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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended August 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-19350
VIROGROUP, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA 59-1671036
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5217 LINBAR DRIVE, SUITE 309
NASHVILLE, TN 37211
(Address of principal executive offices)
Registrant's telephone number: (615) 832-0081
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ----------------------
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of November 17, 1997, the aggregate market value of the voting stock of the
Registrant held by non-affiliates of the Registrant was $225,060.
As of November 17, 1997, the number of outstanding shares of Common Stock of the
Registrant was 795,188.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. BUSINESS
ViroGroup, Inc. (the "Company"), provides a wide range of environmental
services to assess and remediate groundwater and soil contamination, to design
and monitor solid and hazardous waste landfills, to protect air quality, to
assure regulatory compliance and to develop groundwater resources. The Company's
strategy is to provide a comprehensive array of services through integrated
utilization of a skilled technical staff consisting of hydrogeologists,
environmental engineers, chemical engineers, chemists, biologists, computer
modelers and others to find optimum solutions to a client's environmental
challenges. The Company's current market focus is centered on North America with
most of its business in the southeastern United States.
BACKGROUND AND ORGANIZATION
The Company's client base is diversified. Its clients range in size
from large, publicly held corporations to municipalities and local enterprises,
including industrial firms, sales and service companies, service stations and
utilities. The majority of the Company's revenues are derived from
private-sector clients.
The Company's first office was established in Cape Coral, Florida in
1976 and primarily focused on the development, management and protection of
groundwater resources such as drinking water. Subsequently, the Company
broadened its scope of services to include other environmental services.
Primarily in response to anticipated demand for underground petroleum storage
tank site assessments and remediations to be paid by the State of Florida
through its Inland Protection Trust Fund, the Company in fiscal years 1989
through 1992 opened six additional offices in Florida. In March, 1995, the state
suddenly curtailed the program significantly reducing the available work.
Primarily as a result of this curtailment, the Company closed three of its
offices in 1995 and 1996. The Company also closed two small, nonprofitable
offices in Florida and decreased the size of its South Carolina office by
one-third in 1997. Present Company locations in Florida are Cape Coral and
Pensacola.
During fiscal 1992, the Company, in exchange for common stock and cash,
acquired a company which mainly provides planning, design and construction
Quality Control/Quality Assurance, facility permitting and closure, as well as
wastewater services to the solid and hazardous waste management industries.
Through this acquisition, the Company acquired locations in California, New York
and South Carolina. The New York and California offices were closed in fiscal
1994 and 1996, respectively.
During fiscal 1993 the Company acquired an environmental and
remediation services company in Nashville, Tennessee, from a Laidlaw Inc.
("Laidlaw") affiliate in exchange for 600,000 shares of the Company's Series A
Preferred Stock. On the same date, the Company sold to another Laidlaw affiliate
an additional 200,000 shares of Series A Preferred Stock for $2,000,000 in cash.
In June 1995, these entities surrendered these holdings in exchange for 397,606
of the Company's $0.01 par value common shares (the "Common Stock"), which
represents 50% of the Company's total shares after giving effect to the
one-for-eight reverse stock split on January 23, 1997. In addition, the
agreement included the following provisions:
-- Should Laidlaw sell or transfer the Common Stock received under this
agreement at any time between two and six years after issuance,
holders of other outstanding shares of Common Stock will be granted
the right to participate in any such transaction on the same basis,
terms and conditions.
-- ViroGroup's Board of Directors was reduced from nine members to seven,
three of whom are to be nominated by the holders of the Common Stock
issued under the agreement.
-- Commencing with the issuance of the Common Stock and for a three-year
period thereafter, Laidlaw agreed to extend to ViroGroup a $3.0
million line of credit subordinated to and bearing the same interest
rate as the Company's existing bank credit line. Laidlaw, in lieu of
its commitment to provide the debt financing to the Company, caused a
letter of credit to be issued to collateralize the Company's $3.0
million line of credit to a bank lender. Substantially all of the
Company's assets secure this obligation to Laidlaw in the event of a
draw upon the line of credit.
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Furthermore, Laidlaw waived unpaid preferred stock dividends totaling
$180,445. As a result of this preferred stock conversion and waiver, the Company
is no longer obligated to pay an annual preferred stock dividend of $560,000.
In 1996, Laidlaw affiliates were the Company's largest clients,
accounting for approximately 20% of the Company's revenues. In 1997, Laidlaw
affiliates accounted for only 8% of revenues.
The Company is organized into two broad service divisions. These
service divisions are Environmental Consulting and Engineering Services, and
Hydrogeological and Water Resources Services. Through this organization, each
office utilizes the Company's full resources regardless of geographical
location, thus contributing to optimizing solutions that address the Company's
clients' diverse environmental challenges. This merger of the Company's talent
is designed to maximize staff utilization while reducing overhead costs. All
Company locations use the name of ViroGroup as their identity.
