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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ............. TO .............
COMMISSION FILE NUMBER: 0-19615
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.)
10554 TANNER ROAD, HOUSTON, TEXAS 77041
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
314 NORTH POST OAK LANE, HOUSTON, TEXAS 77024
(FORMER ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 956-1212
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
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COMMON STOCK, PAR VALUE $.001 PER SHARE
REDEEMABLE CLASS A WARRANTS
REDEEMABLE CLASS B WARRANTS
UNITS (CONSISTING OF TWO SHARES OF COMMON STOCK, ONE
REDEEMABLE CLASS A WARRANT AND ONE REDEEMABLE CLASS B WARRANT)
10% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003
UNITS (CONSISTING OF $1,000 PRINCIPAL AMOUNT OF 10%
CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 AND 40 SHARES OF
COMMON STOCK)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 25, 1995, 44,186,038 shares of the registrant's Common
Stock, par value $.001 per share, were outstanding. Non-affiliates of the
registrant owned 36,138,549 shares of Common Stock as of March 25, 1997, with an
aggregate market value of approximately $54,207,824 (based upon the March 25,
1997 closing sales price of the Common Stock as reported by the Nasdaq SmallCap
Market).
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated As To
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Proxy Statement for the 1997
Annual Meeting of Stockholders Part III, Items 10, 11, 12 and 13
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<PAGE>
FORM 10-K REPORT INDEX
10-K Part And Item No. Page No.
- ---------------------- --------
PART I
Item 1. Business............................................ 1
Item 2. Properties.......................................... 10
Item 3. Legal Proceedings................................... 10
Item 4. Submission of Matters to a Vote of Security Holders. 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................ 12
Item 6. Selected Financial Data............................. 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 14
Item 8. Financial Statements and Supplementary Data......... 21
Changes in and Disagreements with Accountants on
Item 9. Accounting and Financial Disclosure............ 50
PART III
Item 10. Directors and Executive Officers of the Registrant.. 50
Item 11. Executive Compensation.............................. 50
Item 12. Security Ownership of Certain Beneficial Owners and
Management..................................... 50
Item 13. Certain Relationships and Related Transactions...... 50
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................... 50
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
TransAmerican Waste Industries, Inc. (the "Company") is engaged in the
collection, processing and disposal of non-hazardous industrial and municipal
solid waste. The Company has expanded its operations by obtaining long-term
contracts to manage existing municipal landfills and through the acquisition of
existing businesses.
The Company currently owns or operates thirteen collection, processing
and disposal facilities, consisting of a municipal solid waste collection
operation, seven municipal solid waste landfills; three construction and
demolition landfills, a material recovery facility, and a solid waste transfer
station.
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 Company's strategy is to become a leader in the non-hazardous solid
waste industry in the southern region of the United States. The Company has
expanded its operations, and will continue to expand its operations, by
privatizing municipal landfills, acquiring other selected facilities and
collection operations, and increasing volume at its existing sites. Fiscal years
1994 and 1995 were transition years in which the Company redefined its focus and
concentrated on acquiring selective landfills and obtaining management contracts
for permitted disposal sites in the southern region of the United States,
primarily through the privatization of governmentally-owned facilities. In 1996,
the Company expanded its focus to include selective acquisitions of collection
operations and divesting of all non-solid waste operations. During 1996, the
Company transferred management and legal control of substantially all remaining
non-solid waste operations, consisting primarily of the oil recovery and
disposal operations, under the terms of contractual arrangements, in order to
address on-going operational difficulties and because such businesses are not
strategically aligned with the Company's core landfill and collection
operations. Market conditions and projections of the future relationship between
revenues and cost for such operations indicated that the Company would not
recover its investment in these operations. Accordingly, the Company recognized
a $6.5 million impairment loss during 1996. See further discussion in Note 5 of
the Notes to Consolidated Financial Statements.
The Company has experienced a growth in landfill disposal revenue as a
result of the operation of additional facilities. Although the Company will
continue to seek additional facilities, the Company is also aggressively
pursuing additional waste streams for its existing landfill and collection
operations. The Company's operating expenses increase primarily as a result of
adding landfills or other operating facilities. Increased volumes of waste at
the Company's existing landfills would not result in a proportionate increase in
the Company's operating expenses, and therefore, increased volumes of waste or
additional waste streams at competitive prices would have a positive material
effect on the Company's profitability. The Company believes it can increase
waste streams by providing the large national waste collection companies,
municipalities and other potential customers with the opportunity to dispose of
waste materials at a competitive price. During 1995, the Company entered into
several agreements substantially increasing the volume of waste at several of
its existing landfills. However, there can be no assurance that additional waste
streams will continue to be available.
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The Company is also seeking additional collection and disposal
operations that are strategically aligned with the Company's current landfill
operations or that provide the Company the opportunity to expand into new
markets. In January 1997, the Company acquired certain assets from Sanifill,
Inc. used in providing solid waste collection and disposal services to
approximately 100,000 residential and 4,000 commercial customers in the Houston,
Texas metropolitan area, a 20 acre construction and demolition landfill located
in Galveston County, Texas, two office, maintenance and parking facilities and
preferred pricing at two of USA Waste Services, Inc.'s landfills. The Company is
seeking additional residential and commercial accounts for the existing
collection operations and believes that the Company can increase operating
margins on the collection operations while handling the additional waste streams
by improved route management, increased asset utilization and other cost
reduction measures. There can be no assurance that additional residential and
commercial accounts will be available.
On March 14, 1997, the Supreme Court of Alabama issued an opinion
upholding one of the Company's permit modifications which granted the Company
the right to accept up to 1,500 tons per day of municipal solid waste at one of
the Company's landfills. This opinion reversed a lower court's imposed daily
limit of approximately 300 tons per day, which had been in effect since January
12, 1996. Additionally, the Company has obtained regulatory approval for several
of the Company's landfills to expand vertically, which allows these sites to
continue to dispose of waste in existing areas of the landfill rather than
developing and utilizing fully lined areas. This will result in the deferral of
certain capital expenditures while utilizing existing space which otherwise
would be lost.
In February 1996, the Company prospectively changed its fiscal year end
from August 31 to December 31. This Form 10-K includes financial and other
required information for the transition period for the four months ended
December 31, 1995.
The Company was incorporated in Delaware in August 1988. The Company's
Common Stock is listed on the NASDAQ SmallCap Market under the trading symbol
"WSTE." The Company's corporate office is located at 10554 Tanner Road, Houston,
Texas 77041, and its telephone number is (713) 956-1212.
