real Estate pursuant to the Mortgage.
Borrowers agree to execute and deliver, or cause the execution and delivery
of, such security agreements, deeds of trust, mortgages, assignments,
guaranties, consents, subordination agreements, and financing statements as may
be required by Bank to evidence such security, all in form satisfactory to Bank,
as well as such consents and agreements of the landlords of each of the premises
leased by Borrowers on which the Collateral is located, all in form satisfactory
to Bank.
5. Representations, Warranties, and General Covenants.
Borrowers jointly and severally represent, warrant, and covenant to and
with Bank, which representations, warranties, and covenants shall survive until
the Obligations are indefeasibly satisfied in full, that:
5.1 Organization and Qualification. Each Borrower is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation, has the corporate power to own its properties and to carry on its
business as now being conducted; and is duly qualified to do business and is in
good standing in every jurisdiction in which the character of the properties
owned by it or in which the transaction of its business makes it qualification
necessary.
5.2 Corporate Power and Authorization; Compliance with Law. Each Borrower
has full power and authority to enter into this Agreement, to borrow hereunder,
to execute and deliver the Notes and the other Loan Documents, and to incur the
obligations provided for herein, all of which have been authorized by all proper
and necessary corporate action. Each Borrower further (a) is in compliance with
all Requirements of Law applicable to it and 9b) possesses all governmental
franchises, licenses, and permits that are necessary to own or lease its assets
and to carry on its business as now conducted.
5.3 Enforceability; No Legal Bar. This Agreement has been, and each other
Loan Document to which it is a party will be, duly executed and delivered to
Bank on behalf of each Borrower. This Agreement and each of the other Loan
Documents constitute, and each Note when executed and delivered for value
received will constitute, a valid and legally binding obligation of each
Borrower enforceable in accordance with their respective terms. The execution,
delivery, and performance by Borrowers of this Agreement and the other Loan
Documents to which it is a party, each Borrower's borrowings pursuant to this
Agreement, and use of the loan proceeds, will not violate any Requirement of Law
applicable to Borrowers or constitute a breach or violation of, a default under,
or require any consent under (except for consents that have been obtained), any
of its Contractual Obligations, and will not result in a breach or violation of,
or require the creation or imposition of any Lien on any of its properties or
revenues pursuant to, any Requirement of Law or Contractual Obligation.
5.4 Pending Actions. Except as disclosed in Schedule 5.4, no action or
investigation is pending or, so far as Borrowers' officers and directors know,
threatened, before or by any court or administrative agency against any Borrower
or against any of its businesses, properties or revenues (a) with respect to any
of the Loan Documents or any of the transactions contemplated by them, or (b)
which might result in any Material Adverse Effect on any Borrower.
5.5 Financial Statements. The financial statements of Borrowers dated June
30, 1997 (unaudited) (the "Financial Statement Date"), December 31, 1996,
December 31, 1995, and December 31, 1994, heretofore delivered to Bank, and all
other financial statements and reports furnished by each Borrower to Bank are
complete and correct and fairly present the financial condition of the Borrower
and the results of its operations and transactions as of the dates and for the
periods referred to and have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved. There are no liabilities,
direct or indirect, fixed or contingent, of any Borrower as of the date of such
financial statements which are not reflected therein or in the notes thereto.
Neither said financial statements nor any other financial statements, reports,
and information furnished by Borrowers to Bank, when considered with the SEC
filings referenced in Section 5.7 ("SEC Filings"), contains any untrue statement
of a material fact or omits a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact which Borrowers
have failed to disclose to Bank in writing which materially affects adversely
or, so far as Borrowers can now foresee, will materially affect adversely the
Collateral, business, prospects, profits, or condition (financial or otherwise)
of any Borrower or the ability of any Borrower to perform this Agreement.
5.6 No Change. Since the Financial Statement Date there has not been: (a)
any material adverse change in the assets, liabilities, business, or condition
(financial or other) of any Borrower, (b) any loss, damage, or destruction,
whether or not covered by insurance, that materially adversely affected the
assets or property of any Borrower; (c) any distribution by any Borrower to its
shareholders in cash, securities, or other property; (d) any change in any of
Borrowers' accounting methods, practices, or principles or depreciation and
amortization rates or policies, except as required by law or to conform with
GAAP; or (e) except in the usual and ordinary course of business, any of the
following: (i) any breach, execution, extension, modification, or termination by
any Borrower of any Contractual Obligation; (ii) any disposition by any Borrower
of, or the imposition of a Lien on, any asset of the Borrower, except for a Lien
permitted under Section 5.8 ("Title to Properties"); (iii) any cancellation of a
debt owed to, or a claim held by, any Borrower, or (iv) any Event of Default. No
Contractual Obligation of any Borrower and no Requirement of Law materially
adversely affects, or to the extent that the Borrower can reasonably foresee
might so affect, the business, operations, property, or condition (financial or
other) of any Borrower.
5.7 SEC Filings. Each of Parent, Guarantor and TransCor Waste Services,
Inc. previously has furnished or made available to Bank accurate and complete
copies of its forms, reports, and documents filed with the Securities and
Exchange Commission ("SEC") since January 1, 1993 (the "SEC Documents"), which
include all reports, schedules, proxy statements, and registration statements
filed or required by it to be filed with the SEC since January 1, 1993. As of
their respective dates, the SEC Documents did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated in
those documents or necessary to make the statements in those documents not
misleading, in light of the circumstances in which they were made.
5.8 Title to Properties. Each Borrower has good and marketable title to all
of its assets (including the Collateral), subject to no Lien, except inchoate
Liens arising by operation of law for obligations which are not yet due and
except for the Liens and security interests described on Exhibit "C" to this
Agreement. Except for the security interests granted herein or reflected on
Exhibit "C" to this Agreement, Borrowers will be the sole owner of the
Collateral to be acquired after the date hereof free from any adverse Liens,
security interests or other encumbrances. Borrowers shall defend the Collateral
against all claims and demands of all other parties who at any time claim any
interest in the Collateral. Borrowers enjoy peaceable and undisturbed possession
under all leases under which they are operating, and none of such leases contain
any provisions which may materially and adversely affect or impair the
operations of Borrowers, and all of such leases are valid and subsisting and in
full force and effect.
5.9 Pension Plans. Except as set forth on Schedule 5.9, Borrowers have not
established and are not parties to any Plan or to any stock option or deferred
compensation plan or contract for the benefit of its employees or officers, any
pension, profit sharing or retirement plan, stock redemption agreement, or any
other agreement or arrangement with any officer, director, or stockholder,
members of their families, or trusts for their benefit. Borrowers are in
compliance with all applicable provisions of ERISA. Neither any Borrower nor any
Subsidiary of a Borrower has received any notice to the effect that it is not in
full compliance with any of the requirements of ERISA and the regulations
promulgated thereunder. No fact or situation that could result in a material
adverse change in the financial condition of any Borrower, including, but not
limited to, any Reportable Event or Prohibited Transaction, exists in connection
with any Plan. Neither any Borrower nor any Subsidiary of a Borrower has any
withdrawal liability in connection with a Multiemployer Plan.
5.10 Taxes. Borrowers have filed all federal, state, and local tax returns
which are required to be filed and has paid, or made adequate provision for the
payment of, all taxes which have or may become due pursuant to said returns or
to assessments received by Borrowers. No Contractual Obligation of any Borrower
and no Requirement of Law materially adversely affects, or to the extent that
any Borrower can reasonably foresee might so affect, the business, operations,
property, or condition (financial or other) of any Borrower. Borrowers have paid
all withholding, FICA and other payments required by federal, state or local
governments with respect to any wages paid to employees.
5.11 Collateral. The security interests granted to Bank herein and pursuant
to any other security agreement (a) constitute and, as to subsequently acquired
property included in the Collateral covered by the security agreement, will
constitute, a security interest under the Code entitled to all of the rights,
benefits and priorities provided by the Code and(b) are, and as to such
subsequently acquired Collateral will be, fully perfected, superior and prior to
the rights of all third parties, now existing or hereafter arising, subject only
to Liens permitted pursuant to Section 5.8 ("Title to Properties"). All of the
Collateral is intended for use solely in Borrowers' business.
5.12 Labor Law Matters. No goods or services have been or will be produced
by Borrowers in violation of any applicable labor laws or regulations or any
collective bargaining agreement or other labor agreements or in violation of any
minimum wage, wage-and-hour, or other similar laws or regulations. No collective
bargaining agreement concerning any of Borrowers' employees exists or is being
negotiated.
5.13 Judgment Liens. Neither Borrowers nor any of their assets are subject
to more than $50,000 in the aggregate of unpaid judgments (whether or not
stayed) or judgment liens in any jurisdiction.
5.14 Place of Business. Each Borrower's chief executive office is located
at 1502 Second Avenue, Tampa, Florida 33605; and it has not changed the location
of its chief executive office from a location in a different state within the
last five (5) years; provided, however, that the chief executive office of
Kimmins Associates, Inc. is and has been, since Kimmins Associates was formed,
located at 256 Third Street, Niagara Falls, New York 14303. Borrowers' places of
business are set forth on the attached Exhibit "D." Except as indicated on said
exhibit, the real estate constituting each said location is owned by Borrowers.
With respect to locations not owned by Borrowers, said exhibit sets forth the
name and address of each landlord, the location of the property, and the
remaining term of the lease. Borrowers have separately furnished to Bank true
and correct copies of the lease agreements for each said parcel.
5.15 Full Disclosure. All information furnished by Borrowers to Bank
concerning Borrowers, their financial condition, the Collateral, or otherwise
for the purpose of obtaining credit or an extension of credit is, or will be at
the time the same is furnished, accurate and correct in all material respects
and complete insofar as completeness may be necessary to give Bank a true and
accurate knowledge of the subject matter. The books of account, minute books,
and stock record books of Borrowers are complete and correct and have been
maintained in accordance with good business practices, and there have been no
transactions adversely affecting the business of Borrowers that should have been
set forth therein and have not been so set forth.
5.16 Borrowers' Name. Except as set forth in Schedule 5.16, Borrowers have
not changed their names or been known by any other names within the last five
(5) years (except for TransCor Waste Services, Inc., which has changed its name
during the past five years, but always from a name that commenced with
"TransCor" and except for Kimmins Environmental Service Corp., which has changed
its name to Kimmins Corp.), nor have they been the surviving corporation in a
merger effected within the last five (5) years.