The Company's principal executive offices are located at 5217 Linbar
Drive, Suite 309, Nashville, Tennessee 37211, and its phone number is (615)
832-0081. Unless otherwise indicated, references herein to specific years
correspond to the Company's fiscal year ending August 31.
ENVIRONMENTAL CONSULTING AND ENGINEERING SERVICES.
The Company provides professional services in the following areas:
environmental management information services, bio-remediation, remediation
design, construction management, contamination assessment, risk assessment,
underground storage tank management, transactional environmental audits,
operational environmental audits, air quality management, and wastewater
management and regulatory assistance, as well as hazardous and solid/liquid
waste management consulting services and other services. Environmental,
Consulting and Engineering services comprised approximately 89% of the Company's
1997 consolidated gross revenues.
OPERATIONAL ENVIRONMENTAL AUDITS. Operational environmental audits are
performed at industrial, commercial and governmental facilities to provide an
analysis of a client's environmental compliance status, to suggest ways to
minimize hazardous waste and reduce costs and to recommend corrective action, if
appropriate. The Company performs these services to help clients comply with
environmental and work place laws and regulations, including air emissions,
wastewater and groundwater discharges, hazardous and solid wastes,
polychlorinated biphenyls, asbestos, pesticides, oil spill control, underground
storage tanks, drinking water, contingency planning, OSHA, worker right-to-know
and SARA Title III (community right-to-know). This complex body of environmental
laws and regulations has substantially reduced a company's ability to comply
without assistance by outside specialists.
The Company offers specialized follow-on services to address needs
identified during the audit. Chemical and process engineers work with regulatory
specialists to develop waste minimization programs. Permit deficiencies are
evaluated and corrective action programs including training are implemented.
WASTEWATER AND PROCESS ENGINEERING SERVICES. These services include
wastewater treatment projects that use physical, chemical and biological
processes. Other wastewater management services include, monitoring and
inspection of wastewater management systems and compliance with applicable
provisions of federal, state and local laws and regulations. NPDES and RCRA
(TSD) permit-related services are provided as well as wastewater facility and
collection system planning and design.
REMEDIATION DESIGN, CONSTRUCTION AND MANAGEMENT. ViroGroup provides
comprehensive remediation services to correct groundwater and soil
contamination. Services provided include remediation plan development, design
and installation of treatment and recovery systems, hydrogeological studies,
bio-remediation, vapor extraction, RCRA closures, Treatment, Storage and
Disposal (TSD) facilities closure, soil/water removal and treatment programs, as
well as long-term monitoring and maintenance programs, including monitoring well
design and construction, and above-ground tank installation.
The Company provides complete underground storage tank (UST) assessment
and remediation services. Among the services provided are site assessments,
hydrogeological studies, remediation plan development, tank removal, replacement
tank system design and
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installation, soil and water removal, treatment system design and installation,
as well as systems monitoring and maintenance.
BIO-REMEDIATION SERVICES. During fiscal 1996 the Company added a new
bio-remediation technology to its line of services known as the immobilized
microbe bio-reactor system. This technology is a biological treatment process
which is a simple, efficient and effective method for treating entrenched
organic contamination in both soil and groundwater. It has distinct performance
benefits over many traditional bio-remediation technologies and can offer lower
cost, efficient remediation for large area contamination.
SOLID AND HAZARDOUS WASTE MANAGEMENT SERVICES. These services include
planning, design and construction services, facility permitting, permit
modifications and construction quality control inspections. Solid waste services
are almost exclusively offered to the private sector while wastewater services
are mainly offered to county and city governments.
ENVIRONMENTAL MANAGEMENT SERVICES (EMS). During fiscal 1996, the
Company added database design services to help clients efficiently manage their
compliance programs. Environmental compliance can be extremely time-consuming
and complex. The Company's EMS staff works with clients to evaluate their needs
for compliance and designs a database which easily and timely generates
automatic tracking, specification calculations and compliance reports. This
modular system allows clients to select modules for air permitting, discharge
monitoring reporting, permit tracking and hazardous waste tracking, as well as
specific client customized modules. Such flexibility allows the Company to
easily tailor these applications to each client's needs and budget.
FLORIDA UNDERGROUND PETROLEUM STORAGE TANK (UST) REIMBURSEMENT PROGRAM.
During fiscal 1994, the Company aggressively expanded its participation in the
State of Florida financed programs to provide environmental services to
evaluate, assess and remediate contaminated underground petroleum storage tank
sites. Through its Inland Protection Trust Fund, the State of Florida reimburses
certain costs to clean up eligible contaminated sites. Primarily due to an
estimated unfunded $450 million backlog and annual tax revenue allocation of
only $100 million, in March 1995 new legislation directed the Florida Department
of Environmental Protection to cease processing, with certain limited
exceptions, applications for reimbursement of costs to clean up UST sites
eligible for state funds.