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RECENT ACQUISITIONS AND MANAGEMENT CONTRACTS
The following table summarizes the Company's management contracts and
acquisitions completed during fiscal 1994 through March 25, 1997:
<TABLE>
<CAPTION>
Name of Type of Total Permitted
Date Business Type of Business Location Transaction Acres Acreage
- ------------ ---------------- ------------------ ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Municipal solid
waste ("MSW") 20-year
October Chastang and industrial Mobile, management
1993 Landfill waste landfill Alabama contract 467 80
25-year
April Sabine Parish Many, management
1994 Landfill MSW landfill Louisiana contract 107 71
10-year
April Sabine Parish Many, hauling
1994 Hauling (a) MSW collection Louisiana contract --- ---
May Chilton County Thorsby,
1994 Landfill MSW landfill Alabama Purchase 97 97
25-year
September LaSalle-Grant Jena, management
1994 Parish Landfill MSW landfill Louisiana contract 39 39
February Central Carriere,
1995 Landfill MSW landfill Mississippi Purchase 20 20
2-year
management
contract
Construction and with
April Mobile C&D demolition Mobile, purchase
1995 Landfill ("C&D") landfill Alabama option 142 25
Transfer
station,
materials
recovery
June TransWaste, facility and Alexandria,
1995 Inc. hauling operation Louisiana Purchase 20 20
20-year
July Union County Knoxville, management
1995 Landfill MSW landfill Tennessee contract 90 55
20-year
April Haleyville MSW and Haleyville, management
1996 Landfill C&D landfill Alabama contract 265 192
North
January County Dickinson,
1997 Landfill C&D landfill Texas Purchase 20 20
Residential and
commercial
January Sanifill collection Houston,
1997 Hauling operation Texas Purchase --- ---
</TABLE>
(a) This operation was subcontracted to another party in April 1996, as
further discussed in Note 3 of the Notes to Consolidated Financial
Statements.
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Additional information regarding the consideration and terms of the
transactions completed by the Company during 1996 and through March 25,1997 are
included in Note 3 of the Notes to Consolidated Financial Statements included
herein. The following briefly describes acquisitions since December 31, 1995:
SANIFILL, INC. In January 1997, the Company acquired certain solid waste
collection and disposal assets and operations of Sanifill, Inc. ("Sanifill")
located in the Houston, Texas area (the "Sanifill Assets"). Total consideration
paid for the acquired assets was $13.6 million in cash and warrants to purchase
1,500,000 shares of common stock at an exercise price of $1.50 per share. In
connection with the acquisition of Sanifill by USA Waste Services, Inc. ("USA
Waste") in 1996, the United States Department of Justice ordered the divestiture
of the Sanifill Assets, and pursuant to the order, the Company submitted a bid
which was ultimately accepted. The Sanifill Assets consist of assets used in
connection with the servicing of approximately 100,000 residential and 4,000
commercial waste collection and disposal customers in the Houston, Texas
metropolitan area, a 20-acre construction and demolition landfill located in
Galveston County, Texas, two office, maintenance and parking facilities and
preferred pricing at two of USA Waste's landfills. The preferred pricing
agreement gives the Company the option to dispose of two million tons of MSW,
limited to 270,000 tons per year, at USA Waste's landfills at favorable prices,
which in no event shall be less favorable than the most favorable terms provided
to USA Waste's other customers. The Company moved its corporate headquarters to
one of the acquired buildings. The purchase of the Sanifill Assets was financed
through several financing transactions as described in "Recent Financings."
CENTRAL LANDFILL. The Company completed the acquisition of the Central
Landfill in May 1996. Since March 1995, the Company had been providing
construction and improvement capital as well as landfill development expertise
under an interim agreement. The consideration paid for the acquisition included
$50,000 in cash, 333,333 shares of restricted common stock and contingent
consideration valued at $1.7 million, subject to obtaining certain targets and
an expansion permit.
HALEYVILLE LANDFILL. In April 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 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 site includes an active 11 acre construction and demolition landfill.
Before municipal solid waste can be accepted at the site, the Company will be
required to construct new cells complying with Subtitle D of the Resource
Conservation and Recovery Act. The Company has financed the acquisition and
development of this project with Solid Waste Revenue Bonds. See Note 3 of Notes
to Consolidated Financial Statements included herein for information regarding
the consideration and terms of this acquisition and the associated financing.
The Company will seek to arrange for waste disposal contracts to provide the
volume of waste required to support its anticipated level of operations at this
facility. There can be no assurances that such contracts will be obtained.
From time to time the Company enters into negotiations and letters of
intent for other potential acquisitions. Such letters are generally intended to
be non-binding and are subject to many contingencies, which may include
completion of satisfactory due diligence, negotiation of definitive agreements,
and approval of the Company's Board of Directors. The Company will continue to
pursue the acquisition of attractive disposal facilities and collection
operations.
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<PAGE>
RECENT FINANCINGS
The Company's strategy of growing through acquisitions and development
of existing landfill and collection operations requires the Company from time to
time to obtain additional financing in the form of debt or equity. During 1996,
the Company raised $8,945,000 of Solid Waste Revenue Bonds to fund the
acquisition and development of the Haleyville landfill, issued a promissory note
for $1,500,000 for general corporate purposes and borrowed $700,000 of bridge
financing to fund the initial deposits on the purchase price for the Sanifill
Assets.
In January 1997, the Company completed the acquisition of the Sanifill
Assets, and funded the $13.6 million cash purchase price with a $8.5 million
bank facility and $6.8 million private placement of the Company's common stock.
In the private placement, the Company issued 11,250,000 shares of common stock
at $.60 per share. The Company is obligated to file a registration statement
covering the resale of the common stock issued in the private placement with the
Securities and Exchange Commission and in such states as the holders may elect,
within four months of the closing of the acquisition of the Sanifill Assets and
make such registration effective within seven months. If the registration is not
effective within seven months of the closing, subject to certain other
conditions and exceptions, it will result in a substantial penalty to the
Company. Additionally, in connection with the transactions, the Company issued
warrants to purchase two million and one million shares of the Company's common
stock with exercise prices of $1.00 and $1.25 per share, respectively, to a
newly elected board member who guaranteed the bank facility and warrants to
purchase 1,125,000 shares of the Company's common stock at $.66 per share to a
placement agent. The warrants are subject to certain anti-dilution provisions.
In January 1997, the Company received a bank loan in the amount of
$500,000 bearing interest at 9% per annum to be repaid based upon a five-year
amortization schedule. The loan is secured by the shares of the Company's common
stock granted pursuant to the TransAmerican Waste Industries, Inc. 1997 Stock
Participation Plan and is guaranteed personally by the Chairman of the Board of
the Company.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Notes to Consolidated Financial Statements for
further information regarding these financings.
