TRANSAMERICAN WASTE INDUSTRIES INC, 10-Q, 1996-11-14

TRANSAMERICAN WASTE INDUSTRIES INC
10-Q, 1996-11-14
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

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

COMMISSION FILE NUMBER: 0-19615

TRANSAMERICAN WASTE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 13-3487422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

314 NORTH POST OAK LANE
HOUSTON, TEXAS 77024
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (713) 956-1212

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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]

Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.

Outstanding at
Class of Common Stock November 14, 1996
--------------------- -----------------
$.001 par value 30,473,041

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<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC.

INDEX

PAGE NO.
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets -
December 31, 1995 and September 30, 1996 .............. 3
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1995 and 1996 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1996 ......... 5
Notes to Unaudited Consolidated Financial Statements ........ 6

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................... 12

PART II. OTHER INFORMATION

Item 1. Legal Proceedings ........................................... 17

Item 2. Changes in Securities ....................................... 17

Item 6. Exhibits and Reports on Form 8-K ............................ 17

Signatures .......................................................... 18

2
<PAGE>
PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS

CURRENT ASSETS
Cash and cash equivalents ........................... $ 1,532 $ 2,038
Restricted cash ..................................... 783 1,702
Accounts receivable, less allowance for doubtful
accounts of $143 and $203, respectively ......... 2,271 2,545
Other current assets ................................ 904 1,238
-------- --------
TOTAL CURRENT ASSETS ...................... 5,490 7,523
Restricted cash ......................................... 8,931 13,923
Property and equipment, net of accumulated depreciation . 20,927 26,584
Deferred financing costs, net of accumulated amortization
of $403 and $549, respectively ...................... 2,101 2,538
Net noncurrent assets transferred under
contractual arrangements ............................ 7,520 6,783
Other assets, net ....................................... 1,102 2,497
-------- --------
TOTAL ASSETS .............................. $ 46,071 $ 59,848
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable .................................... $ 1,229 $ 1,003
Accrued liabilities and other ....................... 1,789 2,566
Current portion of long-term debt ................... 1,426 3,054
Net current liabilities transferred under
contractual arrangements ........................ 268 --
Reserve for closure and post-closure costs,
less current portion ............................ 307 273
-------- --------
TOTAL CURRENT LIABILITIES ........................... 5,019 6,896
Long-term debt, less current portion and
unamortized discount ................................ 29,603 38,843
Reserve for closure and post-closure costs,
less current portion ................................ 3,569 4,013
Other noncurrent liabilities ............................ 447 1,818
-------- --------
TOTAL LIABILITIES .................................... 38,638 51,570
-------- --------
Commitments and contingencies

STOCKHOLDERS' EQUITY

Common stock, $.001 par value; 100,000,000 shares
authorized; 29,649,124 and 30,473,041, shares
issued and outstanding, respectively ................. 30 30
Additional paid-in capital .............................. 25,074 25,724
Retained earnings (deficit) ............................. (17,671) (17,476)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ............................ 7,433 8,278
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............ $ 46,071 $ 59,848
======== ========
</TABLE>

See Notes to Unaudited Consolidated Financial Statements

3
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------- -------------------------
1995 1996 1995 1996
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue .................................................... $ 2,505 $ 4,085 $ 5,997 $ 12,074

Expenses:
Cost of services ........................................ 1,426 2,284 3,740 6,369
Depreciation and amortization ........................... 371 398 859 1,206
General and administrative .............................. 768 782 2,462 2,495
Cost of completed acquisition ........................... 150 -- 300 --
Cost of terminated acquisitions and contracts ........... 7 -- 233 --
-------- -------- -------- --------

Operating income (loss) .............................. (217) 621 (1,597) 2,004

Other income (expense):
Interest expense ........................................ (552) (800) (1,650) (2,155)
Exchange offer charge ................................... -- -- (1,644) --
Loss on investment ...................................... 360 -- (563) --
Gain on sale of assets .................................. -- -- -- 437
Interest and other income, net .......................... 201 195 223 636
-------- -------- -------- --------

Total other income (expense) ......................... 9 (605) (3,634) (1,082)
-------- -------- -------- --------

Solid waste income (loss) before income taxes ............. (208) 16 (5,231) 922

Income tax benefit (expense) ............................... 573 (12) 508 (37)

Loss from oil recovery and disposal operations ............. (98) (279) (336) (690)
-------- -------- -------- --------
Net income (loss) .................................... $ 267 $ (275) $ (5,059) $ 195
======== ======== ======== ========

Income (loss) per common share ............................. $ 0.01 $ (0.01) $ (0.21) $ 0.01
======== ======== ======== ========

Weighted average common equivalent shares
outstanding ............................................ 28,008 30,472 23,633 31,413
======== ======== ======== ========
</TABLE>

See Notes to Unaudited Consolidated Financial Statements

4
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------
1995 1996
------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................ $(5,059) $ 195
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization ...................... 859 1,206
Amortization of debt discount and deferred
financing costs ............................... 259 283
Closure and post-closure costs ..................... 203 (24)
Cost of completed acquisition ...................... 300 --
Gain on sale of assets ............................. -- (437)
Loss on investment ................................. 563 --
Loss from oil recovery and disposal operations ..... 336 690
Cost of terminated acquisitions and contracts ...... 233 --
Exchange offer charge .............................. 1,644 --
Changes in assets and liabilities:
Accounts receivable ........................... (848) 162
Other current assets .......................... 68 145
Accounts payable and accrued liabilities ...... 611 143
Change in long-term contracts in progress ..... 228 --
Other, net .................................... 77 (17)
------- --------
4,533 2,151
------- --------

Net cash provided (used) by
operating activities .................. (526) 2,346
------- --------
Cash flows from investing activities:
Cost of completed management contracts and acquisition ... (1,825) (1,603)
Costs incurred on possible acquisitions .................. (549) (199)
Purchases of property and equipment ...................... (4,898) (3,099)
Proceeds from sale of assets ............................. 644 649
Payments to oil recovery and disposal operations ......... (199) (221)
Other .................................................... -- (6)
------- --------
Net cash used by investing
activities ............................ (6,827) (4,479)
------- --------
Cash flows from financing activities:
Proceeds from debt ....................................... 4,285 10,027
Payments of debt ......................................... (880) (1,175)
Proceeds from issuance of stock .......................... 2,519 75
Stock issuance costs ..................................... (298) --
Deferred financing costs and other ....................... (489) (378)
Increase in restricted cash ............................. (499) (9,370)
Use of restricted cash ................................... 2,604 3,460
------- --------
Net cash provided by financing
activities ............................ 7,242 2,639
------- --------
Increase (decrease) in cash and cash equivalents ............... (111) 506
Cash and cash equivalents:
Beginning of period ...................................... 1,436 1,532
------- --------
End of period ............................................ $ 1,325 $ 2,038
======= ========
</TABLE>

See Notes to Unaudited Consolidated Financial Statements

5
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements
include the accounts of TransAmerican Waste Industries, Inc. and its
wholly-owned subsidiaries (the "Company") and have been prepared by the Company
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. All significant intercompany accounts and transactions have
been eliminated. These unaudited consolidated financial statements reflect, in
the opinion of management, all adjustments (all of which are normal and
recurring in nature, except as disclosed herein) necessary to fairly state the
financial position and the results of operations for the interim periods
presented, and the disclosures herein are adequate to make the information
presented not misleading. Operating results for interim periods are not
necessarily indicative of the results that can be expected for a full year.
Certain information related to the Company's organization, significant
accounting policies and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
has been condensed or omitted in this Form 10-Q.

In February 1996, the Company changed its fiscal year end from
August 31 to December 31 and accordingly filed a Transition Report on Form 10-K
for the four month period ended December 31, 1995. The comparative unaudited
interim financial statements for 1995 included in this Form 10-Q have been
recast to conform to the change in fiscal year, and therefore represent a
quarterly period that has not been previously presented. These interim financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto contained in the Company's Transition Report on
Form 10-K for the four month period ended December 31, 1995.

As further discussed in Note 3, the Company has sold its oil
recovery and disposal operations under contractual arrangements to two separate
parties. The Consolidated Financial Statements therefore present the oil
recovery and disposal operations as an equity investment to reflect the
relinquishment of management and legal control over these businesses. Certain
prior period amounts have been reclassified to conform to the current
presentation.

2. TERMINATION OF PROPOSED MERGER WITH WASTE INDUSTRIES, INC.

On July 18, 1996, the Company signed a letter of intent to merge
with Waste Industries, Inc. ("Waste Industries"), pursuant to which the Company
and Waste Industries would have combined in a transaction that would have
resulted in the shareholders of Waste Industries controlling approximately 75%
of the common stock of the resulting entity. In September 1996, the Company and
Waste Industries mutually agreed to terminate the letter of intent.

3. TRANSFER OF ASSETS UNDER CONTRACTUAL ARRANGEMENTS

On September 30, 1996, the Company entered into two agreements to
sell the stock of its oil recovery and disposal subsidiaries, Controlled
Recovery, Inc. ("CRI") and Inland Products, Inc. ("Inland"), to two separate
parties, respectively. Under the terms of the agreements, the Company will
receive as consideration an amount equal to: (i) 47.5 % and 48.5 % of CRI's and
Inland's respective cash flow up to $150,000 per calendar quarter, plus (ii)
38.4 % and 39.2 % of their respective cash flow in excess of $150,000 per
calendar quarter. These payments will continue for the life of the businesses.
Cash flow for purposes of the calculation are subject to certain adjustments as
specified in the terms of the respective agreements.

In conjunction with these transactions, the Company has
relinquished its management and legal control

6
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

over the operations of the oil recovery and disposal operations. The
Consolidated Financial Statements therefore present, retroactively, the oil
recovery and disposal operations as an equity investment. Certain prior period
amounts have been restated to conform to the current presentation. Based upon
the Company's current estimate of undiscounted future cash flows of the
businesses, which incorporate certain operational improvements expected to be
implemented by the new owners, no gain or loss has been recorded for these
transactions. However, it is reasonably possible that the Company's estimate of
undiscounted cash flows could change in the future if operations under the
management of the new owners do not meet current expectations, which could
result in the need to write-down the Company's investment.

4. COMPLETED ACQUISITIONS

HALEYVILLE LANDFILL. On April 10, 1996, the Company completed the
acquisition of the assets of Haleyville Sanitary Landfill, Ltd. ("HSLL") and the
common stock of Peerless Landfill Company ("Peerless"). HSLL and Peerless
managed and held the permits for the Haleyville Landfill (the "Landfill") which
consists of approximately 114 acres located approximately 80 miles northwest of
Birmingham, Alabama. The Company will manage the Landfill, which is owned by the
Solid Waste Disposal Authority for the City of Haleyville (the "Authority")
under a 20-year management agreement. The Landfill is permitted to accept 1,500
tons per day of municipal solid waste in addition to certain types of
non-hazardous industrial waste. The landfill site includes an active eleven acre
construction and demolition landfill which currently accepts approximately 150
tons per day of inert material. Before municipal solid waste can be accepted at
the site, the Company will be required to construct a new cell complying with
Subtitle D of the Resource Conservation and Recovery Act of 1976. The Company
does not intend to initiate construction of this facility until waste disposal
contracts to support the operations have been arranged. There can be no
assurances that such contracts will be obtained.