In May 1996, a new law (the "1996 Act") was passed which implemented
significant changes to the reimbursement program and addressed the estimated
$450 million backlog of unpaid claims. The 1996 Act provided for the elimination
of the reimbursement program effective August 1, 1996 and required all
reimbursement applications to be submitted by December 31, 1996. Also, the 1996
Act created a non-profit public benefit corporation, which became operational in
the Fall of 1997, to finance the unpaid backlog. This non-profit corporation is
charged with financing the estimated backlog of 9,500 claims totaling over $556
million. Payment of claims will be on a first-come, first-served methodology
based on application filing date and an assumed annual allocation rate of $100
million. Claims paid will be subject to a 3.5% annual discount in consideration
of the anticipated accelerated payment as compared to the previously expected
period of 4 to 5 years. Based upon information received from the State of
Florida, it is currently anticipated that payment of the initial portion of the
claims (approximately $213 million) should begin in the first quarter of
calendar 1998; however, no assurance of that timetable can be given.
The Company in prior fiscal years recorded valuation allowances on the
amounts due to reflect the state mandated discount and potential denied costs.
At August 31, 1996, allowances totaled $931,665 with $889,937 applied as a
valuation allowance to the amounts due, resulting in a net amount of $2,812,737
shown as the Amounts Due From State Agency, net, in the accompanying
consolidated balance sheet.
At August 31, 1997, allowances totaled $913,918 with $166,623 applied
as a valuation allowance to the amounts due, resulting in a net of $512,927
shown as the Amounts Due From State Agency, net, in the accompanying
consolidated balance sheet. The balance sheet also includes $747,295 which is
included in Accrued Liabilities to reflect the Company's liability to pay
discounts and denied costs on receivables sold to third parties.
All of the approximately $3.1 million in reimbursement applications
which were unfiled at August 31, 1996, have been sold to third-party financing
entities at August 31, 1997. The Company used third-party funding to obtain the
cash from the financing entities to avoid the long payout period by the State.
In addition to selling the previously mentioned claims, the Company filed
approximately $703,000 directly with the State.
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Specifically, the Company entered into several arrangements to sell
substantially all the claims filed with the state for reimbursement. These
arrangements required prepayment of a 3-4% prepaid fee to cover administrative
and other costs for up to the first nine months at the time the financing entity
paid the Company.
If the state has not paid the funding entities within the first nine
months, the Company will pay indemnification costs at the rate of .6875% per
month beginning October 1997. In January 1998, the indemnification rate begins
to increase each month and could reach 12.375% per month in August 1998. The
effect of the rate increase is to generate an overall yield, since inception, of
8.25%. These indemnification costs are being charged against the reserve account
at the present time. In the event the state does not meet the projected payment
schedule beginning in the first quarter of calendar year 1998, the reserves will
not be adequate to absorb all of the indemnification costs.
RISK ASSESSMENT. The Company performs risk assessments for industrial
sites to evaluate the potential danger to the health and safety of individuals,
as well as the impact on the environment at and near the site. The risk
assessment report also predicts the ultimate fate and disposition of any
contaminants. The risk assessment provides an assessment of potential harm,
predicts who might be affected and proposes and monitors corrective action. At
times, the Company performs risk assessments to determine the consequences of
deferring remediation while continuing to monitor the problem.
CONTAMINATION ASSESSMENT. The Company provides comprehensive
definitions of and solutions for contamination problems. The principal sources
of contamination that the Company addresses are: leaking underground storage
tanks, spills of hazardous waste and improper disposition of solid and hazardous
waste. The Company assigns trained personnel with thorough knowledge of
environmental, health and safety regulations to all contamination assessment
projects.
TRANSACTIONAL ENVIRONMENTAL AUDITS. The Company performs transactional
environmental audits in connection with real property transactions, foreclosures
and loans secured by real property. Such audits assess environmental risks and
estimate remediation needs and costs. In 1980, Congress passed the Comprehensive
Environmental Response, Compensation and Liability Act, which generally provides
that owners, operators and purchasers of properties contaminated with toxic or
hazardous substances may be liable for the cost of clean-up and also may be
exposed to third-party liability actions. The demand for environmental audits
was increased by the 1986 Superfund Amendment and Reauthorization Act, which
created an innocent purchaser defense known as the "due diligence" test.