OPERATIONS
The Company's operations involve primarily the collection, processing
and disposal of non-hazardous industrial and municipal solid waste. Its
facilities generally operate six days per week, 52 weeks per year.
COLLECTION OPERATIONS. In January 1997, the Company completed the
acquisition of the Sanifill Assets which included commercial and residential
collection operations in the Houston, Texas metropolitan area. These operations
serve approximately 100,000 residential and 4,000 commercial customer accounts,
with 78 trucks and approximately 5,800 containers. See further discussion of the
acquisition of the Sanifill Assets in Note 13 of the Notes to Consolidated
Financial Statements. The Company's commercial and residential collection
operations in Chilton County, Alabama and Sabine Parish, Louisiana were sold and
subcontracted, respectively, in November 1995 and April 1996, respectively. The
Chilton County and Sabine Parish operations had been utilized to initially
support the waste streams to the associated landfills. See discussion of these
transactions in Note 3 of the Notes to Consolidated Financial Statements. The
Company expects to acquire additional collection operations in the future.
5
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MUNICIPAL SOLID WASTE DISPOSAL. The Company operates seven municipal
solid waste landfills aggregating approximately 543 permitted acres. The
landfills accept waste from municipalities, private waste collection companies
and the general public. Certain of these landfills are permitted to accept
non-hazardous industrial and special waste.
CONSTRUCTION AND DEMOLITION WASTE DISPOSAL. The Company operates three
construction and demolition landfills with approximately 56 permitted acres. The
landfills accept waste from municipalities, private waste collection companies
and the general public. Construction and demolition landfills are permitted to
accept dry construction and demolition debris including bricks, metal, boards
and similar material as well as certain types of industrial waste.
SOLID WASTE TRANSFER STATION. The Company purchased a transfer station
and material recovery facility located in Alexandria, Louisiana in June 1995.
Waste is received at this facility from collection vehicles, the recyclable
materials are sorted and sold and the remaining material is compacted into
trailers for transportation primarily to the Company's landfills. Transfer
stations reduce the cost of transportation from collection points to landfills
by improving the utilization of collection personnel and equipment.
CUSTOMERS
WMX Technologies, Inc. ("WMX") and Browning Ferris Industries, Inc.
("BFI") accounted for approximately 23% and 14% of consolidated revenue for the
year ended December 31, 1996, respectively. These revenues represent an
accumulation of revenues generated from geographically dispersed affiliates and
subsidiaries of WMX and BFI at various Company facilities.
EMPLOYEES
On March 25, 1997 the Company employed approximately 375 full-time and
part-time employees. None of the Company's employees is covered by a collective
bargaining agreement. The Company believes that its relations with its employees
are good.
COMPETITION
The non-hazardous waste industry is highly competitive and requires
substantial capital and human resources. The Company competes for landfill
business on the basis of tipping fees, geographical locations and quality of
operations. The Company also competes to acquire facilities, enter into
management contracts and obtain financial resources. Leading competitors for
collection and disposal services and acquisition opportunities include WMX, BFI,
USA Waste and Allied Waste Industries, Inc., and numerous other national,
regional and local companies of varying sizes and competitive resources, many of
which have significantly greater resources than the Company. The Company also
competes with those counties and municipalities that maintain their own waste
collection or disposal operations. These counties and municipalities may have
financial advantages through their access to tax revenues and their ability to
mandate the disposal of waste collected within the jurisdiction at the municipal
facility.
The non-hazardous waste management industry is undergoing significant
consolidation. The Company has encountered, and will in the future encounter,
substantial competition in its efforts to acquire or enter into management
contracts for landfills, transfer stations and collection operations.
LIABILITY INSURANCE AND BONDING
The business of the Company exposes it to various risks, including
claims for damage to property, injuries to persons, negligence and professional
errors or omissions in the planning or performing of its services and providing
of its products, which claims could be substantial. The Company
6
<PAGE>
maintains $2,000,000 of general liability insurance and an additional $5,000,000
of excess umbrella liability coverage on all of its operations. The Company also
maintains directors' and officers' liability insurance coverage in the amount of
$2,000,000 per claim and in the aggregate. Under the Company's insurance
policies there are various exclusions, which the Company believes to be
customary in the industry. Accordingly, there can be no assurance that
liabilities which may be incurred by the Company will be covered by its
insurance or that the dollar amount of such liabilities which are covered by its
insurance will not exceed the Company's policy limits. Furthermore, prior to
June 1990, the Company did not have insurance coverage for certain
pollution-related activities with respect to its former environmental
engineering and consulting services. A partially or completely uninsured claim,
if successful, could have a material adverse effect on the Company's financial
condition and results of operations.
The Company does not carry insurance coverage for environmental
liability related to its waste disposal operations. The Company believes it
would be unable to obtain, at a reasonable premium, insurance coverage for
environmental liability covering sudden or gradual onset of environmental
damage. In the event uninsured losses occur, the Company's financial condition
and results of operations could be materially and adversely affected.
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 obtained a $20 million performance bond
line-of-credit. This commitment is subject to a review of each contract to be
bonded and certain other conditions. In certain cases, the Company will be
required to provide cash deposits.
ENVIRONMENTAL REGULATION
The Company is subject to extensive and evolving environmental laws and
regulations. These regulations are administered by the Environmental Protection
Agency (the "EPA") and various other federal, state and local environmental,
zoning, health and safety agencies, many of which periodically examine the
Company's operations to monitor compliance with such laws and regulations. The
Company believes there will be continued change in regulation and legislation
related to the waste management industry, and the Company attempts to anticipate
such future regulatory requirements to ensure compliance.
The Company's operation of landfills and other collection and processing
facilities subjects it to operational, monitoring, site maintenance, closure and
post-closure obligations which could give rise to increased costs for monitoring
and corrective measures. Governmental authorities have the power to enforce
compliance with these regulations and to obtain injunctions or impose civil or
criminal penalties in case of violations. During the ordinary course of its
operations, the Company has from time to time received citations and notices
from such authorities that operations are not in compliance with applicable
environmental regulations. Upon receipt of such citations or notices, the
Company works with the authorities to resolve the issues raised by such
citations or notices. Failure to correct the problems to the satisfaction of the
authorities could lead to curtailed operations or closure of a facility. None of
the Company's facilities has been subjected to significant fines nor have any
been closed, temporarily or permanently, by regulatory authorities. In
connection with the Company's acquisition of existing landfills, it may also be
necessary to expend considerable time, effort and money to renew and maintain
existing permits and to obtain permits required to increase the capacity of
these landfills.