The purchase price for the acquisition included (i) $1,500,000
cash at closing, (ii) a royalty of 2.5% of the site's revenue during 1999 and
2000 increasing to 5% of revenue thereafter, and (iii) an earnout of up to
1,166,667 shares of common stock of the Company issuable once the Landfill
reaches certain volumes of waste per day, subject to adjustment in cash or stock
in 1999 if the value of the shares of common stock issued by the Company does
not achieve a certain minimum value target. The Company has financed the
acquisition and development of this project with Solid Waste Revenue Bonds
("Bonds") consisting of $7,945,000, 20-year, 8.5% tax-exempt bonds, and
$1,000,000, 5-year, 11.5% taxable bonds. Proceeds from the financing have been
used for the initial purchase price, the establishment of debt service and
interest funds, and debt issuance and other costs for the Haleyville Landfill.
If the Company enters into waste disposal contracts, the proceeds will also be
used for construction of the new cells, purchase of equipment, purchases of the
adjoining properties for which the Company has an option, and bonding for
closure and post-closure obligations. The Bonds are secured by a pledge of
revenue derived from the Landfill and, until certain criteria are met by the
Landfill, by the management fee income from the Company-managed Chastang
landfill.

CENTRAL LANDFILL. The Company completed the acquisition of the
Central Landfill in May 1996. Pursuant to an interim agreement, the Company
operated the facility and provided construction and improvement capital as well
as landfill development expertise since March 1995. Operations under the interim
agreement were included in the Consolidated Statements of Operations beginning
March 31, 1995. Consideration, paid in May 1996, for the landfill included
$50,000 cash and 333,000 shares of restricted common stock of the Company
(valued at $325,000). If certain revenue targets are obtained and an expansion
permit is received, the Company will pay additional consideration over the next
two years valued at $1.7 million, payable in cash and restricted common stock of
the Company.

7
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. SALE OF SABINE COMMERCIAL COLLECTION OPERATIONS

In April 1996, the Company sold its commercial collection
operations in Sabine Parish for $909,000, consisting of cash, the retirement of
certain liabilities and a promissory note for $437,000. The promissory note
bears interest at 8% per annum and is payable in monthly installments beginning
in May 1996 and continuing through April 1, 2004 and is collateralized by
certain assets of the purchaser. The Company recognized a gain on sale of assets
of $437,000.

The Company and the purchaser of the commercial collection
operations (the "Purchaser") entered into a subcontract ("Subcontract") for the
residential collection contract with the Sabine Parish Police Jury. Under the
terms of the Subcontract, the Company will retain all requirements specified in
its contract with the Sabine Parish Police Jury with regard to performance bonds
and insurance.

The Company has also entered into agreements with the Purchaser
to sell a portion of the airspace at the Sabine Parish Landfill and to sell a
portion of the airspace at the LaSalle-Grant Landfill, including transfer
service from the Company's transfer station in Alexandria, Louisiana. Revenue
has been deferred and will be recognized as the airspace is utilized. As
consideration for these agreements, the Company received a promissory note for
$240,000 bearing interest at 8% per annum payable in monthly installments
through April 2004, and a promissory note for $1,595,000 bearing interest at 8%
per annum payable in monthly installments through April 2001, respectively. The
notes are partially secured by certain assets of the Purchaser.

At the option of the Purchaser, the Company may be required to
purchase the assets of the Purchaser used in its Louisiana operations, excluding
the commercial collection operations in Sabine Parish recently sold as noted
above, for $2,600,000, provided that a certain minimum level of revenue is
generated by such operations for the year ended January 31, 1999.

6. SHORT-TERM BORROWING

In August 1996, the Company issued a promissory note, bearing
interest at 12% per annum, to an investment limited partnership in exchange for
$1,500,000. The promissory note matures on February 8, 1997 and is payable in
twelve equal monthly installments beginning thirty days following the maturity
date, unless the Company completes certain other debt or equity financing at
which time the outstanding balance becomes due. The Company also issued warrants
entitling the holder to purchase an aggregate of 275,000 shares of the Company's
common stock for $2.16 per share (valued at $55,000). The warrants expire on
August 9, 1999. Proceeds from the financing, which is secured by certain
receivables, will be used for general corporate purposes.

7. EARNINGS PER COMMON SHARE

Earnings per common share ("EPS") have been computed based on the
weighted average number of common equivalent shares outstanding during the
applicable periods. For the nine months ended September 30, 1995 and the three
months ended September 30, 1996, common equivalent shares, including stock
options and warrants, did not impact net loss per share as they were
anti-dilutive.

The Company's convertible subordinated debentures ("Debentures")
are not considered common equivalent shares and, therefore, are excluded from
the primary presentation of EPS. Assumed conversion is considered for the
calculation of fully diluted EPS. For the three and nine months ended September
30, 1995 and 1996, the assumed conversion of the Debentures has an anti-dilutive
effect on the fully diluted EPS computation

8
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

and is excluded from the presentation herein.

The following table reconciles the number of common shares
outstanding with the number of shares used in computing EPS (in thousands):

<TABLE>
<CAPTION>
Three months Nine months
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- ----------------------
1995 1996 1995 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Common shares outstanding, end of period ............................... 29,647 30,473 29,647 30,473
Effect of shares issued during the period using
weighted average common shares .......................... (1,639) (1) (6,014) (266)
Effect of shares issuable for stock options and warrants
based on the treasury stock method ...................... -- -- -- 1,206
------- ------- ------- -------
Common shares used in computing earnings per share ..................... 28,008 30,472 23,633 31,413
======= ======= ======= =======
</TABLE>

8. COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL MATTERS AND REGULATION. The Company is subject to
numerous rules and regulations at the federal, state and local levels. The
Company has not experienced any significant regulatory problems in the past and
believes that it is in substantial compliance with all applicable rules and
regulations. The Company cannot predict what laws or regulations might exist in
the future, and no assurance can be given that future changes in the law will
not have an adverse impact on the Company's operations. The Company's business
generally requires certain operating permits in order to conduct its operations.
The Company believes it is in material compliance with all of its operating
permits. In recent years, environmental groups and others have pressured
applicable regulatory authorities and have instituted judicial proceedings, to
overturn or block the grant of certain operating permits, or to impose
restrictions on disposal practices. For a description of litigation involving
permits relating to the Chilton County landfill see "Litigation" below. The
Company does not carry insurance coverage for environmental liability related to
its waste disposal operations. In the event uninsured losses occur, the
Company's financial condition and results of operations could be adversely
affected.

CLOSURE AND POST-CLOSURE COSTS. The Company has material financial
obligations relating to closure and post-closure costs for the disposal
facilities it owns or operates. While the precise amount of these future
obligations cannot be determined, the Company has estimated for all its existing
facilities that the total costs for final closure and post-closure monitoring
for an estimated period of up to 30 years after closure for cells currently
being utilized will approximate $6.0 million. At September 30, 1996, the Company
had accrued approximately $4.3 million for such estimated costs based on
airspace utilized to date. The Company will continue to provide accruals based
on engineering estimates, as the available airspace is utilized. The estimate of
the total future liability is subject to change as it is based on current
economic conditions, operational results, existing regulations and a combination
of internal and external engineering specifications which may not yet have been
approved by the appropriate regulatory authorities.

FINANCIAL ASSURANCE OBLIGATIONS. From time to time, the Company may
be required to provide performance bonds or bank letters-of-credit to secure
performance of landfill management and hauling contracts or to secure its
closure and post-closure obligations with respect to its landfills. At September
30, 1996, the Company has provided performance bonds totaling $8.0 million and
letters-of-credit totaling approximately $200,000 to secure its obligations. The
Company has arranged a $20 million performance bond line of credit, subject to
review of each contract bonded and certain other conditions. In certain cases,
the Company may be required to provide cash deposits.

9
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SETTLEMENT WITH LOWELL HARRELSON. In August 1995, Lowell L.
Harrelson entered into a consulting agreement with the Company to provide solid
waste acquisition and development opportunities to the Company, and
contemporaneously resigned as an officer and director of the Company. In
December 1995, the Company filed a lawsuit against Mr. Harrelson for, among
other things, failing to fully and faithfully execute his duties as an officer
and director of the Company and discontinued making the consulting payments. Mr.
Harrelson filed counterclaims against the Company for breach of contract and
fraud claiming unspecified damages. In February 1996, a settlement was reached
between the Company and Mr. Harrelson whereby both parties released all claims
and the consulting agreement was deemed terminated effective November 30, 1995.
Under the terms of the agreement, the Company received $275,000. Additionally,
all of Mr. Harrelson's vested options were exercised and all outstanding
warrants and unvested stock options were canceled.

LITIGATION. McGinnes Industrial Maintenance Corporation ("MIMC"), a
wholly owned subsidiary of the Company, has been named as one of approximately
40 co-defendants in a lawsuit styled TAMMY FISHER WHALEN, ET AL. V. AES, INC.,
ET AL., Cause No. 93-CV0211, filed in the District Court of Galveston County,
Texas, 10th Judicial District. The suit consolidated four separate proceedings
filed by seventy-four persons currently or formerly residing on real property
situated approximately five miles or more from the Company's former wastewater
sludge treatment facility located in Galveston County, Texas, and names as
defendants, in addition to MIMC, a former director and principal stockholder of
the Company (now deceased), and approximately 40 industrial companies and cities
located along or near the Houston Ship Channel. The suit alleges personal injury
and property damages resulting from alleged releases of hazardous and toxic
substances from the Company's former wastewater sludge treatment facility. In
September 1994, seventeen of the original plaintiffs were dismissed with
prejudice from the litigation. The Company, as well as the other defendants,
reached an out-of-court settlement with the majority of the remaining
plaintiffs. The Company's contribution toward settlement of the consolidated
lawsuit was approximately $30,000. In March 1994, nine additional plaintiffs
filed a petition in intervention in Cause No. 93- CV0211. In October 1995, the
plaintiff-intervenors amended their petition to delete a number of allegations
and causes of actions against defendants. Although there can be no assurance as
to the outcome of any lawsuit, the Company believes that the claims made by
plaintiff-intervenors in this suit are without merit and that the exposure of
the Company in such litigation is minimal. The Company has been advised by its
outside counsel, Ford & Ferraro, L.L.P., to such effect. The Company is
vigorously defending these actions.