The Company has developed an internal system of classification with
scopes of service for various levels of environmental audits ranging from data
review and site visits to cases of increased complexity requiring site testing
of groundwater, surface water, soils and air for asbestos, radon and other
harmful substances. If an audit identifies contamination, an "assessment" of the
site follows to determine the extent and significance of the contamination.
AIR QUALITY MANAGEMENT. The Company's services include: emissions
reduction studies, atmospheric dispersion modeling, air-quality control system
design and assistance in obtaining permits. Title V permitting and associated
process engineering services are provided to a variety of industrial sectors.
The Company's professionals provide enforcement representation, negotiation of
financial settlements and consent orders and expert witness services to address
air quality issues during administrative and judicial proceedings.
OTHER SERVICES. ViroGroup's professionals provide training services for
client management and employees on a variety of environmental issues and
regulations and serve as expert witnesses, negotiate financial settlements and
consent orders, as well as serve as representation during enforcement
administrative and judicial proceedings. The Company does not represent any
federal, state or local authorities in enforcement proceedings against private
entities.
HYDROGEOLOGICAL AND WATER RESOURCES SERVICES
The Company provides professional services for water supply
development, injection well design and water resource planning. These services
include computer modeling to assess surface water influences as well as
groundwater changes. Computer modeling services result in site-condition
analysis ranging from contaminant plume migration to regional well field
impacts. Groundwater resource management services are provided primarily in the
southeastern United States and the Caribbean. These services comprise
approximately 11% of the Company's consolidated gross
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revenues.
WATER SUPPLY. The Company assists in the development of groundwater
supplies for municipal, agricultural and industrial uses. The Company performs
subsurface investigations and upgrades existing systems with cost-effective
solutions to water quality or well construction problems. The Company estimates
the potential yield of an aquifer and recommends the most efficient well design
to maximize yield while minimizing impact, assesses water quantity and quality
and supervises the wellfield construction.
Identification of an acceptable source of water can be time consuming
and expensive in coastal and island hydrogeologic environments. Withdrawals from
an aquifer can induce the movement of poorer quality water into the production
wells, causing failure of the system. In response to these problems, the
Company's professionals conduct research in the hydrodynamics of the fresh/salt
water interface and model withdrawal scenarios to maximize both water production
and protection of potable water resources. The Company specializes in salt water
intrusion, including identifying, quantifying and controlling the problem.
The Company believes that reverse osmosis desalination will become
increasingly important in developing water supply systems for municipal and
industrial clients. The Company designs and develops wellfields to supply such
systems.
The Company has special expertise in predicting the long-term effects
on water quality of various levels of production from such wellfields through
the use of three dimensional computer modeled simulations. The Company
originated as a groundwater supply engineering firm and has more than fifteen
years' experience with groundwater wellfields. A number of the Company's
professionals have degrees in hydrogeology and have published articles on the
subject in scientific and technical publications.
WATER RESOURCE PLANNING. The Company assists municipalities, water
management districts and industrial clients in developing water resource
management plans to alleviate water shortages caused by drought conditions,
declining water levels, groundwater contamination or saltwater intrusion. The
Company's professionals provide specialized regional exploration for new
groundwater resources and develop alternative water sources, including reuse of
residential and industrial wastewater, storage and recovery of excess freshwater
runoff and treatment of salt water by reverse osmosis.
In connection with its groundwater resource management services, the
Company provides both surface and groundwater monitoring, including location and
installation of wells, sampling, chain of custody requirements, analytical work
and analysis of results. The Company's water monitoring services assist its
clients in maintaining regulatory compliance and improving their process flow
while recycling water, conserving resources and upgrading treatment plants.
INJECTION WELL TECHNOLOGY. Injecting fluids into underground formations
containing nonpotable groundwater is called deep-well injection. Treated
wastewater or reverse osmosis concentrate water are commonly injected into
deeper aquifers containing poorer quality saline water. Also, treated freshwater
is injected into aquifers during periods of abundant supply for recovery during
peak demand periods. Injection-well technology is used where the receiving
aquifer is capable of accepting the injected fluids without endangering any
underground source of drinking water. The Company's work includes design of the
wells, preparation for construction permits, preparation of technical data,
construction, inspection, installation and injection testing.
CLIENTS
Almost all of the clients that retain the Company to provide
environmental services are private-sector clients ranging from large,
publicly-traded corporations to local enterprises, including industrial, sales
and service companies and service stations. Almost all of the clients that
retain the Company to provide groundwater resource management services, which
principally relate to public water supply development, are public and private
utilities and governmental water supply systems. The Company does not provide
services to governmental units in connection with regulatory enforcement actions
against private companies.
During fiscal 1997, the Company's 10 largest clients, in the aggregate,
accounted for approximately 50% of
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gross revenues. The Company's largest client, International Comfort Products, is
an international business which has no ownership association with ViroGroup.