The Company's operations are subject to regulation, principally under
the following federal statutes, along with analogous state statutes:
7
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THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 ("RCRA"). RCRA
regulates the handling, treatment, storage, transportation and disposal of
certain hazardous and nonhazardous wastes. The EPA's regulations under Subtitle
D of RCRA generally became effective on October 9, 1993 and affect both existing
and new municipal solid waste facilities. Subtitle D codifies minimum criteria
for the location, operation and design of municipal solid waste facilities, as
well as establishing standards for groundwater monitoring, landfill gas
monitoring, corrective actions, closure and post-closure monitoring and
financial assurance to ensure funding necessary to complete closure,
post-closure monitoring and, if necessary, corrective actions at these
facilities. Subtitle D allows states, with EPA approval, to implement and
enforce the regulations; otherwise the EPA will be responsible for issuing
permits and providing enforcement. In connection with the permitting process, a
landfill may be required to demonstrate that it will satisfy various other
requirements, including those relating to the protection of endangered species.
Regulated landfills that do not meet the requirements of the Subtitle D
regulations may be required to close. Many landfills reportedly have closed in
recent years because they were unable to meet those regulatory requirements. All
of the Company's planned landfill expansions or new landfill development
projects are being engineered to meet or exceed regulatory requirements.
THE FEDERAL WATER POLLUTION CONTROL ACT OF 1972 ("CLEAN WATER ACT"). The
Clean Water Act established rules regulating the discharge of pollutants into
waters of the United States from a variety of sources, potentially including
waste disposal sites. For example, if leachate, stormwater run-off, or other
wastewater from the Company's disposal facilities may be discharged into surface
waters, the Clean Water Act would, in many instances, require the Company to
obtain discharge permits, conduct periodic sampling and monitoring and, under
certain circumstances, reduce the quantity of pollutants in those discharges.
Furthermore, regulations promulgated by the EPA under the Clean Water Act impose
standards on the disposal of sewage sludge in certain circumstances, including
disposal by placing sludge on a surface disposal site. The Company does not
believe that compliance with such regulations will materially impact the
Company's wastewater sludge treatment facility which ceased accepting waste in
September 1994. In addition, if development may alter or affect "wetlands," the
Company may be required to obtain a permit before such development may be
commenced. This requirement is likely to affect the construction or expansion of
many solid waste disposal sites, including some being developed by the Company.
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF
1980 ("SUPERFUND" OR "CERCLA"). CERCLA addresses problems created by the release
or threatened release of hazardous substances into the environment. CERCLA can
impose retroactive, strict, joint and several liability on the present or former
owners or operators of facilities that release hazardous substances into the
environment. Waste generators and transporters also can be strictly liable.
These persons may be liable for site investigation costs, site cleanup costs and
natural resource damages, even if the original conduct giving rise to liability
was in compliance with all then-existing laws and regulations. The costs of a
CERCLA cleanup can be substantial. Liability under CERCLA is not dependent upon
the existence or disposal of "hazardous wastes" and many of the sites on the EPA
National Priorities List of Superfund sites are municipal solid waste disposal
facilities. There can be no assurance that the Company will not face claims
resulting in liability under CERCLA. The Company has grown, and expects to
continue to grow, in part by acquiring existing disposal businesses operated in
the past by others. The Company conducts due diligence (including Phase I
surveys) with respect to disposal facilities that it acquires or contracts to
manage to determine whether such contain or have handled hazardous substances.
There can be no assurance that the Company is effective at detection or will
prove effective or that the facility will not have other unknown environmental
problems and related liabilities. The Company will be subject to similar risks
and uncertainties in connection with the acquisition of any closed disposal
facilities or discontinued lines of business which had been operated by
businesses acquired by the Company. Virtually all of the states have Superfund
programs similar to CERCLA that give rise to many of the obligations and
liability concerns discussed above.
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THE CLEAN AIR ACT. The Clean Air Act provides for federal, state and
local regulation of emissions of air pollutants into the atmosphere. On May 30,
1991, the EPA proposed "new source performance standards" and "emission
guidelines" for municipal solid waste disposal facilities. If promulgated, these
regulations would impose limits on air emissions from municipal solid waste
disposal facilities. The new source performance standards would apply to all
municipal solid waste disposal facilities that commence construction after the
date of the proposed regulations. The emission guidelines are a set of
provisions that are to be adopted by the states and would apply to all municipal
solid waste disposal facilities that received waste after November 8, 1987.
These guidelines, combined with new programs established under the recent Clean
Air Act amendments, will likely subject solid waste disposal facilities to new
reporting and operational requirements and, in some instances, require
installation of methane gas recovery systems.
OTHER STATE AND LOCAL REGULATION. States in which the Company operates
have laws and regulations governing waste disposal and water and air pollution
and, in most cases, regulations governing the design, operation, maintenance and
closure of waste management facilities. Subtitle D allows states to implement
their own regulatory programs if those programs meet federal standards. The full
effect of this may not be apparent for years as states establish their own
regulatory schemes.
In addition to costly and restrictive regulation, there are a number of
other factors, the long-term effects of which are unpredictable, which could
result in higher disposal facility operating costs and possible decreased demand
for disposal facilities. These factors include not only the increasing public
opposition to the siting and operation of disposal facilities, but also
increased efforts (including legislation) to reduce the volume of waste and the
dependence on landfilling for disposal by promoting waste minimization,
incineration, composting and recycling. Several states have enacted laws that
will require counties to adopt comprehensive plans to reduce, through waste
planning, composting and recycling or other programs, the volume of solid waste
deposited in landfills within the next few years. A number of states have taken
or propose to take steps to ban the landfilling of certain wastes, such as yard
wastes, beverage containers, newspapers, unshredded tires, lead-acid batteries
and household appliances.
LEGISLATIVE INITIATIVES. The continuing public awareness and interest in
solid waste disposal, the siting of waste facilities, and the protection of the
environment frequently lead to federal, state and local legislative initiatives
that could affect the Company's operations. The prospects for any legislative
proposal are inherently uncertain, and the Company cannot accurately predict how
its business may be affected by the adoption of new laws.
In recent years, some states and localities have instituted waste "flow
control" requirements, under which specified solid waste collected in a
jurisdiction is required to be delivered to a governmentally-designated
facility. In response to some of those enactments, the United States Supreme
Court and several lower federal courts have ruled that certain flow control
ordinances violated the Interstate Commerce Clause of the U.S. Constitution. The
U.S. Constitution grants the Congress the power to authorize certain otherwise
unconstitutional state and local actions affecting interstate commerce, and
Congress has been considering legislation that would exempt some or all flow
control requirements from Constitutional invalidity.