5.17 Existing Debt. Except as set forth on Schedule 5.17(a), Borrowers are
not in default with respect to any of their existing Debt or with respect to any
Contractual Obligation to which Borrowers are a party, (b) Borrowers are not
subject to any federal, state or local tax Liens, nor has such Person received
any notice of deficiency or other official notice to pay any taxes, and (c) each
Borrower has paid all sales and excise taxes payable by it.
5.18 Insolvency. Each Borrower is now and, after giving effect to the
transactions contemplated hereby, at all times will be, Solvent.
5.19 Intellectual Property. Each Borrower owns or is licensed to use, all
trademarks, trade names, copyrights, technology, know-how, and processes
necessary for the conduct of its business as currently conducted (the
"Intellectual Property"). Borrower does not have any material licenses of
Intellectual Property. No claim has been asserted and is pending by any Person
with respect to the use of any such Intellectual Property and Borrowers do not
know of any valid basis for any such claim. The use of the Intellectual Property
by Borrowers does not infringe on the rights of any Person.
5.20 Subsidiaries. Borrowers have no Subsidiaries, except as indicated on
Exhibit "E" to this Agreement.
5.21 Environmental Matters. Except as set forth in Schedule 5.21 and except
for matters that are not known to Borrowers' officers and that will not have a
Material Adverse Effect on any Borrower, Borrowers are in compliance with all
Environmental Regulations and with all other federal, state, and local laws and
regulations relating to the environment and pollution, including such laws and
regulations regulating hazardous, radioactive and toxic materials and
underground petroleum products storage tanks. Except as set forth in Schedule
5.21, no assessment, notice of (primary or secondary) liability or notice of
financial responsibility, or the amount thereof, or to impose civil penalties
has been received by Borrowers, and there are no facts, conditions, or
circumstances known to Borrowers which could result in any investigation or
inquiry if all such facts, conditions, and circumstances, if any, were fully
disclosed to the applicable governmental authority. Borrowers have paid any
environmental excise taxes due and payable, including without limitation, those
imposed pursuant to Sections 4611, 4661, or 4681 of the Internal Revenue Code of
1986, as amended from time to time. Borrowers represent and warrant that
Borrowers have obtained any permits, licenses, or similar authorizations
required to construct, occupy, operate, or use any buildings, improvements,
fixtures, or equipment in connection with their businesses by reason of any
Environmental Regulations. Borrowers represent and warrant that no oil, toxic or
hazardous substances, or solid wastes have been disposed of or released by
Borrowers in connection with the operation of its business and that Borrowers
will not dispose of or release oil, toxic or hazardous substances, or solid
wastes at any time in its operation of its business, except in full compliance
with all the foregoing laws (the terms "hazardous substance" and "release" shall
have the meanings specified in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), and the terms
"solid waste" and "disposal," "dispose," or "disposed" shall have the meanings
specified in the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), except that if such acts are amended to broaden the meanings thereof,
the broader meaning shall apply herein).
5.22 Ownership. All issued and outstanding capital stock of Borrowers is
owned as set forth in Exhibit "E." Except as set forth in the foregoing
schedule, there are not outstanding any warrants, options, or rights to purchase
any shares of capital stock of Borrowers, not does any Person have a Lien upon
any of the capital stock of Borrowers.
5.23 Inventory. All Inventory is marketable in the ordinary course of
business. All Inventory has been produced, and during the term hereof will be
produced, in compliance with the requirements of the Federal Fair Labor
Standards Act. No Inventory is now, nor shall any Inventory at any time or times
hereafter be, stored with a bailee, warehouseman or similar party without Bank's
prior written consent and, if Bank gives such consent, Borrowers will
concurrently therewith cause any such bailee, warehouseman, or similar party to
issue and deliver to Bank, in form and substance acceptable to Bank, warehouse
receipts therefor in Bank's name. No Inventory is or will be consigned to any
Person without Bank's prior written consent, and if such consent is given,
Borrowers shall, prior to the delivery of any Inventory on consignment, (a)
provide Bank with all consignment agreements to be used in connection with such
consignment, all of which shall be acceptable to Bank, (b) prepare, execute, and
file appropriate financing statements with respect to any consigned Inventory,
showing Bank as assignee, (c) conduct a search of all filings made against the
consignee in all jurisdictions in which any consigned Inventory is to be located
and deliver to Bank copies of the results of all such searches, and (d) notify,
in writing, all the creditors of the consignee which are or may be holders of
Liens in the Inventory to be consigned that Borrowers expect to deliver certain
Inventory to the consignee, all of which Inventory shall be described in such
notice by item or type.
5.24 Representations True. No representation or warranty by Borrowers
contained herein or in any certificate or other document furnished by Borrowers
pursuant hereto contains any untrue statement of material fact or omits to state
a material fact necessary to make such representation or warranty not misleading
in light of the circumstances under which it was made.
6. Affirmative Covenants. Borrowers agree and covenant that until the
Obligations have been indefeasibly paid in full and until Bank has no further
obligation to make advances under the loan, each Borrower shall:
6.1 Insurance. Maintain insurance with insurance companies satisfactory to
Bank on such of its properties, in such amounts and against such risks as is
customarily maintained in similar businesses operating in the same vicinity, in
similar businesses operating in the same vicinity, and shall file with Bank upon
request, from time. to time, a detailed list of the insurance then in effect,
stating the names of the insurance companies, the amounts and rates of the
insurance, dates of expiration thereof, and the properties and risks covered
thereby, and, within 10 days after notice in writing from Bank, shall obtain
such additional insurance as Bank may reasonably request. All such policies
shall provide that any losses payable thereunder shall (pursuant to loss payable
clauses, in form and content acceptable to Bank, to be attached to each policy)
be payable to Bank to the extent of its interest in the Collateral, and provide
that the insurance provided thereby, as to the interest of Bank, shall not be
invalidated by any act or neglect of Borrowers, nor by the commencing of any
proceedings by or against Borrowers in bankruptcy, insolvency, receivership, or
any other proceedings for the relief of a debtor, nor by any foreclosure,
repossession, or other proceedings relating to the property insured, nor by any
occupation of such property or the use of such property for purpose more
hazardous than permitted in the policy. Borrowers hereby assign to Bank all
right to receive proceeds of the Collateral, direct any insurer to pay all
proceeds directly to Bank, and authorize Bark to endorse any check or draft for
such proceeds and apply the same toward satisfaction of the Obligations,
Borrowers shall furnish to Bank insurance certificates, in form and substance
satisfactory to Bank, evidencing compliance by it with the terms of this section
and, upon the request of Bank at any time, Borrowers shall furnish Bank with
photostatic copies of the policies required by the terms of this section.
Borrowers will cause each insurer under each of the policies to agree (either by
endorsement upon such policy or by letter addressed to Bank) to give Bank at
least 10 days' prior written notice of the cancellation of such policies in
whole or in part or the lapse of any coverage thereunder. Borrowers agree that
they will not take any action or fail to take any action which action or
inaction would result in the invalidation of any insurance policy required
hereunder. At renewal or no later than 10 days following the date each such
policy or policies shall expire, Borrowers shall furnish to Bank evidence of
renewal. Borrowers shall furnish to Bank such evidence of insurance as Bank may
require.
6.2 Corporate Existence; Qualification. Maintain its corporate existence
and, in each jurisdiction in which the character of the property owned by it or
in which the transaction of its business makes its qualification necessary,
maintain good standing.
6.3 Taxes. During its fiscal year, accrue all current tax liabilities of
all kinds, all required withholding of income taxes of employees, all required
old age and unemployment contributions, all required payments to employee
benefit plans,. and pay the same when they become due.
6.4 Compliance with Laws. Comply with all Requirements of Law, including
Environmental Regulations, and pay all taxes, assessments, charges, claims for
labor, supplies, rent, and other obligations which, if unpaid, might give rise
to a Lien against its property, except claims being contested in good faith by
appropriate proceedings (provided the Borrower promptly notifies Bank in writing
of such contest), and against which reserves deemed adequate by Bank have been
set up. Specifically, each Borrower shall pay when due all taxes and assessments
upon the Collateral, this Agreement, the Notes, or any Loan Document, including
without limitation, any stamp taxes or intangibles taxes imposed by virtue of
the transaction outlined herein.
6.5 Annual Financial Statements. Within 120 days after the close of each
fiscal year, furnish Bank with annual audited financial statements of Borrowers
on a consolidated and consolidating basis, consisting of balance sheets,
operating statements and such other statements as Bank may reasonably request,
for the period(s) involved, prepared in accordance with GAAP consistently
applied for the period involved and for the preceding fiscal year and certified
as correct by independent certified public accountants acceptable to Bank.
6.6 Interim Financial Statements. Within 30 days after the close of each
calendar month, furnish Bank with unaudited monthly and quarterly-to-date
financial statements of Borrowers on a consolidated and consolidating basis and
of Guarantor on a consolidated and consolidating basis, consisting of balance
sheets and operating statements and a listing of all contingent liabilities of
Borrowers and Guarantor for the periods involved and such other statements as
Bank may request prepared in accordance with GAAP applied on a basis consistent
with the financial statements previously furnished to Bank, taken from the books
and records of the Borrowers and Guarantor, and certified as correct by the
Chief Financial Officer of Parent and Guarantor, respectively.
Within 45 days after the close of each calendar quarter, furnish Bank with
unaudited quarterly and year-to-date financial statements of Borrowers on a
consolidated and consolidating basis and of Guarantor on a consolidated and
consolidating basis, consisting of balance sheets and operating statements and a
listing of all contingent liabilities of Borrowers and Guarantor for the periods
involved and such other statements as Bank may request, prepared in accordance
with GAAP applied on a basis consistent with the financial statement(s)
previously furnished to Bank, taken from the books and records of Borrowers and
Guarantor, and certified as correct by the Chief Financial Officer of Parent and
Guarantor, respectively. Borrowers shall also deliver to Bank statutory
statements for Guarantor and its subsidiaries.