This client accounts for approximately 14% of total revenues and the loss of
this client could have a material adverse effect on the Company. No other client
accounted for more than 10% of total revenues.
MARKETING
The Company's sales and marketing efforts focus on developing new
clients including national accounts and generating new business from existing
clients. The Company believes its corporate sales and marketing program, which
includes three full-time, professional sales people, teamed with localized
marketing by the professional consulting staff is the most effective method of
generating revenues. Marketing activities include presentations by senior staff
personnel to civic and professional associations, presentations at seminars and
publication of articles in professional journals.
PRICING
Approximately 75% of the Company's business consists of charging
clients for hours worked on their project plus expenses incurred for their job.
The remainder of the revenues are generated by fixed fee contracting and unit
price contracts. In all material instances, the fixed fee contracts are for
services with which the Company has substantial experience and can reasonably
predict costs requirements.
The business of the Company is somewhat seasonal. Materials and
third-party services used in performing the contracted work are readily
available.
BACKLOG
As of August 31, 1997, the Company's backlog was approximately
$4,000,000, compared to approximately $2,000,000 as of August 31, 1996.
Management does not believe backlog is a meaningful indication of future
revenues.
COMPETITION
The market for the Company's services is highly competitive. The
Company competes with many other firms, ranging from small, local firms to
large, national firms having substantially greater financial and marketing
resources than the Company. The Company competes primarily on the basis of
quality of service and expertise. Other competitive factors include geographic
location, price and availability of personnel.
INSURANCE AND LIABILITY
It has been both a Company policy and a requirement of many clients for
the Company to carry insurance for the services it performs. The Company
maintains professional liability and contractor's pollution liability insurance
in the amount of $5,000,000. The Company's general liability insurance is in the
amount of $2,000,000 plus $5,000,000 in excess liability coverage. Aggressive
enforcement of RCRA and Superfund Act regulations and legal decisions adverse to
insurance carriers involving pollution damage may make it difficult for the
Company and others in its industry to obtain adequate liability insurance in the
future. In addition, the professional liability insurance policy is available
only on a claims made basis, so the insured is only covered if it maintains
coverage. While the Company believes it operates safely and prudently, there are
various exclusions under its insurance policies and there is no assurance that
all possible liabilities that may be incurred by the Company are covered by its
insurance or that the dollar amount of such liabilities will not exceed the
Company's policy limits.
EMPLOYEES
At August 31, 1997, the Company had 64 full-time employees of whom 31
hold technical degrees and 12 of whom held advanced degrees. The
technical/professional staff includes hydrogeologists, environmental engineers,
chemical engineers, civil engineers, geologists and others.
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The Company's ability to retain and expand its staff of qualified
professionals will be an important factor in determining the Company's future
success. None of the Company's employees is represented by a union. The Company
considers its employee relations to be good.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all directors and executive officers
of the Company as of April 8, 1998 are listed below, followed by a brief account
of their business experience during the last five years. The Company's officers
are elected annually by the Board of Directors and serve at the discretion of
the Board. The Company's directors hold office until the next annual meeting of
shareholders and until their successors have been duly elected and qualified. On
June 26, 1995, the Company and Laidlaw, the parent corporation of Bryson
Industrial Services, Inc. ("Bryson") and Laidlaw Osco Holdings, Inc. ("Osco"),
entered into an agreement pursuant to which Bryson and Osco surrendered 200,000
and 600,000, respectively, shares of the Company's Series A Preferred Stock then
held by them in exchange for a total of 397,606 shares of Common Stock which
were issued to Osco. For so long as such shares of Common Stock are held by
Laidlaw or its affiliates, the Company has agreed to nominate for election to
its Board of Directors the Company's chief executive officer and three nominees
proposed by Laidlaw. Mr. Higgins and Messrs. Hattler, McEwen and Winger were
nominated pursuant to this agreement. For a description of certain other
provisions of this agreement, see "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." There are no family relationships among the officers or directors
of the Company nor any arrangements or understandings between any officer or
director of the Company and any other person pursuant to which an officer or
director was elected. None of the officers or directors of the Company has been
involved in any court or administrative proceeding within the past five years
adversely reflecting on his ability or integrity.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Charles S. Higgins, Jr. ...........................49 Chairman, President and Chief Executive Officer
A. Denny Ellerman..................................56 Director
James J. Hattler...................................44 Director
Rick L. McEwen.....................................46 Director
Sylvester O. Ogden.................................62 Director
Kenneth W. Winger..................................59 Director
DeWayne Baskette...................................57 Chief Financial Officer
Lloyd E. Horvath...................................48 Executive Vice President
A. Todd Vehring....................................38 Vice President of Sales and Marketing
</TABLE>
Charles H. Higgins, Jr., P.E., was appointed Chairman, President and
Chief Executive Officer of the Company on January 23, 1997. He was Executive
Vice President and Chief Operating Officer of the Company from June 1995 until
he was appointed to his current position. From March 1993 until June 1995, Mr.