Some states have also adopted or considered legislation to ban, restrict
or impose special taxes on waste imported from outside the state. The U.S.
Supreme Court has struck down some such measures as unconstitutional
discrimination against interstate commerce, as have several lower federal
courts. In response to these court decisions, bills have been introduced in
Congress in the past several years to enable states to ban, restrict or
differentially tax out-of-state waste.
9
<PAGE>
The Company currently cannot predict whether Congress will pass
legislation permitting flow control or restrictions on the interstate movement
of waste, or the content of any such bills that may ultimately become law.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located at 10554 Tanner Road,
Houston, Texas 77041. The operating equipment, which is owned or leased,
primarily consists of waste collection vehicles and containers, compactors,
excavators, scrapers, backhoes, and miscellaneous other equipment and support
vehicles used in connection with its collection and landfill operations. Certain
of the property and equipment of the Company are subject to liens securing
payment of portions of the Company's indebtedness. See Notes 7 and 11 of Notes
to Consolidated Financial Statements included herein for information with
respect to debt and lease obligations on these properties. Additional
information regarding properties owned and operated by the Company is included
in "Business - Operations" included herein.
ITEM 3. LEGAL PROCEEDINGS
McGinnes Industrial Maintenance Corporation ("MIMC"), a wholly owned
subsidiary of the Company, has been named as one of 17 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, 13 industrial companies located along or near the Houston Ship
Channel, two subdivisions and one engineering firm. The suit alleges personal
injury and property damages resulting from alleged releases of hazardous and
toxic substances from the Company's 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,
have agreed on 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 this action.
In June 1995, certain citizens of Chilton County, Alabama filed a
complaint against the Chilton County 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. While
the Circuit Court of Chilton County, Alabama upheld the transfer of the landfill
to the Company, it overturned the approval of certain permit modifications that
increased the allowable daily volume and expanded the permissible service area
of the facility. During 1996, the Company was permitted to continue to operate
under a daily volume limit. On March 14, 1997, the Supreme Court of Alabama
issued an opinion on the merits and reversed the plaintiffs summary judgment and
upheld the permit modifications including the volume increase. As a result, the
landfill is now permitted to accept up to 1,500 tons per day of solid waste from
an eighteen county service area.
10
<PAGE>
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1996.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, Class A Warrants and Class B Warrants were
traded on the Nasdaq National Market until January 26, 1995 and since January
27, 1995, on the Nasdaq SmallCap Market. The Company's 10% Convertible
Subordinated Debentures due 2003 ("Debentures") are quoted on the Nasdaq
SmallCap Market. The following table sets forth, for the periods indicated, the
high and low closing sales prices of the common stock, Class A Warrants and
Class B Warrants from September 1, 1994 through January 26, 1995 as reported by
the Nasdaq National Market and the high and low bid prices of such securities on
and after January 27, 1995 as reported on the Nasdaq SmallCap Market. Bid prices
represent prices between dealers, do not include retail markups, markdowns or
commissions and do not necessarily reflect actual transactions.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK WARRANTS WARRANTS
---------------- ---------------- ----------------
HIGH LOW HIGH LOW HIGH LOW
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED AUGUST 31, 1994
Quarter ended November 30, 1993............. 6 4 1/4 3 5/8 2 7/8 2 1 1/4
Quarter ended February 28, 1994............. 5 3 1/8 3 1/8 1 3/4 1 7/8 1 1/16
Quarter ended May 31, 1994.................. 3 3/4 2 9/16 2 1/4 1 1/16 1 1/2 1
Quarter ended August 31, 1994............... 2 3/4 1 5/8 1 1/8 1/2 1 1/8 1/4
YEAR ENDED AUGUST 31, 1995
1
Quarter ended November 30, 1994............. 1 5/16 13/16 3/4 1/2 7/16 1/4
Quarter ended February 28, 1995............. 1 3/8 7/16 11/16 7/16 5/16 1/4
Quarter ended May 31, 1995.................. 1 3/8 15/32 1/2 3/8 5/16 1/4
Quarter ended August 31, 1995............... 2 11/16 7/8 1 3/16 1/ 2 21/32 1/4
TRANSITION PERIOD ENDED DECEMBER 31, 1995
Four months ended December 31, 1995......... 1 3/4 1 3/32 1 3/16 5/8 21/32 3/8
YEAR ENDED DECEMBER 31, 1996
Quarter ended March 31, 1996................ 2 5/16 1 3/8 29/32 3/8 1/2 11/32
2 1
Quarter ended June 30, 1996................. 2 7/32 5/16 5/8 1/4 1/2 3/16
Quarter ended September 30, 1996............ 3 1/16 1 3/8 5/8 1/32 5/16 1/32
Quarter ended December 31, 1996............. 1 3/4 7/8 1/16 1/32 1/16 1/32
</TABLE>
The Company had approximately 375 owners of record as of March 25, 1997.
The Company currently believes there are approximately 3,500 beneficial holders
of Common Stock.
Since its inception, the Company has not paid any cash dividends on its
common stock. The Company intends to retain earnings to finance the operation
and expansion of the Company's business and, accordingly, does not plan for the
reasonably foreseeable future to pay cash dividends to holders of the common
stock. Any decisions as to the future payment of dividends will depend on the
earnings and financial position of the Company and such other factors as the
Company's Board of Directors deems relevant.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial information with respect to
the Company's balance sheets as of December 31, 1995 and 1996, and the Company's
statements of operations and cash flows for the years ended August 31, 1994 and
1995, four months ended December 31, 1995, and the year ended December 31, 1996,
has been derived from the financial statements of the Company appearing
elsewhere in this Form 10-K. This information should be read in conjunction with
such financial statements and the notes thereto. The Company prospectively
changed its fiscal year end from August 31 to December 31, therefore the four
month transition period ended December 31, 1995 has been presented. The selected
historical financial information with respect to the Company's balance sheets as
of August 31, 1992, 1993, 1994 and 1995, and the Company's statements of
operations and cash flows for the years ended August 31, 1992 and 1993, has been
derived from financial statements of the Company which are not included herein.