6.7 Certificates; Other Information. Furnish to Bank:
(a) concurrently with the delivery of the financial statements
referred to in Sections 6.5 and 6.6. a certificate from the President or Chief
Financial Officer of Parent and Guarantor (i) containing computations confirming
Borrowers' compliance with Section 6.21 ("Affirmative Financial Covenants");
(ii) stating that after diligent investigation, they have determined that
Borrowers and Guarantors, respectively, during the period have observed or
performed all of their covenants in this Agreement and in the other Loan
Documents, and (iii) stating that the officers do not know of any default or
Event or Default by any Borrower or Guarantor, respectively, under this
Agreement or the other Loan Documents; and
(b) all other information regarding the affairs of Borrowers and
Guarantor that Bank from time to time reasonably requests.
6.8 Collateral Reports; Job Status Reports. Furnish to Bank, for each
Borrower whenever requested by Bank a detailed accounts receivable aging report
as of the last day of the previous month, a detailed accounts payable agent
aging report, and an inventory report, all in form and substance, and containing
such detail and information as Bank shall request, and furnish to Bank copies of
all physical inventory listings when prepared by Borrower. Borrowers shall also
furnish to Bank job status reports for each Borrower, whenever requested by
Bank.
6.9 SEC Filings. Within ten (10) days following the date each of Parent,
Guarantor, and TransCor Waste Services, Inc. makes the filing with the SEC, (a)
a copy of its Annual Report on Form 10-K, as filed with the SEC; (b) a copy of
its Quarterly Report on Form 10-Q; and (c) promptly on becoming available, any
other report or statement that it files with the SEC or mails to its
shareholders. Each of the foregoing reports shall be filed with the SEC when due
as specified by the applicable instruction to the report (for example,
Instruction A to the Form 10-K and Form 10-Q).
6.10 Visits and Inspections. (a) give agents and representatives of Bank
full and unrestricted access from time to time during normal business hours to
its business premises, offices, properties, books, records, and information; (b)
permit agents and representatives of Bank to make such audit and examination
thereof (including an examination of the Equipment), and conduct such other
investigation, as they consider appropriate to determine and verify its business
properties, operation, or condition (financial or other) and to consummate the
transactions contemplated by this Agreement; and (c) furnish to Bank and its
agents and representatives such additional information with respect to its
business and affairs as Bank or they reasonably request from time to time.
Borrowers shall bear the costs of such audits, reports, and inspections.
Each Borrower shall keep true books, records, and accounts that completely,
accurately, and fairly reflect all dealings and transactions relating to its
assets, business, and activities and shall record all transactions in such
manner as is necessary to permit preparation of ifs financial statements in
accordance with GAAP.
6.11 Pavements on Note. Duly and punctually pay the principal and interest
on the Notes, in accordance with the terms of this Agreement and of the Notes,
and pay all other Debt of the Borrower reflected on the financial statements
delivered to Bank and referred to in Section 5.5 ("Financial Statements") and
all other Debt incurred after the date hereof in accordance with the terms of
such debt.
6.12 Conduct of Business. Conduct its business as now conducted and do all
things necessary to preserve, renew, and keep in full force and effect its
rights, patents, permits, licenses, franchises, and trade names necessary to
continue its business. Each Borrower shall comply with all Contractual
Obligations applicable to it and its business and properties.
6.13 Maintenance of Properties. Keep its properties in good repair, working
order and condition, reasonable wear and tear excepted, and from time to time
make all needed and proper repairs, renewals, replacements, additions, and
improvements thereto and comply with the provisions of all leases to which it is
a party or under which it occupies property so as to prevent any loss or
forfeiture thereof or thereunder.
6.14 Additional Documents. Join Bank in executing any security agreements,
assignments, consents, financing statements or other instruments, in form
satisfactory to Bank, as Bank may from time to time request in connection with
the Collateral and the other security for the Loan.
6.15 Notice to Bank. Promptly notify Bank of: (a) any default or Event of
Default, (b) the acceleration of the maturity of any Debt or Contractual
Obligation; (c) a default in the performance of, or compliance with, any
Requirement of Law or Environmental Regulation, or Contractual Obligation of any
Borrower that might have a Material Adverse Effect on any Borrower; (d) any
litigation, dispute, or proceeding that is pending or known by any Borrower's
officers to be threatened against the Borrower and that might involve a claim
for damages or a request for injunctive, enforcement, or other relief that, if
granted, might reasonably be expected to have a Material Adverse Effect on the
Borrower; (e) a change in either the name or the principal place of business of
any Borrower or the office where its books and records are kept; (f) any change
in its accounting methods, policies, or practices for financial reporting
purposes or any material change in its accounting methods, policies, or
practices for tax reporting purposes; (g) a material adverse change in the
business, operations, assets, property, or condition (financial or other) of any
Borrower; and (h) any matter regarding which Borrowers are required to notify
Bank pursuant to the ESOP Loan. Each Borrower shall provide with each notice
pursuant to this section a statement of an officer of the Borrower setting forth
details of the occurrence referred to in the notice and stating what action the
Borrower proposes to take with respect to it.
6.16 Subordination of Debt. Except for any Debt set forth on Schedule 6.16,
provide Bank with a debt subordination agreement, in form and substance
satisfactory to Bank, executed by each Borrower and any Person who is an
officer, director, shareholder, or Affiliate of the Borrower to whom the
Borrower is or hereafter becomes indebted, subordinating in right of payment and
claim all of such Debt and any future advances thereon to the full and final
payment of the Obligations.
6.17 Collection of Accounts. Diligently pursue collection of all Accounts
and other amounts due any Borrower from others, including Affiliates of
Borrower.
6.18 Landlord and Storage Agreements. Provide Bank with copies of all
agreements between any Borrower and any landlord or warehouseman, which owns any
premises at which any Inventory or other Collateral may, from time to time, be
kept.
6.19 Auditors' Letters. Furnish Bank with a copy of each letter written to
any Borrower by its independent certified public accountant concerning internal
controls and management review immediately upon receipt of same.
6.20 ERISA Compliance.
(a) At all times make prompt payment of contributions required to meet
the minimum funding standards set forth in ERISA with respect to each Plan;
(b) Promptly after the filing thereof, furnish to Bank copies of an
annual report required to be filed pursuant to ERISA in connection with each
Plan and any Other employee benefit plan of it and its Affiliates;
(c) Notify Bank as soon as practicable of any Reportable Event and of
any additional act or condition arising in connection with any Plan which any
Borrower believes might constitute grounds for the termination thereof by the
Pension Benefit Guaranty Corporation or for the appointment by the appropriate
United States District Court of a trustee to administer the Plan; and
(d) Furnish to Bank, promptly upon Bank's request therefor, such
additional information concerning any Plan or any other such employee benefit
plan as may be reasonably requested.
6.21 Financial Covenants. Maintain as of the end of each calendar quarter:
(a) total Tangible Net Worth of not less than the following: (i) $7,500,000 for
the calendar quarters ending December 31, 1997, March 31, 1998, June 30, 1998,
and September 30, 1998; (ii) $11,000,000 for the calendar quarter ending
December 31, 1998, and all calendar quarters thereafter during the term of this
Agreement; (b) a ratio of Debt less Subordinated Debt to Tangible Net Worth
(less equity in Affiliates) plus Subordinated Debt as of the end of each
calendar quarter of not more than: (i) 8:1 for the calendar quarter ending March
31, 1998; (ii) 7.5:1 for the calendar quarter ending June 30, 1998; (iii) 7.0:1
for the calendar quarter ending September 30, 1998; and (iv) 6.5:1 for the
calendar quarter ending December 31, 1998, and each calendar quarter thereafter
during the term of this Agreement; (c) Fixed Charge Coverage of not less than
1.0, beginning the calendar quarter ending December 31, 1997 and for each
calendar quarter thereafter during the term of this Agreement; and (d) Net
Income of at least $3,000,000 million during the twelve-month period preceding
each calendar quarter end, beginning December 31, 1998, and continuing for each
similar twelve-month period ending on each quarter and thereafter. Bank will
begin monitoring the debt to Tangible Net Worth ratio, and the Fixed Charge
Covenants beginning on January 1, 1998. Each of the foregoing covenants will be
measured on a consolidated basis for all Borrowers.
6.22 Physical Inventory. At least one time during each fiscal year, conduct
a physical inventory of all of its equipment, machinery, rolling stock, and
containers and shall promptly certify to Bank the results of such inventory in
detail satisfactory to Bank.
6.23 Subsidiary Stock Ownership. Parent shall continue to own directly or
indirectly 100% of the stock of all of its Subsidiaries (other than TransCor
Waste Services, Inc. and its subsidiaries); Parent shall continue to own
directly no less than a majority of the Aggregate Outstanding Shares (as defined
herein) of TransCor Waste Services, Inc.; all of the shares of Stock of TransCor
Waste Services, Inc. owned by Parent shall be pledged to Bank as Collateral;
TransCor Waste Services, Inc. shall continue to own directly or indirectly 100%
of the stock of all of its Subsidiaries; TransCor Waste Services, Inc. shall not
issue shares of a different class of stock from its currently outstanding common
stock; and no shares of the stock of TransCor Waste Services, Inc. shall be
issued at a price less than the fair market of such shares at the time of
issuance of such shares and TransCor Waste Services, Inc. shall grant no
warrants or options to purchase shares of its stock at an exercise price less
than the fair market value of such shares at the time such warrants or options
are granted. For the purposes of this section, "Aggregate Outstanding Shares"
shall mean the aggregate of the issued and outstanding shares of the stock of
TransCor Waste Services, Inc. and the shares of stock that may be purchased
currently or in the future by the exercise of all warrants, options and rights
at any time outstanding.
7. Negative Covenants. Until the Obligations have been indefeasibly repaid
in full and until Bank has no further obligation to make advances under the
Loan, without the prior written consent of Bank, each Borrower shall not:
7.1 Indebtedness. Except as permitted or contemplated by this Agreement,
create, incur, assume, or suffer to exist any Debt or obligation for money
borrowed, or guarantee, or endorse, or otherwise be or become contingently
liable in connection with the obligations of any person, firm, or corporation
(including any Affiliate), except:
7.1.1 Indebtedness for taxes not at the time due and payable or which
are being actively contested in good faith by appropriate proceedings and
against which reserves deemed adequate by Bank have been established by
Borrowers, but only if the non-payment of such taxes does not result in a Lien
upon any property of the Borrower that has priority over the Lien held by Bank;
7.1.2 Contingent liabilities arising out of the endorsement of
negotiable, instruments in the ordinary course of collection or similar
transactions in the ordinary course of business.