In June 1995, certain citizens of Chilton County, Alabama filed a
complaint against the Chilton County Commission ("Commission") and the Company,
which claimed that the Commission failed to comply with certain statutorily
mandated procedures pertaining to (i) the transfer of the Chilton County
Landfill from the County to the Company and (ii) the approval of certain
subsequent permit modifications. Each of the parties filed a motion for summary
judgment. On January 11, 1996, the Circuit Court of Chilton County, Alabama
entered a final order granting in part and denying in part each parties' motion
for summary judgment. The transfer of the landfill to the Company was upheld.
However, the claims for which plaintiffs were granted summary judgment relate to
certain permit modifications that increased the allowable daily volume and
expanded the permissible service area of the facility. The Company has appealed
that portion of the order granting partial summary judgment to the plaintiffs.
On January 12, 1996, the Circuit Court of Chilton County, Alabama granted a stay
of its order pending appeal, but as a condition of granting the stay imposed a
daily volume limit which is less than the amount reflected on the Company's
permit, as modified. Oral arguments were heard in October 1996 and a ruling on
the appeal is expected in early 1997. Although there can be no assurance as to
the outcome of any litigation, the Company believes the claims brought by the
citizens are without merit and will vigorously pursue its appeal. If the Company
is unsuccessful in its appeal, it would limit the landfill's volume to the
original permitted amount, thereby reducing volume and revenue below the current
level generated under the court's stay.

In addition to the foregoing, the Company is involved in other
litigation incidental to the conduct of its business, none of which management
believes is, individually or in the aggregate, material to the Company's
financial condition or results of operations.

10
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

9. SUPPLEMENTAL CASH FLOW INFORMATION

Noncash investing and financing activities for the nine months ended
September 30, 1996 were as follows (in thousands):

Equipment acquired with debt financing .................. $1,601
Financing of insurance premiums ......................... 607
Note receivable from sale of Sabine commercial operations 437
Debt retired by purchaser of Sabine commercial operations 286
Stock issued for acquisition of Central landfill ........ 325

10. DEVELOPMENT SERVICES AGREEMENT

In March 1996, the Company entered into a Development Services
Agreement with E.C. Development, L.P. ("ECD"), a company controlled by a
director of the Company, whereby ECD will provide the Company with certain
development services related to locating landfill facilities. The agreement has
a five-year term and may be terminated by either party upon 90 days prior
notice. In consideration for these services, ECD received warrants to purchase
two million shares of common stock at $1.50 per share. The warrants vest fully
on March 1, 2001 as long as ECD is providing services to the Company on that
date, however, the vesting accelerates one warrant for every one dollar of
direct costs incurred by ECD in performing services under the agreement. The
fair value of the warrants is being amortized over the term of the agreement.
ECD is also entitled to additional compensation upon the closing of each
transaction related to landfill facilities identified for the Company by ECD.
This additional compensation consists of (i) 50,000 shares of common stock of
the Company, subject to adjustment under certain conditions, (ii) a warrant to
purchase 100,000 shares of common stock of the Company at the market price on
the trading day immediately preceding the transaction date, and (iii) $250,000
cash upon the closing of the financing for the facility or twelve months
following the closing, whichever is sooner.

11. ADOPTION OF NEW ACCOUNTING PRINCIPLE

The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" as of January 1, 1996. SFAS No. 121
requires that if a long-lived asset is not expected to generate sufficient cash
flow (undiscounted) to recoup its invested cost, then the asset value should be
written down to fair value. Fair value is typically defined as the discounted
value of the assets expected cash flow. There was no impact on the Company's
Consolidated Financial Statements as a result of the adoption of this new
accounting principle. However, reference is made to Note 3 for discussion of the
Company's investment in oil recovery and disposal operations.

12. SUBSEQUENT EVENT

The Company has extended the expiration date of the Company's Class
A warrants and Class B warrants from November 11, 1996 until November 11, 1997.
The Class A warrant entitles each holder to receive one share of common stock
and a Class B warrant for $4.50. The Class B warrant entitles each holder to
receive one share of common stock at an exercise price of $6.53.

11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

TransAmerican Waste Industries, Inc. (the "Company") is engaged in
the processing and disposal of nonhazardous industrial and municipal solid
waste. The Company has expanded its operations primarily by obtaining long-term
contracts to manage existing municipal landfills and through the acquisition of
existing businesses. The Company believes that recent trends in the regulation
of waste management have created significant opportunities for growth through
acquisition of facilities and operations currently owned by public and private
entities that lack the funding or the expertise to comply with the increasingly
stringent regulation of waste management services.

The following table summarizes the Company's management contracts
and acquisitions completed during the years ended August 31, 1994 and 1995 and
through November 14, 1996:

<TABLE>
<CAPTION>
Type of Total Permitted
Date Name of Business Type of Business Location Transaction Acres Acreage
---- ---------------- ---------------- -------- ----------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
October Chastang Landfill Municipal solid waste Mobile, 20-year management 467 102
1993 ("MSW") and Alabama contract
industrial waste landfill

April Sabine Parish MSW landfill Many, 25-year management 107 71
1994 Landfill Louisiana contract

April Sabine Parish MSW collection Many, 10-year hauling --- ---
1994 Hauling (a) Louisiana contract

May Chilton County MSW landfill Thorsby, Purchase 97 97
1994 Landfill Alabama

September LaSalle-Grant MSW landfill Jena, 25-year management 39 39
1994 Parish Landfill Louisiana contract

February Central Landfill MSW landfill Carriere, Purchase 20 20
1995 Mississippi

April Mobile C&D Construction and Mobile, 2-year management 142 25
1995 Landfill demolition ("C&D") Alabama contract with
landfill purchase option

June TransWaste, Inc. Transfer station, Alexandria, Purchase 20 20
1995 materials recovery Louisiana
facility and hauling
operation

June Hancock County MSW and Hancock 20-year management 96 96
1995 Landfill C&D landfill County, contract
Mississippi

July Union County MSW landfill Knoxville, 20-year management 90 55
1995 Landfill Tennessee contract

April Haleyville MSW and Haleyville, 20-year management
1996 Landfill C&D landfill Alabama contract 113 11
</TABLE>

(a) This operation was subsequently subcontracted to a third party in April
1996, as further discussed in Note 5 of Notes to Unaudited Consolidated
Financial Statements.

12
<PAGE>
The Company had previously announced that it had signed a letter of
intent to merge with Waste Industries, Inc. ("Waste Industries"), pursuant to
which the Company and Waste Industries would have combined in a transaction that
would have resulted in the shareholders of Waste Industries controlling
approximately 75% of the common stock of the resulting entity. As discussed in
Note 2, the Company and Waste Industries mutually agreed to terminate the letter
of intent in September 1996.

As discussed in Note 3, the Company has entered into two agreements
to sell the stock of its oil recovery and disposal subsidiaries, Controlled
Recovery, Inc. ("CRI") and Inland Products, Inc. ("Inland"), to two separate
parties, respectively. Under the terms of the agreements, the Company will
receive as consideration an amount equal to (i) 47.5 % and 48.5 % of CRI's and
Inland's respective cash flow up to $150,000 per calendar quarter, plus (ii)
38.4 % and 39.2 % of their respective cash flow in excess of $150,000 per
calendar quarter. These payments will continue for the life of the businesses.
The Company has relinquished its management and legal control over the
operations of these businesses, therefore the oil recovery and disposal
operations have been presented, retroactively, as an equity investment in the
Consolidated Financial Statements.

RESULTS OF OPERATIONS

Revenue for the three months ended September 30, 1996 was $4,085,000
compared to $2,505,000 for the three months ended September 30, 1995,
representing an increase of 63%. Revenue for the nine months ended September 30,
1996 was $12,074,000, representing an increase of 101% compared to revenue of
$5,997,000 for the nine months ended September 30, 1995. The increase in revenue
is primarily due to the acquisition of additional management contracts and
businesses since the beginning of 1995 in addition to increased waste volumes at
existing landfills. Although there can be no assurance, the Company anticipates
that landfill revenue will continue to increase as the Company continues to
implement its strategy of obtaining additional volume at existing sites and
obtaining additional facilities.

Cost of services increased from $1,426,000 for the third quarter of
1995 to $2,284,000 for the third quarter of 1996, representing an increase of
60%. Year-to-date cost of services increased from $3,740,000 for 1995 to
$6,369,000 for 1996, representing an increase of 70%. The increase is primarily
due to the recently acquired management contracts and businesses, however
operating costs are primarily fixed in nature and do not increase
proportionately with the increase in revenue. The increase in year-to-date cost
of services attributable to the additional management contracts and businesses
was partially offset by a decrease in certain post-closure cost estimates.

For the three months ended September 30, 1996, general and
administrative costs of $782,000 were consistent with $768,000 for the
corresponding period of the prior year. General and administrative costs for the
nine months ended September 30, 1996 were $2,495,000 compared to $2,462,000 for
the nine months ended September 30, 1995. General and administrative cost for
the nine months ended September 30, 1996 was partially offset by a portion of
the settlement of the lawsuit with a former director/officer of the Company as
discussed in Note 8 of Notes to Unaudited Consolidated Financial Statements.

Interest expense for the third quarter of 1996 was $800,000 compared
to the prior year amount of $552,000. Year-to-date interest expense for 1996 was
$2,155,000 compared to the prior year amount of $1,650,000. The increase in
interest expense is primarily due to additional debt incurred by the Company in
connection with the acquisition of additional landfills and management
contracts, partially offset by a reduction resulting from the exchange of
Debentures for equity in March 1995.

The gain on sale of assets for the nine months ended September 30,
1996 is related to the sale of the commercial collection operations in Sabine
Parish as discussed in Note 5.

Interest and other income, net for the third quarter of $195,000 for
1996 was consistent with $201,000 for the corresponding period of the prior
year. For the nine months ended September 30, 1996 compared to 1995, interest
and other income, net increased from $223,000 to $636,000. The increase is
primarily due to interest income on additional restricted cash balances. The
nine months ended September 30, 1996 also includes a portion of the settlement
of the lawsuit with the former director/officer of the Company discussed above.

Loss from oil recovery and disposal operations for the three months
ended September 30, 1996 was

13
<PAGE>
$279,000 compared to $98,000 for the three months ended September 30, 1995. For
the nine months ended September 30, 1996, the loss from oil recovery and
disposal operations was $690,000 compared to $336,000 for the corresponding
period of the prior year. The decreases are primarily due to lower volumes
processed at the facility. Revenues of these operations were $866,000 for the
three months ended September 30, 1996 compared to $1,044,000 for the
corresponding period of the prior year. Year-to-date revenues of these
operations were $2,228,000 for 1996 compared to $2,596,000 for 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company's strategy for growth has been the privatization or
acquisition of municipal solid waste landfills. The Company has recently
expanded its growth strategy to include acquisitions of collection operations.
This growth strategy has required, and will require, a significant investment of
cash for the initial acquisition of management contracts and businesses, the
subsequent upgrade and expansion of the sites and the start-up of operations
under the Company's management. Completion of the Company's various debt and
equity financings over the past two years has enabled the Company to fund this
corporate development and to favorably position the Company's future operations.
For the nine months ended September 30, 1996, cash flow from operations was
$2,346,000.