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations." (In thousands, except per share amounts):
<TABLE>
<CAPTION>
FOUR
MONTHS YEAR
ENDED ENDED
YEAR ENDED AUGUST 31, DECEMBER DECEMBER
------------------------------------------- 31, 31,
1992 1993 (1) 1994 (1) 1995 (1) 1995 (1) 1996
---------- ---------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOW DATA:
Net cash provided (used) by:
Operating activities......... $ 2,320 $ 620 $ (1,602) $ (514) $ 429 $ 1,977
Investing activities......... 985 (3,961) (7,245) (8,310) (3,030) (6,738)
Financing activities......... (1,341) 11,658 3,055 6,648 1,863 4,563
---------- ---------- --------- --------- ---------- ---------
Total..................... $ 1,964 $ 8,317 $ (5,792) $ (2,176) $ (738) $ (198)
========== ========== ========= ========= ========== =========
FOUR
MONTHS YEAR
ENDED ENDED
YEAR ENDED AUGUST 31, DECEMBER DECEMBER
------------------------------------------- 31, 31,
1992 1993 (1) 1994 (1) 1995 (1) 1995 (1) 1996
---------- ---------- ---------- ---------- ----------- ----------
INCOME STATEMENT DATA:
Revenue...................... $ 10,562 $ 8,775 $ 11,061 $ 7,350 $ 4,493 $ 16,022
Operating income (loss)...... 2,901 754 (10,217) (2,409) 123 2,421
Solid waste income (loss).... 2,731 262 (12,310) (6,746) (370) 838
Loss from oil recovery and
disposal operations........ --- (246) (944) (701) (112) (7,705)
Net income (loss)............ 2,035 8 (11,747) (6,939) (528) (6,917)
Earnings (loss) per common )
and common equivalent share .18 --- (.75) (.34) (.02) (.23
Weighted average common and
common equivalent shares
outstanding................ 11,063 15,030 15,574 20,507 29,580 30,281
Dividends per share......... --- --- --- --- --- ---
AUGUST 31, DECEMBER 31,
------------------------------------------- ---------------------
1992 1993 (1) 1994 (1) 1995 (1) 1995 (1) 1996
---------- ---------- ---------- ---------- --------- ----------
BALANCE SHEET DATA:
Working capital.............. $ 404 $ 7,699 $ 593 $ 769 $ 471 $ 140
Restricted cash, net......... --- --- 10,361 6,153 8,931 13,400
Property and equipment, net.. 2,314 1,683 8,505 18,499 20,927 27,052
Total assets................. 8,966 29,370 38,601 41,938 46,071 52,674
Long-term debt, less current
portion.................... 848 10,978 28,152 24,425 29,603 38,107
Stockholders' equity......... 4,728 12,561 1,415 7,879 7,433 1,636
</TABLE>
(1) Information as of and for the periods ended August 31, 1993, 1994 and 1995,
and December 31, 1995 have been restated to show the oil recovery and
disposal operations as an investment due to the September 1996 transfer of
such operations under contractual arrangements. See Note 5 of the Notes to
Consolidated Financial Statements.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
TransAmerican Waste Industries, Inc. (the "Company") is engaged in the
collection, processing and disposal of non-hazardous 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.
In January 1997, the Company acquired certain solid waste collection and
disposal assets and operations of Sanifill which provide service to
approximately 100,000 residential and 4,000 commercial customers in the Houston,
Texas area. Total consideration paid for the acquired assets was $13.6 million
in cash and warrants to purchase 1,500,000 shares of common stock at $1.50 per
share. In connection with the acquisition of Sanifill by USA Waste in 1996, the
United States Department of Justice ordered the divestiture of the Sanifill
Assets, and pursuant to the order, the Company submitted a bid which was
ultimately accepted. The acquisition of the Sanifill Assets should initially
have the impact of approximately doubling the Company's revenues and providing
the Company with entrance into the Houston, Texas metropolitan market and the
collection business. However, none of the financial statements or financial
information set forth herein reflect the impact of the acquisition of the
Sanifill Assets.
In February 1996, the Company changed its fiscal year end from August 31
to December 31. Item 8. of this Annual Report includes audited financial
statements for the four month transition period ended December 31, 1995.
Unaudited income statement information for the year ended December 31, 1995 is
included for comparative purposes in Note 2 of the Notes to Consolidated
Financial Statements contained herein.
In September 1996, the Company transferred the stock of its oil recovery
and disposal operation subsidiaries and relinquished management and legal
control over these operations. Accordingly, the financial statements for all
periods presented have been restated to treat the oil recovery and disposal
operations as an investment.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31,
1996
Revenue increased 65% from $9.7 million during 1995 to $16.0 million
during 1996. This increase was due to the increase in landfill revenues
resulting from the acquisition of management contracts and businesses during
1995 and 1996 and increased waste streams at the existing facilities. Although
there can be no assurance, the Company anticipates that revenue will continue to
increase as the Company continues to implement its strategy of obtaining
additional volumes at existing sites, acquiring collection operations and
obtaining additional disposal facilities.
Cost of services increased from $ 5.7 million to $8.7 million for the
years ended December 31, 1995 and 1996, respectively, primarily due to the
recently acquired management contracts and businesses. As a percentage of
revenue, cost of services decreased from 59% in 1995 to 54% in 1996 as operating
costs are generally fixed in nature and do not increase proportionately with an
increase in revenue.
General and administrative costs were $3.3 million and $3.2 million for
the years ended December 31, 1995 and 1996, respectively.
14
<PAGE>
Interest expense, net of capitalized interest, was $2.2 million for 1995
and 1996. During 1996, additional interest due to the issuance of Solid Waste
Revenue Bonds was offset by capitalized interest on landfill improvements.
In September 1996, the Company transferred the stock of its oil recovery
and disposal operation subsidiaries. In consideration for the transfers, the
Company will receive a percentage of all cash flows generated by the operations.
In connection with the transactions, the Company relinquished its management and
legal control over the operations of the oil recovery and disposal operations.
The losses of $509,000 and $7.7 million for 1995 and 1996, respectively,
represent the losses from these operations and 1996 includes the recognition of
a $6.5 million impairment loss. The Company recognized the impairment loss as
current market conditions and future projections of the relationship of revenues
and expenses for these operations indicated that the Company would not recover
its investment through the undiscounted cash flows from future operations. See
Note 5 of Notes to Consolidated Financial Statements included herein for
information regarding the terms of the transfer and further discussion of the
impairment loss.
In April 1996, the Company recognized a gain of $437,000 on the sale of
certain assets used in the collection and transportation of municipal solid
waste. In connection with the sale of the collection and transportation assets,
the Company subcontracted its obligations under a residential collection
contract. Additionally, the Company sold a portion of the available airspace at
a Company-managed landfill, including transfer service from a Company-owned
transfer station. Revenues for the sale of the airspace will be recognized as
the airspace is utilized. See further discussion in Note 3 of the Notes to
Consolidated Financial Statements.