7.1.3 Debt other than for borrowed money, incurred in the ordinary
course of business, including that evidenced by trade promissory notes with a
maturity of less than one year;
7.1.4 Debt to third parties other than Bank for borrowing incurred in
connection with the purchase money financing of capital assets used in the
business of Borrowers or to reimburse Borrowers for purchases of capital assets
made within six months of the time the debt is incurred, not to exceed $5
million on a consolidated basis during any fiscal year of Borrowers;
7.1.5 Debt for money borrowed from Bank;
7.1.6 Debt incurred prior to the date of this Agreement and reflected
on the financial statements referred to in Section 5.5 ("Financial Statements")
which is not to be repaid with the proceeds of the Loans, including the ESOP
Loan;
7.1.7 Debt, the proceeds of which are used to repay the Debt described
in Sections 7.1.4 and 7.1.6.
7.1.8 Debt of any Borrower to any other Borrowers incurred from time
to time in consideration for the purchase by a Borrower from any other Borrowers
of accounts receivable and/or other intangible assets.
7.1.9 Debt owed by Borrower Kimmins Construction Corp. to Caterpillar
Financial Services Corporation ("CFSC"), to which Bank is subordinated pursuant
to Subordination Agreement dated on or about November 18, 1997 between CFSC and
Bank.
7.2 Liens and Security Interests. Create, incur, assume, or suffer to exist
any Lien (including charges on property purchased under conditional sales or
other title-retention agreements) on any of its property or assets, now owned or
hereafter acquired, except:
7.2.1 Liens for taxes not yet due or which are being contested in good
faith by appropriate proceeding and against which reserves deemed adequate by
Bank have been set up (excluding any Lien imposed pursuant to any of the
provisions of ERISA);
7.2.2 Other Liens incidental to the conduct of its business or the
ownership of its property and assets;
7.2.3 Liens created to secure the Debt permitted by Section 7.1.4 or
to secure Debt that refinances the Debt permitted by Section 7.1.4, so long as
in each case the Liens encumber only the capital assets acquired with the
proceeds of the permitted purchase money Debt;
7.2.4 Liens in favor of Bank; and
7.2.5 Liens reflected on Exhibit "C" to this Agreement.
7.2.6 Subordinated security interests in accounts receivable and other
intangible assets that may be granted from time to time by any Borrower to any
other Borrower to secure promissory notes issued by the First Borrower in
consideration for the purchase by the First Borrower of such accounts receivable
and/or other intangible assets, but only to the extent that such subordinated
security interest has been approved in advance by the Lender.
7.3 Dividends and Distributions. Except for transactions benefiting another
Borrower as shareholder, declare any dividends on any shares of any class of its
capital stock, or apply any of its property or assets to the purchase,
redemption or other retirement of, or set apart any sum for the payment of any
dividends on, or for the purchase, retirement of, or make any other distribution
by reduction of capital or otherwise in respect of, any shares of any class of
capital stock of any Borrower.
7.4 Affiliate Transactions. Purchase, acquire or lease property from, or
sell, transfer or lease any property to, or engage in any other transaction or
arrangement with, any Affiliate of any Borrower, except for such transactions
with other Borrowers and except in the ordinary course of Borrowers' business
and under terms and conditions which would apply if disinterested parties were
involved.
7.5 Financing Statements. Permit any financing statement to be on file with
respect to the Collateral, except for a financing statement that pertains to a
Permitted Lien.
7.6 Location of Collateral. Change the locations at which the Collateral is
maintained to a location outside of the United States; change the name,
identity, or corporate structure of Borrowers; or change the location of its
chief executive office.
7.7 Destruction of Collateral. Waste or destroy the Collateral or use it in
violation of any statute or ordinance.
7.8 Liquidation, Merger or Consolidation. Liquidate, wind up, or dissolve
itself (or suffer any liquidation or dissolution), or enter into any merger or
consolidation, or acquire all or substantially all of the assets of any Person;
or sell, lease, or otherwise dispose of any of its assets in an aggregate amount
exceeding $100,000 during any fiscal year, except for sales of assets associated
with the Tennessee operations of TransCor Waste Services, Inc., disposition of
the Lantana site by Kimmins Recycling Corporation, sales of Equipment in
accordance with the Security Agreement, and sales of Inventory in the ordinary
course of its business, or disposition of the Note Receivable payable by
Guarantor or of the assets or outstanding stock of ThermoCor Kimmins, Inc. in
accordance with Section 6.10 of the Security Agreement and Section 5(c) of the
Pledge Agreement or sales of accounts receivable and/or other intangible assets
from one Borrower to another Borrower, provided that such accounts receivable
and/or other intangible assets remain subject to a prior perfected security
interest in favor of Lender.
7.9 Loans or Advances and Other Investments. Make or permit to remain
outstanding loans or advances or pay any management or similar fees to any
Person other than another Borrower, except for such loans, advances, or payments
that do not exceed $100,000 in the aggregate during any calendar year; or until
the Loans have been paid in full, own, purchase or make any commitment to
purchase any stock, bonds, notes, debentures or other securities of, or any
stock, bonds, notes, debentures or other securities of, or any interest in, or
make any capital contributions to (all of which are sometimes collectively
referred to herein as "Investments") in any Person (other than the securities of
another Borrower) except for (a) purchases of direct obligations of the federal
government, (b) deposits in commercial banks, (c) commercial paper of any U.S.
corporation having the highest ratings then given by Moody's Investors Service,
Inc. or Standard & Poor's Corporation, (d) endorsement of negotiable instruments
for collection in the ordinary course of business; (e) trade credit advanced in
the ordinary course of business; (f) advances to employees in the ordinary
course of business; (g) any other Investment outstanding on the date of this
Agreement and disclosed to Bank; (h) other Investments approved in writing by
Bank; (j) any renewals or extensions of the foregoing Investments; and (j)
purchases or acquisitions or Investments that do not exceed $100,000 on a
consolidated basis in the aggregate during any calendar year.
7.10 Capital Expenditures. Make any Cash Capital Expenditures in any fiscal
year exceeding a total of $500,000 on a consolidated basis, that are not
financed within six months.
7.11 Prepayment of Debt. If an Event of Default or an event that with
notice or the passage of time would constitute a default has occurred, prepay
any Debt, except Debt to Bank.
7.12 Lease Transactions. Enter into any sale and lease-back arrangement.
7.13 Subordinated Debt. Make any payment (principal or interest) with
respect to Subordinated Debt to any Person not a Borrower, or with respect to
any Debt that would be Subordinated Debt but for the absence of a subordination
agreement in effect with respect thereto.
7.14. Change in Business; Fiscal Year. Enter into any business which is
substantially different from the business or businesses in which it is presently
engaged or change the fiscal year of any Borrower.
7.15 Accounts. Sell, assign, or discount any of its Accounts, Chattel
Paper, or any promissory notes held by it other than discount of such Accounts,
Chattel Paper, or notes in the ordinary course of business for collection and
other than sales of Accounts from one Borrower to another Borrower, provided
that such Accounts remain subject to a prior perfected security interest in
favor of Lender.
7.16 Margin Stock. Use any proceeds of the Loan to purchase or carry any
margin stock (within the meaning of Regulation U of the Board of governors of
the Federal Reserve System) or extend credit to others for the purpose of
purchasing or carrying on margin stock.
7.17 Subsidiaries. Acquire, form or dispose of any Subsidiaries, or permit
any Subsidiary to issue capital stock except to its parent. Each Borrower shall
maintain at least the percentage of ownership of each Subsidiary shown on the
attached Exhibit "E".
7.18 Amendment to Article or Bylaws. Amend the articles of incorporation or
bylaws of any Borrower in any manner that adversely affects the rights or
interests of Bank.
8. Environmental Provisions.
8.1 Contamination. Borrowers acknowledge that certain soil and groundwater
in (i) the northwestern portion of the parcel of Real Estate having a street
address of 1501 2nd Avenue ("Area One"), (ii) the vicinity of the underground
storage tank formerly located on the parcel of Real Estate having a street
address of 1617 2nd Avenue ("Area Two"), and (iii) the vicinity of the
maintenance building situated on the parcel of Real Estate having a street
address of 1616 2nd Avenue ("Area Three"), may have been impacted by petroleum
hydrocarbon and/or other containment substances (collectively, the
"Contamination"). Borrowers further acknowledge that, as of the date of this
Agreement, Bank's knowledge concerning the Contamination is limited to the
information set forth in the Phase I Environmental Site Assessment prepared in
August 1994 by EnviroAssessments, Inc. (the "Report"). Without limiting the
generality of Borrowers' obligations under this Amendment to maintain the Real
Estate in compliance with applicable Environmental Regulations, Borrowers
specifically agree to conduct such assessment and remediation work as may be
necessary to bring Area One, Area Two, and Area three into compliance with
applicable Environmental Regulations and otherwise satisfy the requirements of
the Florida Department of Environmental Protection, the Hillsborough County
Environmental Protection Commission, or any other local, state, or federal
agency with jurisdiction regarding the environmental condition of the Real
Estate (collectively, the "Regulating Agencies").