The Company intends to fund its cash requirements, including capital
projects, for the foreseeable future through cash on hand, cash generated from
its operations and the completion of additional debt or equity financings. If
additional debt or equity were not available in the future, it could have an
adverse effect on the Company's liquidity.

In April 1996, an offering was completed of $7,945,000 principal
amount Tax-Exempt Solid Waste Revenue Bonds and $1,000,000 principal amount
Taxable Solid Waste Revenue Bonds in conjunction with the Haleyville Landfill
acquisition. In addition to the initial purchase price, proceeds from the
financing will be used for (i) construction of new cells, (ii) purchase of
equipment and the purchase of the adjoining properties for which the Company has
an option, (iii) bonding for closure and post-closure obligations, (iv) debt
service and interest funds, and (v) debt issuance and certain other costs for
the Haleyville Landfill, depending upon the entry into waste disposal contracts
adequate to support construction and operation of the project.

Although the Company will continue to seek additional facilities,
the Company is pursuing additional waste streams for its existing facilities.
Additional volumes at competitive market prices will enhance the Company's
results of operations as a substantial amount of the landfill operating costs
are fixed in nature and will, therefore, not increase proportionately as volumes
and revenue increase. During the latter part of 1995, the Company entered into
contracts at several of its sites with large national providers of hauling
services which has had a favorable impact on revenue and results of operations
since that time. As is customary in the industry, these contracts generally do
not guarantee a minimum volume.

The Company plans to obtain additional landfill management contracts
and to acquire additional businesses in the future. As in the past, the Company
intends to fund this growth through a combination of its cash on hand,
short-term bridge financing, long-term tax-exempt or other debt financing, or by
issuing its Common Stock. The Company's recent financing strategy has included
the use of short-term financing until long-term, low-interest financing could be
arranged. As the Company continues its growth, it will consider all financing
alternatives that may become available.

In August 1996, the Company issued a promissory note, bearing
interest at 12% per annum, to an investment limited partnership in exchange for
$1,500,000. The promissory note matures on February 8, 1997 and is payable in
twelve equal monthly installments beginning thirty days following the maturity
date, unless the Company completes certain other debt or equity financing at
which time the outstanding balance becomes due. Proceeds from the financing,
which is secured by certain receivables, will be used for general corporate
purposes.

The Company expects that the operating results of certain of the
Company's landfills will be positively impacted for the balance of fiscal 1996
and 1997 by recent regulatory approval of the Company's application for vertical
expansion, which allows these sites to continue to dispose of waste in existing
available areas of the landfill rather than move to fully-lined areas. This will
result in the deferral of certain capital expenditures while allowing the
Company to utilize existing space which otherwise would be lost.

14
<PAGE>
The Company made $4.8 million in capital expenditures for the nine
months ended September 30, 1996, a portion of which was financed, and estimates
that it may make up to an additional $6.5 million in capital expenditures during
the next twelve months, primarily for landfill expansion and improvements and
equipment purchases, depending upon the level of new business obtained by the
Company. The Company intends to seek long-term financing for a majority of its
capital expenditure requirements. If additional financing should not be
available, the Company would restrict its capital expenditures to the amount
available for such purposes.

In the future, the Company will also have material financial
obligations relating to closure and post- closure costs for disposal facilities
it owns or operates. While the precise amount of these future obligations cannot
be determined, the Company has estimated that total costs for final closure of
its existing facilities and post-closure monitoring for an estimated period of
up to 30 years after closure will approximate $6.0 million. See Note 8 of the
Notes to Unaudited Consolidated Financial Statements included herein for
information regarding these obligations.

The Company has and will be required from time-to-time to obtain
financial assurance security for performance, closure and post-closure
obligations, a portion of which may be funded with cash deposits or other
collateral. The Company has arranged a $20 million performance bond line of
credit subject to review of each contract bonded and to certain other
conditions. In certain cases, the Company may be required to provide cash
deposits. The Company has also entered into various compensation and consulting
commitments which require significant cash payments for 1996.

FINANCIAL CONDITION AT SEPTEMBER 30, 1996 COMPARED TO DECEMBER 31, 1995

Cash and cash equivalents were $1,532,000 at December 31, 1995 and
$2,038,000 at September 30, 1996, representing an increase for the nine months
ended September 30, 1996 of $506,000. The increase is primarily attributable to
the $1,500,000 promissory note issued in August 1996.

Current and non-current restricted cash in the aggregate increased
from $9,714,000 at December 31, 1995 to $15,625,000 at September 30, 1996,
primarily due to the proceeds from the issuance of Solid Waste Revenue Bonds in
conjunction with the Haleyville Landfill acquisition.

Property and equipment, net, increased $5,657,000 from December 31,
1995 to September 30, 1996 primarily due to the completion of the acquisition of
the Central and Haleyville landfills in addition to capital expenditures during
the period for cell development and equipment purchases.

Net assets transferred under contractual arrangements reflects the
Company's investment in the oil recovery and disposal operations. As discussed
in Note 3, the Company sold the stock of the subsidiaries engaged in these
operations and will receive as consideration a percentage of the future cash
flows of these businesses.

Other noncurrent assets, net at September 30, 1996 were $2,497,000
compared to $1,102,000 at December 31, 1995. The increase is primarily
attributable to the promissory notes received in conjunction with the sale of
the commercial collection operations in Sabine Parish and the sale of a portion
of the airspace at the Sabine Parish and LaSalle-Grant landfills, as further
discussed in Note 5.

Accrued liabilities and other increased from $1,789,000 to
$2,566,000, and other noncurrent liabilities increased from $447,000 to
$1,818,000, from December 31, 1995 to September 30, 1996, respectively. The
increases are primarily attributable to the deferred revenue related to the sale
of the portion of the airspace at the Sabine Parish and LaSalle-Grant landfills,
as further discussed in Note 5.

The increase in aggregate current and long-term debt from
$31,029,000 at December 31, 1995 to $41,897,000 at September 30, 1996, is
primarily due to the offering of $8,945,000 Solid Waste Revenue Bonds completed
in conjunction with the Haleyville Landfill acquisition and the $1,500,000
promissory note issued in August 1996.

Management believes that there is substantial unrecognized equity in
its long-term management contracts since these contracts are recorded at
historical cost which management believes is significantly less than the market
value of these contracts.

15
<PAGE>
ADOPTION OF NEW ACCOUNTING PRINCIPLE

As discussed in Note 3, the Company sold the stock of its oil
recovery and disposal operations and will receive as consideration a percentage
of the future cash flows of these businesses. Based upon the Company's current
estimate of undiscounted cash flows of these businesses, which incorporate
certain operational improvements expected to be implemented by the new owners,
no gain or loss was recorded. However, it is reasonably possible that the
Company's estimate of undiscounted cash flows could change in the future if
operations under the management of the new owners do not meet current
expectations, which could result in the need to write-down the Company's
investment to fair value.

16
<PAGE>
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Reference is made to Note 8 of Notes to Unaudited Consolidated
Financial Statements for a discussion of certain legal proceedings involving the
Company.

ITEM 2. CHANGES IN SECURITIES

The Company has extended the expiration date of the Company's Class
A warrants and Class B warrants from November 11, 1996 until November 11, 1997.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are included herein:

10.1 Stock Purchase Agreement between TransAmerican Waste
Industries, Inc., Controlled Recovery, Inc, and Johnny
D. Cope and KRM Inc., dated as of September 30, 1996

10.2 Stock Purchase Agreement between TransAmerican Waste
Industries, Inc., Inland Products, Inc., and The Inland
Group, LLC, dated as of September 30, 1996

27.1 Financial Data Schedule

(b) Reports on Form 8-K

None

17
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

TRANSAMERICAN WASTE INDUSTRIES, INC.

By: /s/ LANCE C. RUUD
Lance C. Ruud,
Senior Vice President and
Chief Financial Officer

November 14, 1996

EXHIBIT 10.1

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
September 30, 1996 by and between (i) TransAmerican Waste Industries, Inc., a
Delaware corporation (the "Seller"), (ii) Controlled Recovery, Inc., a New
Mexico corporation (the "Company"), and (iii) Johnny D. Cope ("Cope") and KRM,
Inc., a New Mexico corporation ("KRM") (collectively, the "Purchasers").

RECITALS

A. The Seller is the holder of all of the issued and outstanding shares of
capital stock of the Company, consisting of 52 shares of common stock, par value
$1.00 per share (the "Stock").

B. Pursuant to a Letter of Intent dated September 10, 1996, the Seller has
agreed to sell and the Purchasers have agreed to purchase all of the issued and
outstanding capital stock of the Company, on the terms and subject to the
conditions set forth in this Agreement.

AGREEMENT

In consideration of the recitals and of the mutual covenants, agreements,
representations and warranties contained herein, and subject to the satisfaction
or waiver of the conditions contained herein, the parties, each intending to be
legally bound hereby, agree as follows.

1. SALE AND PURCHASE OF STOCK. Upon the execution and delivery of this
Agreement, the Seller hereby sells and transfers to the Purchasers, and the
Purchasers hereby purchase and accept from the Seller, the Stock, in exchange
for the consideration described in Section 2 below. In connection with and to
effectuate the sale and transfer of the Stock, the Seller hereby delivers to the
Purchasers the following additional items.

(a) CERTIFICATES. Duly issued certificates for all of the Stock,
duly endorsed in blank or with blank stock powers attached in proper form
for transfer.

(b) RESIGNATIONS. Resignations of all of the officers and directors
of the Company except for those who have agreed with the Purchasers to
remain as officers and/or directors of the Company after the date of this
Agreement.

<PAGE>
(c) RELEASE OF INTERCOMPANY DEBTS. A fully executed release of the
Company from all debts and obligations owed by the Company to the Seller
as of the date of this Agreement, which release the parties agree shall be
treated as a contribution to the Company's capital by the Seller in the
amounts released.

(d) ADJUSTED BALANCE SHEET. An adjusted balance sheet for the
Company dated as of the date of this Agreement, accompanied by an itemized
list of the equipment, machinery, vehicles, furniture, fixtures,
contracts, prepaid items, tradenames and trademarks, customer lists,
computer software, and other documents and information owned by the
Company as of the date of this Agreement, all acceptable to the
Purchasers.

(e) ENVIRONMENTAL REPORTS. Copies of any environmental reports
concerning the Company and its assets and activities.

(f) CORPORATE RECORDS. The minute books, stock certificates and
transfer books, corporate seal and other corporate records of the Company.

(g) BANK ACCOUNTS. Copies of all records including all signature or
authorization cards pertaining to the bank accounts and safe deposit boxes
maintained by the Company.

(h) GOOD STANDING CERTIFICATE. A good standing certificate as to the
Company issued by the Secretary of State of New Mexico, dated as of a date
within ten days of the date of this Agreement.