Higgins served as the Vice President in charge of the Environics division of the
Company. Prior to March 1993, he was the President of Environics, Inc., a
wholly-owned affiliate of Laidlaw providing environmental consulting services.
A. Denny Ellerman has been the Executive Director of the Center for
Energy and Environmental Policy Research at the Massachusetts Institute of
Technology since March 1992. He also serves as a Senior Lecturer in the Sloan
School of Management. From 1988 until 1992, Dr. Ellerman was a Vice-President of
Charles River Associates, Inc., a Boston, Massachusetts, economic and management
consulting firm.
James J. Hattler has been employed by Laidlaw Environmental Services,
Inc., and predecessor companies for approximately 25 years and has served as
Vice President of Business Affairs since 1989 and Vice President Business and
Information Systems Development since 1997.
Rick L. McEwen became Vice President of Laidlaw Environmental Services,
Inc. in January 1998. He has served in several managerial capacities in the
Laidlaw organization for a total of nine years.
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Sylvester O. Ogden served as Chief Executive Officer and President of
the Company from November 1994 until January 1997. He has been a director of the
Company since November 1994. Prior to joining the Company, from November 1984 to
July 1993, Mr. Ogden served as Executive Vice-President of Occidental Petroleum
Company ("Occidental") and President and Chief Executive Officer of Island
Creek, a coal-mining subsidiary of Occidental.
Kenneth W. Winger has been President of Laidlaw Environmental Services,
Inc., an affiliate of Laidlaw, since July 1995. Mr. Winger has held various
other management positions within Laidlaw since joining that company in May
1991.
Lloyd E. Horvath, P.E., is a water resources engineer and has been
employed by the Company since 1977. He has been Vice President of the Company
since 1986, Executive Vice President since 1993 and served as a director from
1977 to February 1995.
DeWayne Baskette, CPA, has been Chief Financial Officer of the Company
since March 1997. For the two years prior to that date, he served as Finance
Controller for Thomas Nelson, Inc., a publishing company located in Nashville,
Tennessee. During the two years preceding Thomas Nelson, he was a self-employed
financial consultant.
A. Todd Vehring, P.G., has been Vice President of Sales and Marketing
of the Company since January 1997. He began with the Company in November of 1995
as the Director of Marketing. From February 1994 to September 1995, he served as
General Manager and Business Development Manager for Environmental Science and
Engineering, Inc. From March 1993 to February 1994, he was Sales Manager for IT
Corp.
Each director of the Company who is not an employee receives an annual
fee of $3,000 and an option to purchase 187.5 shares of Common Stock, plus $500
per meeting of the Board of Directors attended by such director. The receipt of
such fees and options has been waived by waived by Messrs. Hattler, McEwen and
Winger. Directors of the Company who are also employees of the Company do not
receive additional compensation for their services as directors.
The Company maintains an Audit Committee which is composed of Messrs.
Winger (Chairman), Ellerman and Ogden, a Compensation Committee composed of
Messrs. Ellerman (Chairman) and Winger, and a Nominating Committee composed of
Messrs. Ellerman (Chairman), Higgins and Ogden.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the total
annual compensation paid or accrued by the Company during each of the three most
recent fiscal years to the Company's most highly compensated officers whose
total salary and bonus exceeded $100,000 during the fiscal year ended August 31,
1997 (collectively the "Named Executive Officers").
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------------------------------------ ------------ ------------- ---------- ------------------
<S> <C> <C> <C> <C>
Charles S. Higgins, Jr......................... 1997 $116,784 -- --
Chief Executive Officer, President and 1996 * -- --
Chairman of the Board since January 23, 1997 1995 $102,395 -- --
Lloyd E. Horvath............................... 1997 $107,376 -- --
Executive Vice President 1996 * -- --
1995 * -- --
* Less than $100,000.
</TABLE>
LONG-TERM COMPENSATION AWARDS
Other than grants if stock options for Common Stock of the Company
described herein, no long-term compensation awards were made to the Named
Executive Officers during the fiscal year ended August 31, 1997.
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<PAGE> 10
OPTION GRANTS DURING FISCAL YEAR ENDED AUGUST 31, 1997
The following table sets forth all grants of options for Common Stock
to the Named Executive Officers for the fiscal year ended August 31, 1997.