8.2 Environmental Assessment and Remediation Obligation of Borrowers.
Borrowers agree to promptly undertake and diligently proceed with the assessment
and remediation of the Contamination at their sole cost and expense. Borrowers
shall select and utilize only qualified engineers, contractors, and consultants
(collectively, the "Consultants") to conduct the assessment and remediation
required under this Agreement. All Consultants must be approved in writing by
Bank before they initiate work in connection with the Contamination. For
purposes of this Agreement, the term "assessment" shall mean the identification
of the types and concentrations of contaminants present in the soil and
groundwater, the delineation of the horizontal and vertical extent of those
contaminants, and the evaluation of the appropriate remedial action necessary to
bring Area One, Area Two, and Area Three, as well as any other property impacted
by the Contamination, into compliance with applicable Environmental Regulations
or comply with the requirements of the Regulating Agencies. For purposes of this
Agreement, the term "remediation" shall mean any response, removal, or other
remedial action required by or initiated pursuant to the mandate of any
Environmental Regulation or Regulating Agency. Borrowers shall keep Bank fully
apprised at all times of the status of the assessment and remediation of the
Contamination. Without limiting the generality of the foregoing, Borrowers shall
provide to Bank within ten days after receipt copies of all reports and testing
data generated by or on behalf of Borrowers or the consultants with respect to
the assessment and remediation of the Contamination. Additionally, Borrowers
shall submit monthly written reports to Bank, in form and substance satisfactory
to Bank, apprising Bank of the status of those activities and all material
developments relating to the Contamination. Bank reserves the right to have an
independent environmental consultant and/or Bank's legal counsel review such
reports and data and Borrowers agree to pay the reasonable cost of that review.
Borrowers further agree to allow Bank's consultant and other Bank
representatives access to the Real Estate for purposes of conducting site
inspections and verifications. For purposes of this Agreement, Borrowers shall
be deemed to have completed all required assessment and remediation efforts with
respect to the Contamination when all regulatory mandates with respect to the
assessment and remediation have been satisfied as evidenced by the delivery to
Bank of (1) a written certification issued by Borrower's Consultants in form and
substance acceptable to Bank, and its independent consultant and legal counsel,
that all required assessment or remediation has been completed with respect to
the Contamination, or (2) a "No Further Action Letter" issued by the appropriate
Regulatory Agency, as determined by Bank and its independent consultant and
legal counsel.
8.3 Indemnification. Borrowers, jointly, severally, and unconditionally,
indemnify and hold Bank harmless from and against any and all loss, cost, claim,
damage, expense, liability, or cause of action arising out of or relating to the
contamination or the breach of any of Borrowers' obligations under this
Agreement relating to the Contamination or the assessment or remediation of the
Contamination, including, without limitation, all costs or remediation or
"clean-up" relating to the Contamination, all costs of determining whether the
Real Estate is in compliance with applicable Environmental Regulations, all
costs of bringing the Real Estate into compliance with all applicable
Environmental Regulations, and all of Bank's attorneys' fees, consultants' fees,
and court costs associated with the existence, assessment, or remediation of the
Contamination. The obligations of Borrowers under this section shall survive any
termination of this Agreement.
8.4 Environmental Management of Mortgaged Property Facility. The parties to
this Agreement acknowledge that, as of the date of this Agreement, Bank has not
participated in the operation or management of the Real Estate of any facilities
located on it and has not otherwise been in a position to influence financial
management, environmental remediation, hazardous waste disposal, or hazardous
material treatment affecting or relating to the Real Estate. Moreover, the
parties acknowledge that nothing contained in this Agreement would grant to Bank
the right or ability to meaningfully direct, influence, or control future
decisions regarding environmental remediation on the Real Estate, the disposal
or treatment of hazardous waste delivered to or otherwise present on the Real
Estate, or the financial management of the Real Estate. The parties also
acknowledge that the obligations of Borrowers and the limited rights of Bank
under this Agreement with respect to the assessment and remediation of the
Contamination are intended only to protect the value of the Collateral securing
Bank's Loans.
9. Additional Representations, Covenants, and Agreements Relating to
Collateral.
9.1 Affirmation of Representations. Each request for a loan or advancement
made by Borrowers pursuant to this Agreement or any of the other Loan Documents
shall constitute (a) an automatic representation and warranty by Borrowers to
Bank that there does not then exist any default or Event of Default and (b) a
reaffirmation as of the date of said request that all of the representations and
warranties of Borrowers contained in this Agreement and the other Loan Documents
are true in all material respects, except for any changes in the nature of
Borrowers' business or operations that would render the information contained in
any exhibit attached hereto either inaccurate or incomplete, so long as Bank has
consented to such changes or such changes are expressly permitted by this
Agreement.
9.2 Waivers. Borrowers hereby waive any and all causes of action and claims
which they may ever have against Bank as a result of any possession, collection,
settlement, compromise, or sale by Bank of any of the Accounts upon the
occurrence of an Event of Default hereunder, notwithstanding the effect of such
possession, collection, settlement, compromise, or sale upon the business of
Borrowers, except to the extent arising from gross negligence or willful
misconduct. Said waiver shall include all causes of action and claims which may
result from the existence of the power of attorney conferred upon Bank in
Section 8.10 ("Attorney-In-Fact"). The failure at any time or times hereafter to
require strict performance by Borrowers of any of the provisions, warranties,
terms, and conditions contained in this Agreement or any other agreement,
document, or instrument now or hereafter executed by Borrowers, and delivered to
Bank, shall not waive, affect, or diminish any right of Bank thereafter to
demand strict compliance and performance therewith and with respect to any other
provisions, warranties, terms, and conditions contained in such agreements,
documents or instruments, and any waiver of default shall not waive or affect
any other default, whether prior or subsequent thereto, and whether the same are
of a different type. None of the warranties, conditions, provisions, and terms
contained in the Agreement or any other agreement, documents, or instrument now
or hereafter executed by Borrowers and delivered to Bank shall be deemed to have
been waived by any act or knowledge of Bank, its agents, officers, or employees,
but only by an instrument in writing signed by an officer of Bank and directed
to Borrowers specifying such waiver.
9.3 Discharge of Taxes and Liens. At its option, Bank may discharge taxes,
Liens, security interests, or other encumbrances at any time levied or placed on
the Collateral and may pay for the maintenance and preservation of the
Collateral. Borrowers agree to reimburse Bank, on demand, for any payment made
or expense incurred by Bank pursuant to the foregoing authorization, including,
without limitation, attorneys' fees.
9.4 Insurance. Without limiting any other provision hereof, each Borrower
shall keep the Collateral insured in amounts equal to its full insurable value,
with companies, and against such risks as may be satisfactory to Bank. Borrowers
will pay the costs of all such insurance and deliver policies evidencing such
insurance to Bank with mortgagee loss payable clauses in favor of Bank.
Borrowers hereby assign to Bank all right to receive proceeds, direct any
insurer to pay all proceeds directly to Bank, and authorize Bank to endorse any
check or draft for such proceeds and apply the same toward satisfaction of the
Loans and other Obligations secured hereby.
9.5 Complete Records. Borrowers will at all times keep accurate and
complete records of the Collateral, and Bank or its agents shall have the right
to call at Borrowers' place or places of business at intervals to be determined
by Bank, upon reasonable notice and during borrowers' regular business hours,
and without hindrance or delay, to inspect and examine the Inventory and the
Equipment and to inspect, audit, check, and make abstracts from the books,
records, journals, orders, receipts, computer printouts, correspondence, and
other data relating to the Collateral or to any other transactions between the
parties hereto. If requested by Bank, borrowers agree to make its books,
records, journals, orders, receipts, computer printouts, correspondence, and
other data relating to the Collateral available at Bank's main office for
inspection, audit, and checking by Bank or its agents.
9.6 U.C.C. Financing Statement. Borrowers agree that a carbon,
photographic, or other reproduction of this Agreement or of a signed financing
statement with respect to the Collateral shall be sufficient as a financing
statement and may be filed as such by Bank.
10. Events of Default.
The occurrence of any one or more of the following events shall constitute
an Event of Default (unless and except to the extent that the same is cured to
the satisfaction of Bank within the applicable cure period, if any, or, at the
sole discretion of Bank, at any time thereafter).