During 1995, the Company recognized a gain of $236,000 on the sale of
certain assets used in the collection and transportation of municipal solid
waste, as further described in Note 3 of the Notes to Consolidated Financial
Statements.
In December 1996, the Company, in a privately negotiated transaction,
exchanged 202,500 shares of common stock for $450,000 principal face amount of
its issued and outstanding Debentures and 13,500 shares of common stock for the
accrued interest thereon through December 13, 1996.
Management is focusing on improving the overall profitability of the
Company by increasing volumes at existing sites, and by acquiring or managing
additional waste disposal facilities and collection operations. As the Company
continues to grow and expand its operations, management will continue to monitor
costs and implement the necessary cost control measures.
YEAR ENDED AUGUST 31, 1994 ("FISCAL 1994") COMPARED TO YEAR ENDED AUGUST
31, 1995 ("FISCAL 1995")
Revenue decreased 33% from $11.1 million to $7.4 million from fiscal
1994 to fiscal 1995. This decrease was primarily due to the expiration of the
contract at the Company's wastewater sludge treatment facility during the first
quarter of fiscal 1995 ($6.6 million) and the decision by the Company to
discontinue providing engineering and consulting services ($1.1 million). These
decreases were partially offset by additional revenue due to the acquisition of
management contracts and businesses in fiscal 1994 and fiscal 1995.
Cost of services decreased from $8.5 million to $4.6 million from fiscal
1994 to fiscal 1995. As a percent of revenues, these costs decreased from 77% in
fiscal 1994 to 62% in fiscal 1995. These costs
15
<PAGE>
were higher in fiscal 1994 due to the operations of the Company's former
engineering ($2.1 million) and wastewater sludge treatment ($3.8 million)
businesses.
Depreciation and amortization expense decreased from $2.7 million to
$1.0 million from year to year, primarily due to permitting costs related to the
Company's wastewater sludge treatment facility being amortized by the completion
of the contract in September 1994 ($2.1 million), partially offset by an
increase due to the recent acquisitions.
General and administrative expenses decreased from $4.1 million to $3.5
million from fiscal 1994 to fiscal 1995 due to the cost reduction measures
implemented by the Company. Several of these measures were implemented during
the year and, therefore, the reductions are not fully reflected in the fiscal
1995 results.
Cost of completed acquisitions for the years ended August 31, 1994 and
1995 consists of acquisition fees earned by a former executive officer of the
Company pursuant to an employment agreement as described in Note 12 of the Notes
to Consolidated Financial Statements included herein. The former executive
officer was paid a finders fee for introducing and negotiating acquisitions or
long-term management contracts which were completed by the Company. Such amounts
were expensed during the period in which the transaction was completed. The
employment agreement with the former executive officer has now been terminated.
As described in Note 7 of the Notes to Consolidated Financial
Statements, in March 1995, the Company exchanged $8.3 million face amount of its
10% Convertible Subordinated Debentures for shares of Common Stock (the
"Exchange"). On the date of the Exchange, the value of the common stock
exchanged for the Debentures exceeded the value of Common Stock issuable under
the original conversion terms by $1.6 million resulting in a non-cash charge on
the date of the Exchange. Although the Company incurred a one-time non-cash
charge in fiscal 1995 as a result of the Exchange, the Company will avoid
incurring approximately $825,000 per year in interest expense. In August 1995,
in a separate transaction, the Company exchanged common stock for $1,199,000 of
Debentures, further reducing interest expense by $120,000 per year.
The Company had an investment in McGinnes Bros., Inc. ("MBI"), which
provided landfill construction services to the Company pursuant to a
construction contract. Due to the death of MBI's principal executive officer in
March 1995, MBI became unable to obtain additional third party construction
contracts. As a result, MBI's shareholders agreed to complete MBI's existing
construction contracts and then liquidate its assets. Upon liquidation of MBI,
the Company received certain assets valued at $360,000 and recognized a net loss
on its investment of $563,000.
16
<PAGE>
RECENT FINANCINGS
<TABLE>
<CAPTION>
Total Consideration Type and Number of Securities
Date Transaction Received Issued
---- ----------- -------- ------
<S> <C> <C> <C>
$7,945,000 Tax-Exempt Solid
Waste Revenue Bonds
April $1,000,000 Taxable Solid
1996 Long-Term Financing $8,945,000 Waste Revenue Bonds
Promissory Note for
$1,500,000 and warrants to
August purchase 275,000 shares of
1996 Short-Term Financing $1,500,000 common stock
Bridge Loan for $700,000
and warrants to purchase
December 300,000 shares of common
1996 Short-Term Financing $700,000 stock
Retired $450,000 face amount 216,000 shares of common
December 1996 Exchange Agreement of Debentures plus interest stock
January 11,250,000 shares of common
1997 Private Placement $6,750,000 stock
$1,000,000 short-term
promissory note
January $7,500,000 long-term
1997 Bank Facility $8,500,000 promissory note
January Stock Participation 833,333 shares of common
1997 Plan $500,000 stock
</TABLE>
LONG-TERM FINANCING. In April 1996, the Company financed the acquisition
and development of the Haleyville Landfill with $7,945,000 Tax-Exempt Solid
Waste Revenue Bonds and $1,000,000 Taxable Solid Waste Revenue Bonds. The
proceeds will be used for the initial purchase, construction of new cells,
purchase of equipment, bonding for closure and post-closure obligation, the
establishment of debt service and capitalized interest funds, and debt issuance
and other costs, depending upon the approval of certain possible permit
applications for vertical expansion and entry into waste disposal contracts.
SHORT-TERM FINANCING. In August 1996, the Company borrowed $1,500,000
("August Note") from an investment partnership ("Investment Partnership") under
the terms of a promissory note. The August Note bore interest at 12%. The
proceeds were used for general corporate purposes. The August Note was exchanged
in January 1997 for a 12% convertible promissory note. In connection with the
issuance of the promissory note, the Company issued warrants to purchase 275,000
shares of common stock ("August Warrants").
In December 1996, the Company borrowed $700,000 from the Investment
Partnership under an agreement in principle ("December Note"). The proceeds were
used towards the initial deposit required by the definitive purchase agreement
for the acquisition of the Sanifill Assets. In connection with the December
Note, the Company issued warrants to purchase 300,000 shares of common stock
("December
17
<PAGE>
Warrants"), extended the maturity date of the August Note and
adjusted the exercise price of the August Warrants. The December Note was repaid
in January 1997.