(i) DIRECTORS RESOLUTIONS. Fully executed resolutions of the
directors of the Seller authorizing the execution and delivery of this
Agreement and all things reasonably incident thereto.

(j) REQUIRED CONSENTS. Any consents required for the sale and
transfer of the Stock by the Seller as contemplated by this Agreement.

2. CONSIDERATION.

(a) PURCHASE PRICE.

(i) In consideration of the sale and transfer of the Stock,
the Purchasers agree to pay the Seller, each calendar quarter during
the life of the Company, an amount equal to (A) 5% of the Company's
Adjusted Earnings (as defined below) for such calendar quarter up to
$150,000 and 4% of the Company's Adjusted Earnings for such calendar
quarter exceeding $150,000 (the "Purchase Price"). For purposes of
this Agreement, the term "Adjusted Earnings" means pre-tax

2
<PAGE>

income as defined under generally accepted accounting principles for
tax accounting (and specifically including as deductible expenses
(A) the Company's monthly payments in respect of the real estate
note, the Caterpillar equipment and the truck and the cost of any
performance bonds required by state or federal authorities, and (B)
a salary to Kenneth R. Marsh not to exceed $21,250 per quarter
(increased annually by an amount not to exceed the national consumer
price index)) adjusted to add back depreciation (except for
depreciation of future capital purchases) and amortization. The
Purchase Price, if payable with respect to any quarter, shall be
delivered within five days of the preparation by the Company of its
quarterly financial statements for the quarter in which such quarter
occurs, but in no event later than 30 days after the end of each
calendar quarter, and shall be accompanied by a copy of such
financial statements. Such financial statements shall contain the
information set forth in a form agreed to by the Seller and the
Purchasers prior to December 31, 1996.

(ii) In the event of any merger or consolidation of the
Company with any other entity, the sale of all or substantially all
of the Stock by the Purchasers, the sale of all or substantially all
of the assets of the Company or the dissolution of the Company, all
of which are subject to the Seller's prior written consent, the
Purchasers and the Seller shall negotiate an equitable division of
the proceeds distributable upon the occurrence of any such event;
provided that if the Purchasers and the Seller cannot agree on such
division of proceeds, an equitable division of proceeds shall be
finally determined by arbitration as follows:

(A) Within 60 days after the Seller's consent is
requested by the Purchasers, the Seller and the Purchasers
shall agree on an individual to act as arbitrator, or if no
agreement is reached on such arbitrator, then each of the
Seller and the Purchasers shall name a representative who will
agree to act on their behalf to select an arbitrator.

(B) In the event representatives are selected pursuant
to (A) above, such representatives shall agree within ten days
of their designation on an individual to serve as the single
arbitrator.

(C) Within five days of the selection of an arbitrator
pursuant to clause (A) or (B) above, as applicable, the Seller
and the Purchasers each shall deliver to the arbitrator a
written proposal designating its or their position on the
appropriate division of proceeds and such additional written
information as each determines appropriate to support its or
their position.

(D) Within 90 days after the Seller's consent is
requested by the Purchasers, the arbitrator shall announce a
decision as to the division of

3
<PAGE>

proceeds, which decision shall be either the division of
proceeds provided to the arbitrator by the Seller, or the
division of proceeds provided to the arbitrator by the
Purchasers.

(E) The decision of the arbitrator pursuant to clause
(D) above shall be final and binding on all parties as to the
determination of the division of the proceeds.

(b) OTHER DELIVERIES. In addition to the Purchase Price, the
Purchasers shall deliver to the Seller, upon execution of this Agreement,
the following items.

(i) Copies of the stock certificates of the Company to be
issued to the Purchasers upon cancellation of the existing stock
certificates, which shall contain the following legend in addition
to those customarily placed on stock certificates issued by
privately held corporations: THE SALE, ASSIGNMENT, TRANSFER, PLEDGE
OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO CERTAIN RESTRICTIONS PURSUANT TO A STOCK PURCHASE
AGREEMENT DATED SEPTEMBER 30, 1996. THE COMPANY WILL FURNISH TO THE
HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO
THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS A COPY OF SUCH STOCK
PURCHASE AGREEMENT.

(ii) Any consents required for the acceptance of the Stock by
the Purchasers as contemplated by this Agreement.

3. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller hereby
represents and warrants to the Purchasers as follows.

(a) ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of New Mexico, and
the Company has corporate power and lawful authority to own, lease and
operate its assets and to carry on its business as now conducted.

(b) CAPITALIZATION. The Stock is the only capital stock of the
Company issued and outstanding. The Stock has been duly authorized and
validly issued, is fully paid and non-assessable and was not issued in
violation of any preemptive or other right. Neither the Seller nor the
Company is a party to or bound by any contract, agreement or arrangement
to issue, sell or otherwise dispose of or redeem, purchase or otherwise
acquire any capital stock or any other security of the Company or any
other security exercisable or exchangeable for or convertible into any
capital stock or any other security of the Company.

4
<PAGE>

(c) OWNERSHIP. The Seller owns the Stock beneficially and of record,
free and clear of all liens or encumbrances of any nature.

(d) AUTHORITY. The Seller has taken all corporate or other action
required to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. The Seller has duly
executed and delivered this Agreement, and this Agreement constitutes the
valid and binding obligation of the Seller, enforceable against Seller in
accordance with its terms.

(e) NO VIOLATIONS; CONSENTS. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
will not violate any provision of, or result in the breach of or
accelerate or permit the acceleration of the performance required by the
terms of (i) any law, rule or regulation of any governmental body
applicable to the Seller, (ii) the Articles of Incorporation or By-Laws of
the Seller, (iii) any material agreement to which the Seller is a party or
by which the Seller may be bound, or (iv) any order, judgment or decree
applicable to the Seller.

(f) NO BROKER. No finder, broker, agent or similar intermediary has
acted for or on behalf of the Seller in connection with this Agreement or
the transactions contemplated hereby, and no finder, broker, agent or
similar intermediary is entitled to any finder's, broker's or similar fee
or other commission in connection therewith based on any agreement,
arrangement or understanding with the Seller.

(g) OPERATION OF BUSINESS. Since September 10, 1996, the Company has
not declared or paid any dividend on or made any other distribution in
respect of any of its capital stock or otherwise made any payments to the
Seller.

4. REPRESENTATIONS AND WARRANTIES OF COPE. Cope represents and warrants to
the Seller as follows.

(a) AUTHORITY. He has the requisite legal capacity and full power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. He has duly executed and delivered this
Agreement, and this Agreement constitutes his valid and binding
obligation, enforceable against him in accordance with its terms.

(b) NO VIOLATION; CONSENTS. The execution and delivery of this
Agreement by him and consummation of the transactions contemplated hereby
will not violate any provision of, or result in the breach of or
accelerate or permit the acceleration of the performance required by the
terms of (i) any applicable law, rule or regulation of any governmental
body, (ii) any material agreement to which he is a party or by which he
may be bound, or (iii) any order, judgment or decree applicable to him.

5
<PAGE>

(c) NO BROKER. No finder, broker, agent or similar intermediary has
acted for or on behalf of him in connection with this Agreement or the
transactions contemplated hereby, and no finder, broker, agent or similar
intermediary is entitled to any finder's, broker's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with him.

(d) SECURITIES MATTERS. He (i) has business knowledge and
experience, such experience being based on actual participation therein,
(ii) is capable of evaluating the merits and risks of an investment in the
Stock and the suitability thereof as an investment, (iii) is acquiring the
Stock solely for investment and not with a view toward resale or
redistribution in violation of the securities laws, (iv) is a resident of
the State of New Mexico, and (v) acknowledges that, in connection with the
transactions contemplated hereby, no assurances have been made concerning
the future results of the Company or as to the value of the Stock.

(e) ACKNOWLEDGEMENT OF LIMITATIONS. He acknowledges that, EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES OF THE SELLER CONTAINED IN SECTION 3
HEREOF, NEITHER THE SELLER NOR ANY OTHER PERSON MAKES OR SHALL BE DEEMED
TO HAVE MADE ANY OTHER REPRESENTATIONS OR WARRANTIES ON BEHALF OF THE
COMPANY OR THE SELLER, EXPRESS OR IMPLIED (INCLUDING REPRESENTATIONS
REGARDING THE OPERATIONS, BUSINESS, ASSETS AND LIABILITIES OF THE COMPANY,
WHICH IS BEING SOLD "AS IS, WHERE IS" AND WITHOUT WARRANTIES OF
MERCHANTABILITY OR FITNESS), AND THE SELLER HEREBY DISCLAIMS ANY SUCH
REPRESENTATIONS AND WARRANTIES, WHETHER BY THE COMPANY, THE SELLER, ANY OF
THE COMPANY'S OR THE SELLER'S EMPLOYEES, AGENTS AND REPRESENTATIVES, OR
ANY OTHER PERSON.

5. REPRESENTATIONS AND WARRANTIES OF KRM. KRM represents and warrants to
the Seller as follows.

(a) EXISTENCE, CORPORATE AUTHORITY. It is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New Mexico, has the corporate power and lawful authority to own,
lease and operate its assets and to carry on its business as now
conducted, has taken all corporate or other action to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, has duly executed and delivered this
Agreement, and this Agreement constitutes its valid and binding
obligation, enforceable against it in accordance with its terms.

(b) NO VIOLATION; CONSENTS. The execution and delivery of this
Agreement by KRM and consummation of the transactions contemplated hereby
will not violate any

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<PAGE>

provision of, or result in the breach of or accelerate or permit the
acceleration of the performance required by the terms of (i) any
applicable law, rule or regulation of any governmental body, (ii) its
Articles of Incorporation or Bylaws, (iii) any material agreement to which
it is a party or by which it may be bound, or (iv) any order, judgment or
decree applicable to it.

(c) NO BROKER. No finder, broker, agent or similar intermediary has
acted for or on behalf of it in connection with this Agreement or the
transactions contemplated hereby, and no finder, broker, agent or similar
intermediary is entitled to any finder's, broker's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with it.

(d) SECURITIES MATTERS. It (i) has business knowledge and
experience, such experience being based on actual participation therein,
(ii) is capable of evaluating the merits and risks of an investment in the
Stock and the suitability thereof as an investment, (iii) is acquiring the
Stock solely for investment and not with a view toward resale or
redistribution in violation of the securities laws, (iv) has its principal
place of business in the State of New Mexico, and (v) acknowledges that,
in connection with the transactions contemplated hereby, no assurances
have been made concerning the future results of the Company or as to the
value of the Stock.