10.1 Payment Default. If Borrowers shall fail to make any payment of any
installment of principal (including a mandatory prepayment under Section 2.6(b))
or interest on any Note within ten (10) days after the same shall become due and
payable, whether at stated maturity, by declaration, upon acceleration, or
otherwise; or
10.2 Fees and Expenses. If borrower shall fail to pay when due any expense,
fee or charge provided for in this Agreement and such failure shall continue for
a period of ten (10) days; or
10.3 Certain Agreement Defaults. If Borrower defaults in the observance or
performance of any agreement contained in Article 7 of this Agreement ("Negative
Covenants") or in the observance or performance of the agreements set forth in
Sections 6.1 ("Insurance"), 6.2 ("Corporate Existence") (with respect to
existence only), 6.4 ("Compliance with Laws"), 6.6 ("Subordination of Debt"),
6.17 ("Collection of Accounts"), 6.20 ("ERISA Compliance"), and 6.21 ("Financial
Covenants"); or
10.4 Other Defaults. If Borrower shall fail to perform, keep, or observe
any other covenant, agreement, or provision of any Note or of this Agreement not
provided for elsewhere in this Article 10 or of any other Loan Document and any
such default is not cured within 30 days after notice from Bank, except in the
case of a default under Sections 6.3 ("Taxes"), 6.12 ("Conduct of Business"),
6.15 ("Notice to Bank"), and 6.18 ("Landlord and Storage Agreements"), which
must be remedied within 30 days of its occurrence, even in the absence of
notice; or
10.5 Representations False. If any warranty, representation, or other
statement made or furnished to Bank by or on behalf of Borrowers or any
Guarantor for in any of the Loan Documents proves to be false or misleading in
any material respect when made or furnished; or
10.6 Financial Difficulties. If Borrowers shall be involved in financial
difficulties as evidenced
(a) by its admission in writing of its inability to pay its debts
generally as they become due or of its ceasing to be Solvent;
(b) by its commencing a voluntary case under the United States
Bankruptcy Code or any similar law regarding debtor's rights and remedies or an
admission seeking the relief therein provided;
(c) by its making a general assignment for the benefit of its
creditors; or
(d) by its voluntarily liquidating or terminating operations or
applying for or consenting to the appointment of, or the taking of possession
by, a receiver, custodian, trustee or liquidator of such Person or of all or of
a substantial part of its assets; or
10.7 Involuntary Proceedings. If without its application, approval, or
consent, a proceeding shall be commended, in any court of competent
jurisdiction, seeking in respect of such Person any remedy under the United
States Bankruptcy Code, the liquidation, reorganization, dissolution,
winding-up, or composition or readjustment of debt, the appointment of a
trustee, receiver, liquidator or the like of such Person, or of all or any
substantial part of the assets of such Person, or other like relief under any
law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, which results in the entry of an order for
relief or such adjudication or appointment remains undismissed or undischarged
for a period of 30 days; or
10.8 ERISA. If a Reportable Event shall occur which Bank, in its sole
discretion, shall determine in good faith constitute grounds for the termination
by the Pension Benefit Guaranty Corporation of any Plan or for the appointment
by the appropriate United States district court of a trustee for any Plan or if
any Plan shall be terminated or any such trustee shall be requested or
appointed, or of Borrowers are in "default" (as defined in Section 4219(c)(5) of
ERISA) with respect to payments to a Multiemployer Plan resulting from
Borrowers' complete or partial withdrawal from such Plan; or
10.9 Cancellation of Guaranty. If the cancellation, termination or
limitation of any guaranty of Borrowers' obligations under this Agreement or the
Loans shall occur, or if any such Guarantor shall be in default under or breach
the terms of any guaranty agreement between Bank and such Guarantor, or if any
such Guarantor should die; or if any Guarantor's financial condition as
represented in the last personal financial statement delivered to and received
by Bank before the date of this Agreement is substantially impaired; or
10.10 Default on Other Obligations. If the ESOP or the Borrowers shall
default on the ESOP Loan or any other obligation, or if Borrowers or Guarantor
shall default in payment of amounts due on Debt of Borrowers or Guarantor to
persons other than Bank, or any loan or security agreement with others, or under
any material lease, and the aggregate amount of such Debt, agreements, and
leases exceeds $50,000 in the aggregate, and any such default shall not be cured
or permanently waived within any applicable contractual grace period, not to
exceed 30 days; or
10.11 Judgments. If a final judgment for the payment of money in excess of
450,000 shall be rendered against Borrowers and the same shall remain
undischarged for a period of 30 days during which execution shall not be
effectively stayed, unless such judgment is fully covered by collectible
insurance; or
10.12 Actions. If Borrowers or any Guarantor or any officer or director of
a Borrower or Guarantor shall be criminally indicted or convicted under any law
that could lead to a forfeiture of any property of Borrowers or such Guarantor;
or
10.13 Collateral. If a creditor of any Borrower shall obtain possession of
any of the Collateral by any legal means; or
10.14 Change in Control. If Francis M. Williams ceases to control a
majority of the outstanding shares of Parent, or if Parent ceases to control a
majority of the outstanding shares of TransCor Waste Services, Inc., or
10.15 Subordination Agreements. If a breach or default shall occur with
respect to any subordination agreement executed by any creditor of Borrowers
(including any Affiliate), or if any said agreement shall otherwise terminate or
cause to have legal effect; or
10.16 Priority of Security Interest. If any security interest or Lien of
Bank hereunder or under any other Security Agreement shall not constitute a
perfected security interest of first priority in the Collateral thereby
encumbered, subject only to Permitted Liens; or
10.17 Loss of Collateral. If there shall occur any material loss, theft,
damage or destruction of any of the Collateral, which loss is not fully insured;
or
10.18 Material Adverse Change. If Borrowers suffer a material adverse
change in their businesses, assets, properties, prospects, results of operation,
or conditions (financial or other); then and in each and every such case, Bank
or the holder of each Note may at its option proceed to protect and enforce its
rights by suit in equity, action at law and/or the appropriate proceeding either
for specific performance of any covenant or condition contained in the Note or
in any Loan Document, and/or declare the unpaid balance of the Loans and Note
together with all accrued interest to be forthwith due and payable, and
thereupon such balance shall become so due and payable without presentation,
protest or further demand or notice of any kind, all of which are hereby
expressly waived.
Borrowers agree that default under any Loan Document shall constitute
default with respect to all Loan Documents.
Without limiting the foregoing, upon the occurrence of any Event of
Default, and at any time thereafter, Bank shall have the rights and remedies of
a secured party under the Code (and the Uniform Commercial Code of any other
applicable jurisdiction) in addition to the rights and remedies provided herein
or in any other instrument or paper executed by Borrowers.
In addition to any other remedy available to it, Bank shall have the right
to the extent provided by law, upon the occurrence of an Event of Default, to
seek and obtain the appointment of a receiver to take possession of and operate
and/or dispose of the business and assets of Borrowers and any costs and
expenses incurred by Bank in connection with such receivership shall bear
interest at the Default Rate.
11. Indemnification.
11.1 General. Borrowers agreed to defend, indemnify and hold harmless Bank,
its directors, officers, employees, accountants, attorneys, and agents (the
"Indemnitees") from and against any and all claims, demands, judgments, damages,
actions, causes of action, injuries, orders, penalties, costs and expenses
(including attorneys' fees and costs of court) of any kind whatsoever arising
out of or relating to any breach or default by Borrowers or any other Person
(including Guarantors) under this Agreement or any Loan Document or the failure
of Borrowers to observe, perform or discharge Borrowers' duties hereunder or
thereunder. Without limiting the generality of the foregoing, Borrowers'
obligation to indemnify Bank shall include indemnity from any and all claims,
demands, judgments, damages, actions, causes of action, injuries, orders,
penalties, costs, and expenses arising out of or in connection with the
activities of Borrowers, its predecessors in interest, third parties who have
trespassed on Borrowers' property, or parties in a contractual relationship with
Borrowers, whether or not occasioned wholly or in part by any condition,
accident or event caused by an act or omission of the Indemnitees, which: (a)
arise out of the actual, alleged or threatened discharge, dispersal, release,
storage, treatment, generation, disposal, or escape of radioactive materials,
radioactivity, pollutants or other toxic or hazardous substances, including any
solid, liquid, gaseous, or thermal irritant or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals, and waste 9including materials to
be recycled, reconditioned or reclaimed); or (b) actually or allegedly arise out
of the use, specification, or inclusion of any product, material, or process
containing chemicals or radioactive material, the failure to detect the
existence or proportion of chemicals or radioactive material in the soil, air,
surface water or groundwater, or the performance or failure to perform the
abatement of any pollution source or the replacement or removal of any soil,
water, surface water, or groundwater containing chemicals or radioactive
material; or (c) arises out of or relates to breach by Borrowers of any of the
provisions of Section 5.21 ("Environmental Matters").
12. Costs and Expenses.
Borrowers shall bear all expenses of Bank (including fees and expenses of
its counsel) in connection with the preparation of this Agreement and the Loan
Documents, and the issuance and delivery of the Notes to Bank and also in
connection with any amendment or modification thereto. Borrowers agree to
indemnify and save Bank harmless against all broker's and finder's fees, if any.
If, at any time or times hereafter, whether before or after the occurrence of an
Event of Default, Bank employs counsel to advise or provide other representation
with respect to this Agreement, or to collect the balance of the Loans, or to
take any action in or with respect to any suit or proceeding relating to this
Agreement or any of the Loan Documents, or to protect, collect, or liquidate the
Collateral or to attempt to enforce any security interest or Lien granted to
Bank by Borrowers; then in any such events, all of the reasonable attorneys'
fees arising from such services and any expenses, costs and charges relating
thereto shall constitute additional obligations of Borrowers payable on demand
of Bank. Without limiting the foregoing, Borrowers shall pay or reimburse Bank
for all recording and filing fees, intangibles taxes, documentary and revenue
stamps, other taxes or other expenses and charges payable in connection with
this Agreement, the Notes or any Loan Document, or the filing of any Loan
Document, financing statements or other instruments required by Bank in
connection with the Loans.
12.1 No Waiver. No waiver of any Event of Default hereunder, and no waiver
of any default or Event of Default under any other Loan Document shall extend to
or shall affect any subsequent or other than existing default or shall impair
any rights, remedies or powers of Bank. No delay or omission of Bank or any
subsequent holder of the Notes to exercise any right, remedy, power or privilege
hereunder after the occurrence of such default or Event of Default shall be
construed as a waiver of any such default, or acquiescence therein.
12.1 Headings; Exhibits. Except for the definitions set forth in Article 1,
the headings of the articles, sections, paragraphs and subdivisions of this
Agreement are for convenience of reference only, are not to be considered a part
hereof, and shall not limit or otherwise affect any of the terms hereof. Unless
otherwise expressly indicated, all references in this Agreement to a section or
an exhibit are to a section or an exhibit of this Agreement. All exhibits
referred to in this Agreement are an integral part of it and are incorporated by
reference in it.
12.3 Right of Setoff. Upon and after the occurrence of any Event of
Default, Bank may, and is hereby authorized by each Borrower, at any time and
from time to time, to the fullest extent permitted by applicable laws, and
without advance notice to Borrower (any such notice being expressly waived by
Borrowers), setoff and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and any other indebtedness at any
time owing by Bank to, or for the credit or the account of, Borrower against any
or all of the Obligations of any Borrower now or hereafter existing whether or
not such Obligations have matured and irrespective of whether Bank has exercised
any other rights that it has or may have with respect to such Obligations,
including, without limitation, any acceleration rights. The aforesaid right of
setoff may be exercised by Bank against any Borrower or against any trustee in
bankruptcy, debtor in possession, assignee for the benefit of the creditors,
receiver, or execution, judgment or attachment creditor of Borrowers, or such
trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, receiver, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of setoff shall not have been exercised
by Bank prior to the making, filing or issuance, or service upon Bank of, or of
notice of, any such petition; assignment for the benefit of creditors;
appointment or application for the appointment of a receiver; or issuance of
execution, subpoena, order or warrant. Bank agrees to notify the relevant
Borrower after any such setoff and application, provided that the failure to
give such notice shall not affect the validity of such setoff and application.
The rights of Bank under this section are in addition to the other rights and
remedies (including, without limitation, other rights of setoff) which Bank may
have.
12.4 Survival of Covenants. All covenants, agreements, representations and
warranties made herein and in certificates or reports delivered pursuant hereto
shall be deemed to have been material and relied on by Bank, notwithstanding any
investigation made by or on behalf of Bank, and shall survive the execution and
delivery to Bank of any Note or Loan Document.
12.5 Addresses. Any notice or demand which by any provision of this
Agreement is required or provided to be given shall be deemed to have been
sufficiently given or served for all purposes by being delivered in person or by
facsimile to the party to whom the notice or demand is directed or by being sent
as first class mail, postage prepaid, to the following address: If to Borrowers:
Kimmins Corp., 1501 Second Avenue, Tampa, Florida 33603, Attention: Joseph M.