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO EXERCISE OR STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES BASE FOR OPTION TERM
OPTION IN PRICE EXPIRATION ---------------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- -------------------------------------- ----------- ------------ ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles S. Higgins, Jr. .............. 6,250 25.3% 2.00 1/23/07 7,861 19,922
Lloyd E. Horvath...................... 2,500 10.1% 2.56 11/18/06 4,025 10,200
</TABLE>
UNEXERCISED OPTIONS AND OPTION VALUES AT FISCAL YEAR ENDED AUGUST 31, 1997
The following table sets forth information with respect to (i) the
number of unexercised options held by the Named Executive Officers as of August
31, 1997 and (ii) the value as of August 31, 1997 of the unexercised
in-the-money options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT AUGUST 31, 1997 OPTIONS AT AUGUST 31, 1997
(#) ($)(1)
------------------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- -------------------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Charles S. Higgins, Jr. ........ 7,563 5,437 0 0
Lloyd E. Horvath................ 500 2,000 0 0
</TABLE>
- ----------
(1) As of August 31, 1997, the options held by Messrs. Higgins and Horvath were
not in-the-money due to the fact that the exercise prices for such options
were above the fair market value of the underlying Common Stock.
BENEFIT PLANS
401(k) PROFIT SHARING PLAN. All employees of the Company who have been
employed by the Company for one month or more are eligible to participate in the
Company's employee Profit Sharing Plan (the "Plan"). Participants may make
contributions to the Plan by voluntarily reducing their salary by up to a
maximum of 15%, and the Company will match such contributions up to 2% of the
participant's salary. The Company contributed $28,782 to the Plan during fiscal
year ended August 31, 1997. Amounts attributable to the Company's matching
contributions vest at 20% per year beginning after the first year of service, or
upon death or disability of the participant. Benefits are generally distributed
by means of a joint and survivor annuity or in a lump sum following the
participant's retirement, death, disability, termination of employment or
demonstration of extreme financial hardship.
1991 LONG-TERM INCENTIVE PLAN. The Company's 1991 Long-Term Incentive
Plan (the "Incentive Plan") was adopted by the Board of Directors and the
shareholders of the Company in 1991. The Incentive Plan permits the granting of
any or all of the following types of awards: (i) stock options, including
incentive stock options; (ii) stock appreciation rights; (iii) restricted stock;
(iv) deferred stock; (v) performance awards conditioned upon meeting performance
criteria: (vi) dividend equivalents; and (vii) other awards denominated or
payable in, or otherwise related to Common Stock of the Company. Generally,
awards under the Incentive Plan are granted for no consideration other than
prior or future services. Awards granted under the Incentive Plan may, at the
discretion of the Compensation Committee, be granted alone or in addition to, in
tandem with or in substitution for any other award under the Incentive Plan or
other plan of the Company. The exercise price for options granted under the
Incentive Plan may not be less than 85% of the fair market value of the Common
Stock on the date of grant. The Incentive Plan is administered by the
Compensation Committee of the Board of Directors, which is composed of directors
not eligible to participate in the Compensation Plan. There are 37,393 shares of
Common Stock reserved for issuance under the Incentive Plan. The Compensation
Committee is authorized to determine, from time to time, the term, exercise
price, settlement terms, forfeiture provisions and other terms and conditions of
each of the types of awards. No such determinations have been made by the
Compensation Committee except with respect to the award of options to purchase
shares of Common Stock.
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<PAGE> 11
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement ("Employment
Agreement") with Sylvester O. Ogden, effective November 1, 1994 ("Effective
Date"), which provided that he would serve as Chief Executive Officer and
President. Under the Employment Agreement, Mr. Ogden received an annual salary
of $140,000, a car allowance and options to purchase 4,375 shares of Common
Stock, 50% of which vested upon execution of the Employment Agreement with the
remaining options vesting pro rata over the ensuing three-year period. On March
1, 1995, Mr. Ogden voluntarily agreed to a 10% salary reduction for a one year
period. On January 1, 1996, Mr. Ogden agreed to an additional 21% salary
reduction. On January 23, 1997, Mr. Ogden resigned as Chief Executive Officer
and President of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of April 8, 1998, with
respect to the beneficial ownership of the Common Stock by (i) each person known
by the Company to be the owner of more than 5% of the outstanding Common Stock,
(ii) each director, (iii) each of the Named Executive Officers and (iv) all
directors and executive officers of the Company as a group. On April 8, 1998,
there were 795,188 shares of Common Stock outstanding. Each of the persons, or
group of persons, in the table below has sole voting power and sole dispositive
power as to all of the shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF OUTSTANDING
NAME (1) BENEFICIALLY OWNED SHARES OWNED
- ------------------------------------ ------------------ --------------------------
<S> <C> <C>
James J. Hattler (2).............................................. 0 *
A. Denny Ellerman................................................. 1,250 *
Charles S. Higgins, Jr............................................ 10,825 1.3%
Laidlaw Osco Holdings, Inc. (2)................................... 397,606 50.0%
Rick L. McEwen (2)................................................ 0 *
Sylvester O. Ogden................................................ 3,750 *
Earl M. Williams, Jr.............................................. 42,403 5.3%
Kenneth W. Winger (2)............................................. 0 *
Lloyd E. Horvath.................................................. 28,433(6) 3.6%
All directors and executive officers as a group (9 persons)....... 46,008(7) 5.7%
</TABLE>
* Less than 1%.