(e) ACKNOWLEDGEMENT OF LIMITATIONS. It acknowledges that, EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES OF THE SELLER CONTAINED IN SECTION 3
HEREOF, NEITHER THE SELLER NOR ANY OTHER PERSON MAKES OR SHALL BE DEEMED
TO HAVE MADE ANY OTHER REPRESENTATIONS OR WARRANTIES ON BEHALF OF THE
COMPANY OR THE SELLER, EXPRESS OR IMPLIED (INCLUDING REPRESENTATIONS
REGARDING THE OPERATIONS, BUSINESS, ASSETS AND LIABILITIES OF THE COMPANY,
WHICH IS BEING SOLD "AS IS, WHERE IS" AND WITHOUT WARRANTIES OF
MERCHANTABILITY OR FITNESS), AND THE SELLER HEREBY DISCLAIMS ANY SUCH
REPRESENTATIONS AND WARRANTIES, WHETHER BY THE COMPANY, THE SELLER, ANY OF
THE COMPANY'S OR THE SELLER'S EMPLOYEES, AGENTS AND REPRESENTATIVES, OR
ANY OTHER PERSON.

6. COVENANTS OF THE PURCHASERS.

(a) OPERATION OF THE COMPANY. During the life of the Company, except
as otherwise permitted by the prior written consent of the Seller, the
Purchasers shall operate the Company using their business judgment and
shall owe to the Seller the duties of loyalty and care imposed upon
officers and directors of corporations organized under the laws of the
State of New Mexico. Without limiting the foregoing, the Purchasers agree
with the Seller as follows.

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<PAGE>

(i) The Purchasers shall cause all business opportunities
arising within the scope of the Company's line of business to be
pursued by the Company and not by the Purchasers individually or
through any other entity owned wholly or partly by the Purchasers or
any of their business partners or family members.

(ii) If a Purchaser or a business partner or family member of
a Purchaser enters into a transaction with the Company, the
Purchasers shall cause such transaction to be on arm's-length terms.

(iii) The Purchasers shall cause the Company in all material
respects to maintain its existence, to conduct its business and
operations to comply with all applicable laws and to perform all
material obligations under all agreements binding upon it.

(iv) The Purchasers shall cause the Company to invest in such
capital and operational improvements as would reasonably be expected
to cause the Company's earnings to grow at a reasonable rate;
provided that the Company shall not make any one capital or
operational improvement the cost of which exceeds $50,000 or
accelerate depreciation with respect to capital improvements without
the prior written consent of the Seller.

(v) The Purchasers shall not merge or consolidate the Company
with any other entity, sell, assign, pledge or otherwise transfer
all or substantially all of the Stock or all or substantially all of
the assets of the Company, or dissolve the Company, without the
prior written consent of the Seller, which consent, subject to the
terms of Section 2.2(a)(ii), shall not be unreasonably withheld.

(b) FURTHER ASSURANCE. The Purchasers shall provide to the Seller
and its representatives upon reasonable request copies of all documents
and other information regarding the properties, employees, books,
accounts, records and contracts of the Company (including, without
limitation, the books, records and work papers upon which payments of the
Purchase Price are based pursuant to Section 2(a)(i) of this Agreement)
which are in the Company's possession after the date of this Agreement.

7. COVENANTS OF THE SELLER.

(a) FURTHER ASSURANCE. The Seller shall provide to the Purchasers
and their representatives upon reasonable request copies of all documents
and other information regarding the properties, employees, books,
accounts, records and contracts of the Company which remain in Seller's
possession after the date of this Agreement and which are necessary for
the Purchasers to operate the Company's business in compliance with
applicable law, including the filing of tax returns.

8
<PAGE>

(b) CONSULTING AND NON-COMPETE. In consideration for the
compensation described below, the Sellers (i) shall, upon reasonable
request of the Company, consult with the Company regarding strategic
planning, policies and decisions related to the operations of the
Company's business and the prospects for the expansion of the Company's
business, and (ii) shall not, and shall not permit its subsidiaries or
affiliates to, provide services similar to those provided by the Company
in the State of New Mexico. In consideration of the foregoing agreements,
the Company shall pay to the Seller, each calendar quarter during the life
of the Company and contemporaneously with the Purchase Price payments
described in Section 2(a)(i) hereof, an amount equal to 42.5% of the
Company's Adjusted Earnings for such calendar quarter up to $150,000 and
34.4% of the Company's Adjusted Earnings for such calendar quarter
exceeding $150,000.

8. INDEMNIFICATION.

(a) INDEMNIFICATION BY THE PURCHASERS. The Purchasers shall
indemnify, defend and hold harmless the Seller and its successors and
assigns from and against any and all losses, liabilities, damages or
deficiencies (including interest, penalties and reasonable attorneys'
fees) arising out of or due to (i) any breach of any of the
representations and warranties of the Purchasers contained in Section 4 or
5, as applicable, of this Agreement or (ii) the operations of the Company
after the date of this Agreement.

(b) INDEMNIFICATION BY THE SELLER. Provided that the Purchasers are
not in default of their obligations under this Agreement, the Seller shall
indemnify, defend and hold harmless the Purchasers from and against any
and all losses, liabilities, damages or deficiencies (including interest,
penalties and reasonable attorneys' fees) arising out of or due to a
breach of any of the representations and warranties of the Seller
contained in Section 3 of this Agreement.

(i) An indemnitee shall promptly give the indemnitor notice of
any matter which an indemnitee has determined has given or is likely
to give rise to a right of indemnification under this Agreement,
stating the amount of the loss, if known, and method of computation
thereof, all with reasonable particularity, and stating with
particularity the nature of such matter. Failure to provide prompt
notice shall not affect the right of the indemnitee to
indemnification except to the extent such failure shall have
resulted in liability to the indemnitor that could have been
actually avoided had such notice been provided within such required
time period.

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<PAGE>

(ii) The obligations and liabilities of an indemnitor under
this Section 8 with respect to losses arising from claims of any
third party that are subject to the indemnification provided for in
this Section 8 ("Third Party Claims") shall be governed by and
contingent upon the following additional terms and conditions: if an
indemnitee shall receive notice of any third party claim, the
indemnitee shall give the indemnitor prompt notice of such third
party claim and the indemnitor
may, at its option, assume and control the defense of such third
party claim at the indemnitor's expense and through counsel of the
indemnitor's choice reasonably acceptable to indemnitee. In the
event the indemnitor assumes the defense against any such third
party claim as provided above, the indemnitee shall have the right
to participate at its own expense in the defense of such asserted
liability, shall cooperate with the indemnitor in such defense and
will attempt to make available on a reasonable basis to the
indemnitor all witnesses, pertinent records, materials and
information in its possession or under its control relating thereto
as is reasonably required by the indemnitor. In the event the
indemnitor does not elect to conduct the defense against any such
third party claim, the indemnitor shall cooperate with the
indemnitee (and be entitled to participate at its own cost) in such
defense and attempt to make available to it on a reasonable basis
all such witnesses, records, materials and information in its
possession or under its control relating thereto as is reasonably
required by the indemnitee. The indemnitor understands that if such
third party claim results in an obligation to indemnify hereunder,
damages shall include all reasonable costs and expenses of such
defense. Except for the settlement of a third party claim that
involves payment of money only and for which the indemnitee is
totally indemnified by the indemnitor, no third party claim may be
settled without the written consent of the indemnitee, which consent
shall not be unreasonably withheld.

(iii) If the indemnitor shall object to a claim for indemnity
hereunder, a written notice of such objection setting forth in
reasonable detail the basis for such objection shall be promptly
provided to the indemnitee (which notice of objection as to any
third party claim may in effect be a "reservation of rights" notice
neither admitting nor denying an obligation to indemnify hereunder).
The parties shall attempt to resolve any dispute arising from the
indemnitor's objection to a claim for indemnity within 30 days of
the indemnitor's receipt of such claim, provided that if such
dispute cannot be so resolved, the party seeking indemnification may
take any action available at law or in equity to resolve such claim
and such dispute. If the claim objected to shall thereafter be
determined to have been a valid claim, damages shall include
interest at the prime rate as quoted from time to time by Citibank,
N.A. (the "Prime Rate") from the date the claim is first made by the
indemnitee until fully paid.

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<PAGE>

(iv) No claims for indemnification may be made by any of the
parties if this Agreement terminates prior to Closing; provided,
however, this provision shall not prohibit a party from taking
action for any breach of this Agreement.

(d) EFFECT OF INSURANCE PROCEEDS. The amount which an indemnitee
shall be entitled to receive from an indemnitor with respect to a loss
under this Section 8 shall be net of any insurance recovery by the
indemnitee on account of such loss from an unaffiliated party and the
indemnitor shall be subrogated to the rights of the indemnitee with
respect to any such loss.

(e) PAYMENT OF CLAIMS. Payment of any amounts due pursuant to this
Section 8 shall be made within 30 days after notice is sent by the
indemnitee or as determined upon resolution of a dispute pursuant to
paragraph (c) above.

9. NOTICES. All notices, requests, consents and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to be duly given if delivered personally or by registered or certified
mail (notices mailed shall be deemed to have been given on the date received),
as follows (or to such other address as any party shall designate by notice in
writing to the others in accordance herewith):

To the Seller:

Mr. Tom J. Fatjo, Jr.
TransAmerican Waste Industries, Inc.
314 North Post Oak Lane
Houston, Texas 77024

To the Purchasers:

Johnny D. Cope
Box 925
Hobbs, New Mexico 88240

KRM, Inc.
Box 1832
Hobbs, New Mexico 88240
ATTENTION: Kenneth R. Marsh

10. ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) contains the entire agreement among the parties with respect to the
sale of the Stock and related transactions and supersedes all prior arrangements
or understandings, written or oral, with respect thereto.

11
<PAGE>

11. AMENDMENTS. Any term or condition of this Agreement may be amended or
modified in whole or in part at any time, to the extent authorized by applicable
law, by an agreement in writing, authorized and executed in the same manner as
this Agreement by the parties hereto.

12. WAIVERS. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any right, power of privilege hereunder, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder.

13. REMEDIES. In addition to any other remedy available to Seller at law
or in equity (a) in the event the Purchasers breach the payment provisions of
Sections 2(a) or 7(b) of this Agreement, the Seller shall have the exclusive
right to repurchase the Stock for a purchase price equal to the value of future
capital purchases and undistributed earnings as of the date such breach occurs
and to assume the operations of the Company upon payment to the Purchasers of
such amount; provided that the Seller shall have provided written notice of such
breach to the Purchasers and allowed the Purchasers five business days to cure
such breach, and provided further that if the parties cannot agree on the fair
value of such assets, the determination of fair value shall be subject to
arbitration in accordance with the terms of clauses (A)-(E) of Section 2(a)(ii)
hereof; and (b) in the event that the Company ceases to operate for a period of
30 consecutive days, the Seller shall have the exclusive right to repurchase the
Stock for $10.00 and to assume the operations of the Company upon payment to the
Purchasers of such amount. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies which any party may
otherwise have at law or in equity.

14. EXECUTION AND DELIVERY. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery of a counterpart
shall be deemed effective upon receipt by the other party of telefaxed signature
page to this Agreement, provided that such party shall nonetheless transmit its
original executed signature page to the other party.