Williams; or if any other address shall at any time be designated by Borrowers
in writing to the holders of record of the Note at the time of such designation
to such other address; and if to Bank: SouthTrust Bank, National Association,
P.O. Box 2554, Birmingham, Alabama 35290, Attention: Asset-Based Lending
Department (telecopy no. 205-254-4369), and with a copy to; SouthTrust Bank of
Alabama, National Association, 201 North Franklin Street, Suite 100, Tampa,
Florida 33602, Attention: Sie Kamide (telecopy no. 813-229-8280); or if any
other address shall at any time be designated in writing to Borrowers, to such
other address.
12.6 Venue and Jurisdiction. Borrowers agree that any legal action brought
by Bank to collect the Loans or any Obligation or to assert any claim against
Borrowers under any Loan Document, or any part thereof, may be brought in any
court in the State of Alabama having subject matter jurisdiction and that any
such court will have non-exclusive jurisdiction, waives its right to object to
any such action on grounds it is brought in the improper venue, and irrevocably
consents that any legal action or proceeding against it under, arising out of,
or in any manner relating to the Loans, the Obligations, or any Loan Document
may be brought in the Circuit Court of Jefferson County, Alabama, or in any
other Circuit Court of the State of Alabama or in the U.S. District Court for
the Northern District of Alabama. Any judicial proceeding by any Borrower
against Bank under any Loan Document, or any part thereof, shall be brought only
in one of the foregoing courts in Alabama. Borrowers, by the execution of this
Agreement, expressly and irrevocably assent and submit to the non-exclusive
personal jurisdiction of any such court in any such action or proceeding.
Borrowers consent to the service of process relating to any such action or
proceeding by mail to the address set forth in this Agreement.
12.7 Benefits. All of the terms and provisions of this Agreement shall bind
and inure to the benefit of the parties hereto and their respective successors
and assigns. Borrowers may not assign any of their rights or obligations
hereunder without the prior written consent of Bank.
12.8 Controlling Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida; provided, however, that if any
of the Collateral shall be located in any jurisdiction other than Florida, the
laws of such jurisdiction shall govern the method, manner and procedure for
foreclosure of Bank's lien upon such Collateral and the enforcement of Bank's
other remedies in respect of such Collateral to the extent that the laws of such
jurisdiction are different from or inconsistent with the laws of Florida.
12.9 Participation. Borrowers acknowledge that Bank may, at its option,
sell participation interests in the Loans to participating banks. The amounts of
any such participations shall be determined solely by the Bank. Borrowers agree
with each present and future participant in the Loans, the names and addresses
of which will be furnished to Borrowers, that if an Event and Default should
occur, each present and future participant shall have all of the rights and
remedies of Bank with respect to any deposit due from any participant to
Borrowers. The execution by a participant of a participation agreement with
Bank, and the execution by Borrowers of this Agreement, regardless of the order
of execution, shall evidence an agreement between Borrowers and said participant
in accordance with the terms of this section.
12.10 Miscellaneous. Time is of the essence with respect to this Agreement.
This Agreement and the instruments and agreements referred to herein or called
for hereby supersede and incorporate all representations, promises, and
statements, oral or written, made by Bank in connection with the Loans. This
Agreement may not be varied, altered, or amended except by a written instrument
executed by an authorized officer of Bank. In the event of a conflict between
this Agreement and any other Loan Document, the terms of this Agreement will
control. This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be an original, but such counterparts
shall together constitute one and the same instrument. Any provision in this
Agreement which may be unenforceable or invalid under any law shall be
ineffective to the extent of such unenforceability or invalidity without
affecting the enforceability or validity of any other provisions hereof.
12.11 Joint and Several Liability. All obligations of each Person named as
Borrower shall be joint and several obligations of all such Persons. The
obligations of each Borrower pursuant to this Agreement, the Revolving Credit
Note, the Term Note, the Pledge Agreements, and the Registration Rights
Agreement, and all other instruments, documents thereof and the obligations of
each Borrower hereunder and thereunder shall not be impaired or avoided due to
(i) the unenforceability of such obligations against any other party which is
any Borrower or (ii) the incapacity or lack of authority of any signatory of any
Borrower; and Bank may compromise or settle, extend the time for payment,
discharge or waive performance of or refuse to enforce or release all or any
part of any and all of the Obligations and Collateral and may grant other
indulgences to one of more Borrowers in respect thereof or release or substitute
any one or more of Borrowers, all without otherwise affecting or impairing the
joint and several obligations of Borrowers hereunder and thereunder.
12.12 Limitation of Grant. Nothing in this Agreement, whether express or
implied, is intended or should be construed to confer upon, or to grant to, any
person, except Bank and Borrowers, any right, remedy, or claim under or because
of either this Agreement or any provision of it. The rights, duties, and
obligations of Borrowers under this Agreement are not assignable or delegable.
12.13 WAIVER OR RIGHT TO TRIAL BY JURY. BORROWERS AND BANK HEREBY WAIVE ANY
RIGHT TO TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR
CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY PERTAINING OR RELATING TO THIS
AGREEMENT, THE NOTES, THE LOAN DOCUMENTS, OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR (B) IN ANY
WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALINGS OF
THE PARTIES HERETO WITH RESPECT TO THIS AGREEMENT, THE NOTES, THE LOAN
DOCUMENTS, OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH OR IN CONNECTION WITH THE TRANSACTIONS RELATED THERETO OR
CONTEMPLATED THEREBY OR THE EXERCISE OF EITHER PARTY'S RIGHTS AND REMEDIES
THEREUNDER, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. BORROWER AND BANK
AGREE THAT EITHER OR BOTH OF THEM MAY FILE A COPY OF THIS PARAGRAPH WITH ANY
COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED AGREEMENT
BETWEEN THE PARTIES IRREVOCABLY TO WAIVE TRIAL BY JURY, AND THAT ANY DISPUTE OR
CONTROVERSY WHATSOEVER BETWEEN THEM SHALL INSTEAD BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
IN WITNESS WHEREOF, each Borrower and Bank has caused this instrument to be
executed by its duly authorized officer.
BORROWERS:
KIMMINS CORP.
By: /s/ Norman S. Dominiak
-----------------------------------
Norman S. Dominiak
Vice President/Chief Financial Officer
TRANSCOR WASTE SERVICES, INC.
By: /s/ Norman S. Dominiak
-----------------------------------
Norman S. Dominiak
Vice President/Chief Financial Officer
<PAGE>
KIMMINS RECYCLING CORP.
By: /s/ Norman S. Dominiak
----------------------------------
Norman S. Dominiak
Vice President/Chief Financial Officer
FOURTH AVENUE HOLDINGS, INC.
By: /s/ Norman S. Dominiak
----------------------------------
Norman S. Dominiak
Vice President/Chief Financial Officer
LANTANA EIGHTH AVENUE CORP.
By: /s/ Norman S. Dominiak
----------------------------------
Norman S. Dominiak
Vice President/Chief Financial Officer
1223510v1
EXHIBIT 10.8
AMENDMENT TO SECOND AMENDED
AND RESTATED LOAN AGREEMENT
This Amendment to Second Amended and Restated Loan Agreement (this
"Amendment"), dated as of October 29, 1999, is between KIMMINS CORP., a Delaware
corporation, and its affiliated corporations who are signatories to this
Amendment (collectively, the "Borrowers"), and SOUTHTRUST BANK, NATIONAL
ASSOCIATION (the "Bank"), to record their agreement regarding modifications of
the Second Amended and Restated Loan Agreement dated January 12, 1998 (the
"Restated Loan Agreement") between Bank and Borrowers.
Recitals
Pursuant to the term and conditions of the Restated Loan Agreement, Bank
made available to the Borrowers a revolving loan and a real estate loan as
described more particularly in the Restated Loan Agreement including the
extension or renewals of letters of credit for the account of the Borrower. The
Bank and Borrower desire to amend the Restated Loan Agreement as described in
this Amendment. Terms used in this Amendment that are defined in the Restated
Loan Agreement have the meanings assigned to them in the Restated Loan
Agreement.
Agreement
The Bank and the Borrowers agree as follows:
1. Revolving Loans Amendments.
---------------------------
Section 2.1 of the Restated Loan Agreement is amended in the following
respects:
(a) The Borrowers acknowledge that the principal balance of the
Revolving Loans as of the date of this Amendment is $3,443,498.49, which
amount is the sum of the current principal balance, of $2,874,000 and an
advance on the date of this Amendment of $569,498.49 to repay the principal
balance of the ESOP Loan. Bank shall have no obligation after the date of
this Amendment to make available to Borrowers any additional advances to
the Revolving Loans or any additional Letters of Credit, and the Borrower
may not reborrow any amounts required or permitted to be paid by Borrowers
to Bank pursuant to this Amendment. All references in the Restated Loan
Agreement to the Revolving Loans shall be deemed to refer to the Revolving
Loans as modified in this Amendment, notwithstanding that no additional
advances shall be made and no reborrowings permitted.
<PAGE>
(b) The Borrowers shall execute and deliver to Bank a promissory note
(the "Amended Revolving Note") in the amount of current principal
outstanding or the Revolving Loans, payable to the order of Bank,
evidencing Borrowers' joint and several obligations to repay the Revolving
1
<PAGE>
Loans. The principal amount of the Revolving Loans outstanding as a result
of this Amendment shall bear interest at a floating annual rate equal to
the Base Rate plus one-half (1/2%) percent per year. Borrowers shall pay
the principal amount of the Revolving Loans in installments as follows.
Payment Date Amount
------------ ------
November 15, 1999 $1,000,000.00
December 31, 199 1,000,000.00
February 15, 200 1,000,000.00
March 31, 2000 443,498.49
Borrower shall pay accrued interest on the date each principal payment is
due and in addition to the principal payment. The applicable interest rate
on the Revolving Loans shall change as and when the Base Rate changes from
time to time, effective the day each such change occurs.
2. Amendments to Real Estate Loan.
-------------------------------
(a) Borrowers acknowledge that the principal balance of the Real
Estate Loans outstanding as of the date of this Amendment (the "Current
Real Estate Loan Principal Balance") is $1,464,546.61. Subject to the terms
and conditions of this Amendment and the Restated Loan Agreement, the Bank
has agreed to make an additional advance to Borrowers under the Real Estate
Loans of $300,000 (the "Additional Advance").