(1) The business address of Messrs. Ellerman, Higgins and Ogden is 5217 Linbar
Drive, Suite 309, Nashville, Tennessee 37211. The business address of
Laidlaw Osco Holdings, Inc. and Messrs. Hattler, McEwen and Winger is 1301
Gervais Street, Suite 300, Columbia, South Carolina 29201.
(2) Messrs. Hattler, McEwen and Winger are employed by affiliates of
Laidlaw Osco Holdings, Inc.
(3) Includes currently exercisable options to purchase 7,563 shares of Common
Stock.
(4) Includes currently exercisable options to purchase 563 shares of Common
Stock.
(5) Includes currently exercisable options to purchase 3,750 shares of Common
Stock.
(6) Includes currently exercisable options to purchase 500 shares of Common
Stock.
(7) Includes currently exercisable options to purchase 14,126 shares of Common
Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LAIDLAW, INC.
On June 26, 1995, the Company and Laidlaw entered into an agreement
(the "Agreement") pursuant to which Bryson and Osco, subsidiaries of Laidlaw,
surrendered the 200,000 and 600,000, respectively, shares of the Company's
Series A Preferred Stock then held by them in exchange for a total of 3,180,854
shares of Common Stock, or 397,606 shares of Common Stock after giving effect to
the one-for-eight reverse stock split on January 23, 1997. For so long as such
shares of Common Stock are held by Laidlaw or its affiliates, the Company has
agreed to nominate for election to its Board of Directors its chief executive
officer and three nominees proposed by Laidlaw. Mr. Higgins and Messrs. Hattler,
McEwen and Winger have been nominated pursuant to the Agreement. Bryson and Osco
also waived all rights to dividends on the Preferred Stock whether or not
accrued or declared. Laidlaw further agreed to provide a $3.0 million revolving
line of credit to the Company with any amounts outstanding at the end of the
three-year period to be repaid over the next three years in equal quarterly
installments. Pursuant to the Agreement, on February 20, 1996, a Laidlaw
affiliate caused to be issued a one-year, $3.0 million letter of credit to
secure the Company's $3.0 million
11
<PAGE> 12
revolving credit line with a bank. The $3.0 million letter of credit was
extended to July 26, 1998. Virtually all the Company's assets secure this
commitment by Laidlaw. Pursuant to the Agreement, Laidlaw has agreed not to
transfer any of the shares of Common Stock received until June 30, 1997, and
will cause any transferee of the shares during the period commencing July 1,
1997 and ending June 30, 2001 to extend to the other holders of Common Stock the
right to transfer their shares to such transferee on the same terms as those
provided to Laidlaw.
Laidlaw and its affiliates accounted for approximately $550,000 or 8%
of the Company's consolidated gross revenues for the year ended August 31, 1997.
On April 6, 1998, the Company announced that it had received a proposal
from Laidlaw Environmental Services, Inc. relating to the possible acquisition
of the shares of Common Stock of the Company not owned by Laidlaw or its
affiliates for $0.50 in cash per share. In connection with the proposal, the
Company formed a Special Committee of the Board of Directors to evaluate this
and other options.
VIROGROUP OF SOUTH CAROLINA INC.'S EXECUTIVE OFFICE LEASE
ViroGroup of South Carolina, Inc. (formerly ETE, Inc.) leases its
executive offices in Lexington, South Carolina from Lexington Office Investors,
a partnership owned two-thirds by Earl M. Williams, Jr., a former officer and
director of the Company, and one-third by an employee of ViroGroup of South
Carolina, Inc. who is neither a Company executive officer or a Company director.
The lease expired on November 15, 1997 and provided for rent at the rate of
$15,500 per month. During the fiscal year ended August 31, 1997, the total rent
paid under this lease by ViroGroup of South Carolina, Inc. was $186,000.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Amendment
No. 2 on Form 10-K/A to be signed on its behalf by the undersigned, thereunto
duly authorized.
VIROGROUP, INC.
Dated: April 16, 1998 By: /s/ Charles S. Higgins, Jr.
----------------------------------
Charles S. Higgins, Jr., President
and Chief Executive Officer
Dated: April 16, 1998 By: /s/ DeWayne Baskette
---------------------------------
DeWayne Baskette
Chief Financial Officer
13