15. EXHIBITS AND SCHEDULES. The Exhibits and Schedules and other documents
attached to or delivered herewith are hereby incorporated and made a part of
this Agreement as if set forth in full herein.

16. DRAFTING. No presumption shall operate in favor of or against any
party in the construction or interpretation of this Agreement as a consequence
of a party's responsibility for drafting this Agreement.

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<PAGE>

17. ATTORNEY AND PROFESSIONAL FEES. Each party will pay his, her or its
own attorney and professional fees in connection with this Agreement and
discussions leading to this Agreement.

18. CONTROLLING LAW. The parties hereto agree that this Agreement shall be
governed and construed by the internal, substantive laws of the State of New
Mexico (without regard to that state's choice of law rules or doctrines) and, if
applicable, the substantive law (statutory, administrative or common law) of the
United States (without regard to its choice of law, rules or doctrines).

19. BINDING AGREEMENT. This Agreement shall be binding upon the heirs,
successors and assigns of the parties. The Purchasers shall not assign or
otherwise transfer their rights or obligations under this Agreement without the
prior written consent of the Seller.

20. INSURANCE. To the extent authorized by law and the current insurance
carrier, the Seller shall continue to maintain existing insurance coverage types
and policies for up to 60 days from the date of this Agreement as a normal
operating expense of the Company.

The parties have duly executed this Agreement as of the date first written
above.

TransAmerican Waste Industries, Inc.

By:_________________________________________
Name:_______________________________________
Title:______________________________________

Controlled Recovery, Inc.

By:_________________________________________
Name:_______________________________________
Title:______________________________________

___________________________________________
Johnny D. Cope

KRM, Inc.

By: _______________________________________
Name: Kenneth R. Marsh
Title: President

EXHIBIT 10.2

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
September 30, 1996 by and between (i) TransAmerican Waste Industries, Inc., a
Delaware corporation (the "Seller"), (ii) Inland Products, Inc., a Texas
corporation (the "Company"), and (iii) The Inland Group, L.L.C., a Texas limited
liability company ("Purchaser").

RECITALS

A. Seller is the holder of all of the issued and outstanding shares of
capital stock of the Company, consisting of 1,000 shares of common stock, par
value $1.00 per share (the "Stock").

B. Seller has agreed to sell and Purchaser has agreed to purchase all of
the issued and outstanding capital stock of the Company, on the terms and
subject to the conditions set forth in this Agreement.

AGREEMENT

1. SALE AND PURCHASE OF STOCK. Upon the execution and delivery of this
Agreement, the Seller hereby sells and transfers to the Purchaser, and the
Purchaser hereby purchases and accepts from the Seller, the Stock, in exchange
for the consideration described in Section 2 below. In connection with and to
effectuate the sale and transfer of the Stock, the Seller hereby delivers to the
Purchaser the following additional items.

(a) CERTIFICATES. Duly issued certificates for all of the Stock,
duly endorsed in blank or with blank stock powers attached in proper form
for transfer.

(b) RESIGNATIONS. Resignations of all of the officers and directors
of the Company except for those who have agreed with the Purchaser to
remain as officers and/or directors of the Company after the date of this
Agreement.

<PAGE>

(c) RELEASE OF INTERCOMPANY DEBTS. A fully executed release of the
Company from all debts and obligations owed by the Company to the Seller
as of the date of this Agreement, which release the parties agree shall be
treated as a contribution to the Company's capital by the Seller in the
amounts released.

(e) CORPORATE RECORDS. The minute books, stock certificates and
transfer books, corporate seal and other corporate records of the Company.

(f) GOOD STANDING CERTIFICATE. A good standing certificate as to the
Company issued by the Secretary of State of Texas, dated as of a date
within ten days of the date of this Agreement.

(g) DIRECTORS RESOLUTIONS. Fully executed resolutions of the
directors of the Seller authorizing the execution and delivery of this
Agreement and all things reasonably incident thereto.

(h) REQUIRED CONSENTS. Any consents required for the sale and
transfer of the Stock by the Seller as contemplated by this Agreement.

2. CONSIDERATION.

(a) PURCHASE PRICE.

(i) In consideration of the sale and transfer of the Stock,
the Purchaser agrees to pay the Seller, each calendar quarter during
the life of the Company, an amount equal to (A) 5% of the Company's
Adjusted Earnings (as defined below) for such calendar quarter up to
$150,000 and 4% of Adjusted Earnings for such calendar quarter
exceeding $150,000 (the "Purchase Price"). For purposes of this
Agreement, the term "Adjusted Earnings" means pre-tax income as
defined under generally accepted accounting principles for tax
accounting (and specifically including as deductible expenses (A) a
salary to the Purchaser not to exceed $18,000 per quarter (increased
annually by an amount not to exceed the national consumer price
index), and (B) the cost of any performance bonds required by state
or federal authorities), adjusted to add back depreciation (except
for depreciation of future capital purchases) and amortization. The
Purchase Price, if payable with respect to any quarter, shall be
delivered within five days of the preparation by the

2
<PAGE>

Company of its quarterly financial statements for the quarter in
which such quarter occurs, but in no event later than 30 days after
the end of each calendar quarter, and shall be accompanied by a copy
of such financial statements. Such financial statements shall
contain the information set forth in a form agreed to by the Seller
and the Purchaser prior to December 31, 1996.

(ii) As further consideration for the sale and transfer of the
Stock, in the event of any merger or consolidation of the Company
with any other entity, the sale of all or substantially all of the
Stock by the Purchaser, the sale of all or substantially all of the
assets of the Company or the dissolution of the Company, all of
which are subject to the Seller's prior written consent, the
Purchaser and the Seller shall negotiate an equitable division of
the proceeds distributable upon the occurrence of any such event;
provided that if the Purchaser and the Seller cannot agree on such
division of proceeds, an equitable division of proceeds shall be
finally determined by arbitration as follows:

(A) Within 60 days after the Seller's consent is
requested by the Purchaser, the Seller and the Purchaser shall
agree on an individual to act as arbitrator, or if no
agreement is reached on such arbitrator, then each of the
Seller and the Purchaser shall name a representative who will
agree to act on their behalf to select an arbitrator.

(B) In the event representatives are selected pursuant
to (A) above, such representatives shall agree within ten days
of their designation on an individual to serve as the single
arbitrator.

(C) Within five days of the selection of an arbitrator
pursuant to clause (A) or (B) above, as applicable, the Seller
and the Purchaser each shall deliver to the arbitrator a
written proposal designating its position on the appropriate
division of proceeds and such additional written information
as each determines appropriate to support its position.

(D) Within 90 days after the Seller's consent is
requested by the Purchaser, the arbitrator shall announce a
decision as to the division of proceeds, which decision shall
be either the division of proceeds provided to the arbitrator
by the Seller, or the division of proceeds provided to the
arbitrator by the Purchaser.

(E) The decision of the arbitrator pursuant to clause
(D) above shall be final and binding on all parties as to the
determination of the division of the proceeds.

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<PAGE>

(iii) As further consideration for the sale and transfer of
the Stock, the Seller hereby agrees that the stock options
previously granted to the Purchaser, to Mr. Michael Windsor and to
Mr. Wayne Tramel, are hereby fully vested.

(b) OTHER DELIVERIES. In addition to the Purchase Price, the
Purchaser shall deliver to the Seller, upon execution of this Agreement,
the following items.

(i) Copies of the stock certificate of the Company to be
issued to the Purchaser upon cancellation of the existing stock
certificates, which shall contain the following legend in addition
to those customarily placed on stock certificates issued by
privately held corporations: THE SALE, ASSIGNMENT, TRANSFER, PLEDGE
OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO CERTAIN RESTRICTIONS PURSUANT TO A STOCK PURCHASE
AGREEMENT DATED SEPTEMBER 30, 1996. THE COMPANY WILL FURNISH TO THE
HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO
THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS A COPY OF SUCH STOCK
PURCHASE AGREEMENT.

(ii) Any consents required for the acceptance of the Stock by
the Purchaser as contemplated by this Agreement.

3. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller hereby
represents and warrants to the Purchaser as follows.

(a) ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of Texas, and the
Company has corporate power and lawful authority to own, lease and operate
its assets and to carry on its business as now conducted.

(c) OWNERSHIP. The Seller owns the Stock beneficially and of record,
free and clear of all liens or encumbrances of any nature.

4
<PAGE>

4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Seller as follows.

(a) EXISTENCE; AUTHORITY. It is a limited liability company duly
organized, validly existing and in good standing under the laws of Texas,
has the limited liability company power and lawful authority to own, lease
and operate its assets and to carry on its business as now conducted, has
taken all limited liability company or other action to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, has duly executed and delivered this
Agreement, and this Agreement constitutes its valid and binding
obligation, enforceable against it in accordance with its terms.

(b) NO VIOLATION; CONSENTS. The execution and delivery of this
Agreement by it and consummation of the transactions contemplated hereby
will not violate any provision of, or result in the breach of or
accelerate or permit the acceleration of the performance required by the
terms of (i) any applicable law, rule or regulation of any governmental
body, (ii) its Articles of Organization or Regulations, (iii) any material
agreement to which

5
<PAGE>

it is a party or by which it may be bound, or (iv) any order, judgment or
decree applicable to it.

(d) SECURITIES MATTERS. It (i) has business knowledge and
experience, such experience being based on actual participation therein,
(ii) is capable of evaluating the merits and risks of an investment in the
Stock and the suitability thereof as an investment, (iii) is acquiring the
Stock solely for investment and not with a view toward resale or
redistribution in violation of the securities laws, (iv) is a resident of
the State of Texas, and (v) acknowledges that, in connection with the
transactions contemplated hereby, no assurances have been made concerning
the future results of the Company or as to the value of the Stock.

(e) ACKNOWLEDGEMENT OF LIMITATIONS. IT ACKNOWLEDGES THAT, EXCEPT FOR
THE REPRESENTATIONS AND WARRANTIES OF THE SELLER CONTAINED IN SECTION 3
HEREOF, NEITHER THE SELLER NOR ANY OTHER PERSON MAKES OR SHALL BE DEEMED
TO HAVE MADE ANY OTHER REPRESENTATIONS OR WARRANTIES ON BEHALF OF THE
COMPANY OR THE SELLER, EXPRESS OR IMPLIED (INCLUDING REPRESENTATIONS
REGARDING THE OPERATIONS, BUSINESS, ASSETS AND LIABILITIES OF THE COMPANY,
WHICH IS BEING SOLD "AS IS, WHERE IS" AND WITHOUT WARRANTIES OF
MERCHANTABILITY OR FITNESS), AND THE SELLER HEREBY DISCLAIMS ANY SUCH
REPRESENTATIONS AND WARRANTIES, WHETHER BY THE COMPANY, THE SELLER, ANY OF
THE COMPANY'S OR THE SELLER'S EMPLOYEES, AGENTS AND REPRESENTATIVES, OR
ANY OTHER PERSON.