(b) The Borrowers shall execute and deliver to the Bank a promissory
note (the "Amended Real Estate Note") in the amount of $1,764,546.61, which
amount is the sum of the Additional Advance and the Current Real Estate
Loan Principal Balance, payable to the order of the Bank, evidencing
Borrowers joint and several obligation to repay the Real Estate Loans,
including the Additional Advance. The outstanding principal amount of the
Amended Real Estate Note shall bear interest at the Base Rate plus
three-quarters (3/4%) percent per year. Borrower shall pay principal of the
Amended Real Estate Note in monthly installments of $24,409.11 each
beginning December 1, 1999, and continuing on the same day of each month
thereafter until October 1, 2004, at which time all unpaid principal and
accrued interest will be due and payable in full.
2
<PAGE>
3. Amendments to Letters of Credit Provisions.
-------------------------------------------
(a) Borrowers acknowledge has issued for Borrowers' account, Letters
of Credit in the amount $1,080,000.00. Pursuant to this Amendment, the Bank
has no further obligation to issue or renew Letters of Credit for
Borrowers' accounts.
(b) Borrowers shall repay to the Bank at the Bank's demand the amount
of any draw of any beneficiary of a Letter of Credit. Until repaid, the
obligation of the Borrowers to repay the amounts of draws against Letters
of Credit shall bear interest at floating annual rate equal to the Base
Rate plus 4%.
4. Defined Terms.
--------------
(a) The definition of "Loan or Loans" in Section 1.36 of the Restated
Loan Agreement shall refer to all loans from Bank to Borrower, including
the Revolving Loans and Real Estate Loans, as modified by this Amendment,
and to the obligation of the Borrowers to repay to the Bank any draws
against Letters of Credit as described in Section 3 of this Amendment.
(b) The "Mortgage" as defined in Section 1.40 of the Restated Loan
Agreement shall refer to the mortgages executed by Parent granting Bank a
first lien on the Real Estate to secure repayment of the Real Estate Loans,
including the Additional Advance.
5. Continuing Security.
--------------------
All obligations of the Borrowers to the Bank, as modified pursuant to this
Amendment will continue to be secured by all of the Collateral Documents,
including without limitation, the Account Pledge Agreement, the Pledge
Agreement, the Security Agreement, the Mortgage, the Restated Loan Agreement as
amended by this Amendment (to the extent it constitutes a security agreement),
and all the documents executed from time to time evidencing Bank's interest in
the Collateral.
6. Representations.
----------------
Borrowers represent to Bank the following as of the execution date of this
Amendment:
(a) Borrowers have all requisite power, authority, and legal right to
execute, deliver, and perform this Amendment;
(b) The execution, delivery, and performance of this Amendment by
Borrowers have been duly authorized by all requisite corporate action and
3
<PAGE>
will not (i) violate any law, (ii) conflict with the articles of
incorporation and bylaws of Borrowers, (iii) accelerate the maturity of, or
result in any lien, penalty, security interest, or encumbrance in, on, or
under, any mortgage, indebtedness, security agreement, or contingent
obligation, or (iv) constitute a default or breach of any material order,
lease, contract, indenture, mortgage, judgment, promissory note, or other
agreement or instrument to which any of the Borrowers is a party or any of
its property is subject;
(c) No filing with, or consent, license, authorization, or approval
of, any Person is required in connection with the execution, delivery, or
performance of this amendment; and
(d) All Collateral securing the Revolving Loan and the Real Estate
Loan is located within the State of Florida.
(e) This Amendment is valid, effective, and enforceable by Bank
against Borrowers in accordance with its terms, except to the extent
limited by application of general principles of equity and by bankruptcy,
insolvency, debtor relief, and similar laws of general application
affecting the enforcement of creditors' rights.
7. Miscellaneous.
--------------
This Amendment and the documents contemplated by it record the final,
complete, and exclusive understanding between Bank and Borrowers regarding the
modification of the Restated Loan Agreement. Except as modified by this
Amendment, the Restated Loan Agreement and all of the other Loan Documents
continue in full force and effect in accordance with their terms. Bank has not
waived, and does not waive, any of its rights under the Restated Loan Agreement
or any other Loan Documents. This Amendment will become effective when it has
been executed by Bank and all of the Borrowers.
"BORROWER"
KIMMINS CORP.
By: /s/ NORMAN S. DOMINIAK
-----------------------------------
Norman S. Dominiak,
Vice President/
Chief Financial Officer
4
<PAGE>
TRANSCOR WASTE SERVICES, INC.
By: /s/ NORMAN S. DOMINIAK
-----------------------------------
Norman S. Dominiak,
Vice President/Treasurer
KIMMINS CONTRACTING CORP.
By: /s/ NORMAN S. DOMINIAK
-----------------------------------
Norman S. Dominiak,
Vice President/Treasurer
THERMOCOR KIMMINS, INC.
By: /s/ NORMAN S. DOMINIAK
-----------------------------------
Norman S. Dominiak,
Vice President/Treasurer
FACTORY STREET CORPORATION
By: /s/ NORMAN S. DOMINIAK
-----------------------------------
Norman S. Dominiak,
Vice President/Treasurer
KIMMINS INDUSTRIAL SERVICE CORP.
By: /s/ NORMAN S. DOMINIAK
-----------------------------------
Norman S. Dominiak,
Vice President/Treasurer
5
<PAGE>
KIMMINS ABATEMENT CORP.
By: /s/ NORMAN S. DOMINIAK
-----------------------------------
Norman S. Dominiak,
Vice President/Treasurer
KIMMINS INCORPORATED
By: /s/ NORMAN S. DOMINIAK
-----------------------------------
Norman S. Dominiak,
Vice President/Treasurer
KIMMINS ASSOCIATES, INC.
By: /s/ NORMAN S. DOMINIAK
-----------------------------------
Norman S. Dominiak,
Vice President/Treasurer
KIMMINS SPECIALTY CONTRACTING, INC.
By: /s/ NORMAN S. DOMINIAK
-----------------------------------
Norman S. Dominiak,
Vice President/Treasurer
KIMMINS EQUIPMENT LEASING CORP.
By: /s/ NORMAN S. DOMINIAK
-----------------------------------
Norman S. Dominiak,
Vice President/Treasurer
6
<PAGE>
"BANK"
SOUTHTRUST BANK NATIONAL ASSOCIATION
By: /s/ ROBERT L. WEBB
----------------------------------
Name: Robert L. Webb
Title: Vice President
1223351.1 7
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State or Providence
of Incorporation
Company or Organization
- ------- ---------------
Kimmins Contracting Corp....................................... Florida
Kimmins Ltd.................................................... Ontario, Canada
Kimmins Industrial Service Corp................................ Delaware
Kimmins Abatement Corp......................................... Delaware
ThermoCor Kimmins, Inc......................................... Florida
(f/k/a Kimmins Thermal Corp.)
Kimmins Specialty Contracting, Inc............................. Florida
Kimmins Associates, Inc........................................ Delaware
Kimmins Equipment Leasing Corp................................ Florida
TransCor Waste Services, Inc................................... Florida
Bay Area Recycling and Fibers, Inc............................. Florida
Kimmins Incorporated........................................... Texas
Kimmins International.......................................... Florida
Factory Street Corporation..................................... Tennessee
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-29612) pertaining to the 1987 Stock Option Plan of Kimmins
Corp. and in the related Prospectus, of our report dated April 7, 1999, with
respect to the consolidated financial statements and schedule of Kimmins Corp.
included in the Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Tampa, Florida
April 12, 2000
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-29612) pertaining to the 1987 Stock Option Plan of Kimmins
Corp. and in the related Prospectus, of our report dated March 31, 2000, with
respect to the consolidated financial statements and schedule of Kimmins Corp.
included in the Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ GIUNTA, FERLITA & WALSH, PA
Tampa, Florida
March 31, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-K
FOR THE ANNUAL PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000811562
<NAME> KIMMINS CORP.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,859,275
<SECURITIES> 22,022,296
<RECEIVABLES> 18,289,751
<ALLOWANCES> 739,223
<INVENTORY> 0
<CURRENT-ASSETS> 47,205,113
<PP&E> 65,224,998
<DEPRECIATION> 19,578,279
<TOTAL-ASSETS> 114,300,471
<CURRENT-LIABILITIES> 41,151,712
<BONDS> 0
0
0
<COMMON> 6,739
<OTHER-SE> 14,664,341
<TOTAL-LIABILITY-AND-EQUITY> 114,300,471
<SALES> 59,302,243
<TOTAL-REVENUES> 59,302,243
<CGS> 67,079,477
<TOTAL-COSTS> 67,079,477
<OTHER-EXPENSES> 7,072,487
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,489,329
<INCOME-PRETAX> (24,954,298)
<INCOME-TAX> (9,865,999)
<INCOME-CONTINUING> (15,088,299)
<DISCONTINUED> 19,431,309
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,343,010
<EPS-BASIC> 1.01
<EPS-DILUTED> 1.01
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-K
FOR THE ANNUAL PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000811562
<NAME> KIMMINS CORP.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 194,202
<SECURITIES> 11,520,739
<RECEIVABLES> 13,231,983
<ALLOWANCES> (551,355)
<INVENTORY> 0
<CURRENT-ASSETS> 27,654,866
<PP&E> 62,977,876
<DEPRECIATION> (25,730,667)
<TOTAL-ASSETS> 87,742,341
<CURRENT-LIABILITIES> 33,228,505
<BONDS> 0
0
0
<COMMON> 6,739
<OTHER-SE> 7,684,828
<TOTAL-LIABILITY-AND-EQUITY> 87,742,341
<SALES> 56,240,759
<TOTAL-REVENUES> 56,240,759
<CGS> 51,131,206
<TOTAL-COSTS> 51,131,206
<OTHER-EXPENSES> 7,221,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000,457
<INCOME-PRETAX> (4,748,465)
<INCOME-TAX> (1,408,389)
<INCOME-CONTINUING> (3,340,076)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,340,076)
<EPS-BASIC> (0.73)
<EPS-DILUTED> (0.73)
</TABLE>