5. COVENANTS OF THE PURCHASER.

(a) OPERATION OF THE COMPANY. During the life of the Company, except
as otherwise permitted by the prior written consent of the Seller, the
Purchaser shall operate the Company using business judgment and shall owe
to the Seller the duties of loyalty and care imposed upon officers and
directors of corporations organized under the laws of the State of Texas.
Without limiting the foregoing, the Purchaser agrees with the Seller as
follows.

(i) The Purchaser shall cause all business opportunities
arising within the scope of the Company's line of business to be
pursued by the Company and not

6
<PAGE>

by the Purchaser individually or through any other entity owned
wholly or partly by the Purchaser or any of its business partners or
its owners' family members.

(ii) If the Purchaser or a business partner or its owners'
family member enters into a transaction with the Company, the
Purchaser shall cause such transaction to be on arm's-length terms.

(iii) The Purchaser shall cause the Company in all material
respects to maintain its existence, to conduct its business and
operations to comply with all applicable laws and to perform all
material obligations under all agreements binding upon it.

(iv) The Purchaser shall cause the Company to invest in such
capital and operational improvements as would reasonably be expected
to cause the Company's earnings to grow at a reasonable rate;
provided that the Company shall not make any one capital or
operational improvement the cost of which exceeds $50,000 or
accelerate depreciation with respect to capital improvements without
the prior written consent of the Seller.

(v) The Purchaser shall not merge or consolidate the Company
with any other entity, sell, assign, pledge or otherwise transfer
all or substantially all of the Stock or all or substantially all of
the assets of the Company, or dissolve the Company, without the
prior written consent of the Seller, which consent, subject to the
terms of Section 2.2(a)(ii), shall not be unreasonably withheld.

(b) FURTHER ASSURANCE. The Purchaser shall provide to the Seller and
its representatives upon reasonable request copies of all documents and
other information regarding the properties, employees, books, accounts,
records and contracts of the Company (including, without limitation, the
books, records and work papers upon which payments of the Purchase Price
are based pursuant to Section 2(a)(i) of this Agreement) which are in the
Company's possession after the date of this Agreement.

6. COVENANTS OF THE SELLER.

(a) FURTHER ASSURANCE. The Seller shall provide to the Purchaser and
its representatives upon reasonable request copies of all documents and
other information regarding the properties, employees, books, accounts,
records and contracts of the Company which remain in Seller's possession
after the date of this Agreement and which are necessary for the Purchaser
to operate the Company's business in compliance with applicable law,
including the filing of tax returns.

7
<PAGE>

(b) CONSULTING AND NON-COMPETE. In consideration for the
compensation described below, the Sellers (i) shall, upon reasonable
request of the Company, consult with the Company regarding strategic
planning, policies and decisions related to the operations of the
Company's business and the prospects for the expansion of the Company's
business, and (ii) shall not, and shall not permit its subsidiaries or
affiliates to, provide services similar to those provided by the Company
in the State of Texas. In consideration of the foregoing agreements, the
Company shall pay to the Seller, each calendar quarter during the life of
the Company and contemporaneously with the Purchase Price payments
described in Section 2(a)(i) hereof, an amount equal to 43.5% of the
Company's Adjusted Earnings for such calendar quarter up to $150,000 and
35.2% of the Company's Adjusted Earnings exceeding $150,000.

7. INDEMNIFICATION.

(a) INDEMNIFICATION BY THE PURCHASER. The Purchaser shall indemnify,
defend and hold harmless the Seller and its successors and assigns from
and against any and all losses, liabilities, damages or deficiencies
(including interest, penalties and reasonable attorneys' fees) arising out
of or due to (i) any breach of any of the representations and warranties
of the Purchaser contained in Section 4 of this Agreement or (ii) the
operations of the Company after the date of this Agreement.

(b) INDEMNIFICATION BY THE SELLER. Provided that the Purchaser is
not in default of its obligations under this Agreement, the Seller shall
indemnify, defend and hold harmless the Purchaser from and against any and
all losses, liabilities, damages or deficiencies (including interest,
penalties and reasonable attorneys' fees) arising out of or due to a
breach of any of the representations and warranties of the Seller
contained in Section 3 of this Agreement.

8
<PAGE>

(ii) The obligations and liabilities of an indemnitor under
this Section 7 with respect to losses arising from claims of any
third party that are subject to the indemnification provided for in
this Section 7 ("Third Party Claims") shall be governed by and
contingent upon the following additional terms and conditions: if an
indemnitee shall receive notice of any third party claim, the
indemnitee shall give the indemnitor prompt notice of such third
party claim and the indemnitor may, at its option, assume and
control the defense of such third party claim at the indemnitor's
expense and through counsel of the indemnitor's choice reasonably
acceptable to indemnitee. In the event the indemnitor assumes the
defense against any such third party claim as provided above, the
indemnitee shall have the right to participate at its own expense in
the defense of such asserted liability, shall cooperate with the
indemnitor in such defense and will attempt to make available on a
reasonable basis to the indemnitor all witnesses, pertinent records,
materials and information in its possession or under its control
relating thereto as is reasonably required by the indemnitor. In the
event the indemnitor does not elect to conduct the defense against
any such third party claim, the indemnitor shall cooperate with the
indemnitee (and be entitled to participate at its own cost) in such
defense and attempt to make available to it on a reasonable basis
all such witnesses, records, materials and information in its
possession or under its control relating thereto as is reasonably
required by the indemnitee. The indemnitor understands that if such
third party claim results in an obligation to indemnify hereunder,
damages shall include all reasonable costs and expenses of such
defense. Except for the settlement of a third party claim that
involves payment of money only and for which the indemnitee is
totally indemnified by the indemnitor, no third party claim may be
settled without the written consent of the indemnitee, which consent
shall not be unreasonably withheld.

9
<PAGE>

(d) EFFECT OF INSURANCE PROCEEDS. The amount which an indemnitee
shall be entitled to receive from an indemnitor with respect to a loss
under this Section 7 shall be net of any insurance recovery by the
indemnitee on account of such loss from an unaffiliated party and the
indemnitor shall be subrogated to the rights of the indemnitee with
respect to any such loss.

(e) PAYMENT OF CLAIMS. Payment of any amounts due pursuant to this
Section 7 shall be made within 30 days after notice is sent by the
indemnitee or as determined upon resolution of a dispute pursuant to
paragraph (c) above.

8. NOTICES. All notices, requests, consents and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to be duly given if delivered personally or by registered or certified
mail (notices mailed shall be deemed to have been given on the date received),
as follows (or to such other address as any party shall designate by notice in
writing to the others in accordance herewith):

To the Seller:

Mr. Tom J. Fatjo, Jr.
TransAmerican Waste Industries, Inc.
314 North Post Oak Lane
Houston, Texas 77024

To the Purchaser:

The Inland Group, L.L.C.
2218 Atkinson Drive, Suite A
Lufkin, Texas 75901
ATTENTION: Lynwood T. Moore

9. ENTIRE AGREEMENT. This Agreement (including the Exhibits and Schedules)
contains the entire agreement among the parties with respect to the sale of the
Stock and related transactions and supersedes all prior arrangements or
understandings, written or oral, with respect thereto.

10. AMENDMENTS. Any term or condition of this Agreement may be amended or
modified in whole or in part at any time, to the extent authorized by applicable
law, by an

10
<PAGE>

agreement in writing, authorized and executed in the same manner as this
Agreement by the parties hereto.

11. WAIVERS. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any right, power of privilege hereunder, nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder.

12. REMEDIES. In addition to any other remedy available to Seller at law
or in equity (a) in the event the Purchaser breaches the payment provisions of
Sections 2(a) or 6(b) of this Agreement, the Seller shall have the exclusive
right to repurchase the Stock for a purchase price equal to the value of future
capital purchases and undistributed earnings as of the date such breach occurs
and to assume the operations of the Company upon payment to the Purchaser of
such amount; provided that the Seller shall have provided written notice of such
breach to the Purchaser and allowed the Purchaser five business days to cure
such breach, and provided further that if the parties cannot agree on the fair
value of such assets, the determination of fair value shall be subject to
arbitration in accordance with the terms of clauses (A)-(E) of Section 2(a)(ii)
hereof; and (b) in the event that the Company ceases to operate for a period of
30 consecutive days, the Seller shall have the exclusive right to repurchase the
Stock for $10.00 and to assume the operations of the Company upon payment to the
Purchaser of such amount. The rights and remedies herein provided are cumulative
and are not exclusive of any rights or remedies which any party may otherwise
have at law or in equity.

13. EXECUTION AND DELIVERY. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery of a counterpart
shall be deemed effective upon receipt by the other party of telefaxed signature
page to this Agreement, provided that such party shall nonetheless transmit its
original executed signature page to the other party.

14. EXHIBITS AND SCHEDULES. The Exhibits and Schedules and other documents
attached to or delivered herewith are hereby incorporated and made a part of
this Agreement as if set forth in full herein.

15. DRAFTING. No presumption shall operate in favor of or against any
party in the construction or interpretation of this Agreement as a consequence
of a party's responsibility for drafting this Agreement.

16. ATTORNEY AND PROFESSIONAL FEES. Each party will pay his, her or its
own attorney and professional fees in connection with this Agreement and
discussions leading to this Agreement.

11
<PAGE>

17. CONTROLLING LAW. The parties hereto agree that this Agreement shall be
governed and construed by the internal, substantive laws of the State of Texas
(without regard to that state's choice of law rules or doctrines) and, if
applicable, the substantive law (statutory, administrative or common law) of the
United States (without regard to its choice of law, rules or doctrines).

18. BINDING AGREEMENT. This Agreement shall be binding upon the heirs,
successors and assigns of the parties. The Purchaser shall not assign or
otherwise transfer its rights or obligations under this Agreement without the
prior written consent of the Seller.

19. INSURANCE. To the extent authorized by law and the current insurance
carrier, the Seller shall continue to maintain existing insurance coverage types
and policies for up to 60 days from the date of this Agreement as a normal
operating expense of the Company.

The parties have duly executed this Agreement as of the date first written
above.

TransAmerican Waste Industries, Inc.

By: _______________________________________
Name: _____________________________________
Title: ____________________________________

Inland Products, Inc.

By: _______________________________________
Name: _____________________________________
Title: ____________________________________

The Inland Group, L.L.C.

By: _______________________________________
Name: Lynwood T. Moore
Title: Member

<ARTICLE> 5
<MULTIPLIER> 1,000

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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,038
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<RECEIVABLES> 2,748
<ALLOWANCES> (203)
<INVENTORY> 0
<CURRENT-ASSETS> 7,522
<PP&E> 32,253
<DEPRECIATION> (5,668)
<TOTAL-ASSETS> 59,848
<CURRENT-LIABILITIES> 6,896
<BONDS> 38,843
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