EXCHANGE AGREEMENT. In December 1996, the Company, in a privately
negotiated transaction, exchanged 202,500 shares of common stock for $450,000
principal face amount of its issued and outstanding Debentures and 13,500 shares
of common stock for the accrued interest thereon through December 13, 1996.
PRIVATE PLACEMENT OF EQUITY SECURITIES. In January 1997, the Company
raised $6,750,000 in equity financing by issuing 11,250,000 shares of its common
stock in a private placement. The proceeds of the private placement, together
with the proceeds of the bank facility discussed below, were used to fund the
purchase price of the Sanifill Assets and repay the December Note discussed
above. In connection with the transaction, the Company exchanged the August Note
for a $1.5 million convertible promissory note and adjusted the exercise price
of 575,000 warrants issued to the Investment Partnership consisting of the
August Warrants and December Warrants. Additionally, the Company issued warrants
to purchase 1,125,000 shares of the Company's common stock for $.66 per share,
subject to certain anti-dilution provisions, to a placement agent.
BANK FACILITY. In January 1997, the Company issued promissory notes to a
financial institution totaling $8.5 million. The proceeds from issuing the
promissory notes, together with the proceeds of the private placement of equity
securities discussed above, were used to fund the purchase price of the Sanifill
Assets and repay the December Note discussed above. The Bank Facility is
composed of a $7.5 million promissory note bearing interest at the prime rate
plus 1% to be repaid based upon a five year amortization schedule and having a
final maturity of February 15, 1999, and a $1 million revolving line of credit
at prime plus 1% having a final maturity of February 15, 1998. The Bank Facility
is subject to certain financial and other covenants and restrictions. The Bank
Facility is secured by a security interest in certain assets of the Company,
including the Sanifill Assets and is guaranteed by the Company, the Company's
Chairman, and an individual member of the board of directors (the "Board
Member"). As consideration for the Board Member's guarantee, the Company issued
the Board Member warrants, having a term of five years, to purchase two million
and one million shares of common stock at $1.00 and $1.25 per share,
respectively, subject to certain anti-dilution provisions.
STOCK PARTICIPATION PLAN. In January 1997, the Company received a bank
loan in the amount of $500,000 bearing interest at 9% per annum to be repaid
based upon a five-year amortization schedule. The loan is secured by the shares
of the Company's common stock to be granted pursuant to the TransAmerican Waste
Industries, Inc. 1997 Stock Participation Plan and is guaranteed personally by
the Chairman of the Board of the Company.
See further discussion of the recent financings and the related
acquisition of the Sanifill Assets in the Notes to Consolidated Financial
Statements, included herein.
LIQUIDITY AND CAPITAL RESOURCES
The Company has been expanding its operations primarily by focusing on
the privatization of municipal landfills, either by acquisition or long-term
landfill management contract, and the acquisition of selective collection
operations. The Company's landfill privatization program has in the past, and
will require in the future, a significant investment of cash for the
acquisition, upgrade and expansion of the sites and start-up of operations under
the Company's management, and debt service on existing indebtedness. Completion
of the Company's debt and equity financings over the past three years has
enabled the Company to fund this corporate development and to favorably position
the Company's future operations.
18
<PAGE>
In January 1997, the Company acquired the Sanifill Assets for, among
other consideration, $13.6 million in cash. As discussed above in "Recent
Financings," the acquisition was financed through a $6.8 million (approximately
$6.1 million, net of placement agent's commission and offering expenses) private
placement of the Company's common stock and a $8.5 million Bank Facility.
As the Company intends to continue to expand its operations by obtaining
additional landfill management contracts and acquiring additional businesses in
the future, the Company expects 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 financing strategy has
included the use of equity and 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.
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 would substantially enhance the
Company's results and cash flow as a substantial amount of the landfill
operating costs are fixed in nature and will, therefore, not increase
proportionately as volumes and revenue increase.
The Company's significant cash requirements during the year ended
December 31, 1996 were $ 5.3 million for capital expenditures and improvements,
$ 2.1 million for debt repayments and $1.6 million for possible acquisitions.
These requirements were funded with cash on hand and held in trust, cash
generated from existing operations, and debt financing. The Company's cash
balance was $1.3 million at December 31, 1996 and $1.5 million at December 31,
1995.
The Company estimates that it may make up to $7.0 million in capital
expenditures through 1997 primarily for landfill expansion and improvements and
equipment purchases. The Company has approximately $2.0 million in restricted
cash from previous financings that is designated for the 1997 capital
expenditures. The Company intends to fund the balance of capital expenditures
out of cash flow from operations, working capital and additional long-term
financing. If additional financing should not be available, the Company would
restrict its capital expenditures to an amount available for such purposes.
The Company expects that the operating results of certain of the
Company's landfills will be positively impacted in 1997 by regulatory approval
of vertical expansion that has been obtained, which allows these sites to
continue to dispose of waste in existing 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.
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 11 of the Notes
to 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 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 certain other conditions. In certain cases,
the Company will be required to provide cash deposits.
19
<PAGE>
FINANCIAL CONDITION AT DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
The increase in current and long-term restricted cash from $9.7 million
to $14.3 million from December 31, 1995 to December 31, 1996 is primarily due to
$8.9 million of Solid Waste Revenue Bonds issued in connection with the
acquisition of the Haleyville Landfill, offset by the Haleyville Landfill
purchase price of $1.5 million and development of certain of the Company's other
landfill sites.
Property and equipment increased from $20.9 million to $27.1 million
from December 31, 1995 to December 31, 1996, primarily due to the acquisition of
the Central and Haleyville landfills in addition to capital expenditures for
cell development and equipment purchases.
The decrease in assets transferred under contractual arrangements from
$7.5 million at December 31, 1995 to $283,000 at December 31, 1996 is due to
continued losses and the recognition of a $6.5 million impairment loss. As more
fully discussed in Note 5 of the Notes to Consolidated Financial Statements, the
Company transferred its stock in the oil recovery and disposal subsidiaries in
September 1996. In connection with this transfer, the Company relinquished
management and legal control of the operations. Market conditions and the
projections of the future relationship between the revenues and cost of these
operations, indicate that the Company will not recover the carrying value of
their investment through the future cash flows of the businesses. Accordingly,
the Company recognized the impairment loss in 1996.
Other assets, net increased from $1.1 million at December 31, 1995 to
$2.9 million at December 31, 1996 primarily due to the promissory notes received
in connection 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 3 of the Notes to
Consolidated Financial Statements.
Aggregate current and long-term debt increased from $31.0 million at
December 31, 1995 to $41.2 million at December 31, 1996 primarily due to the
issuance of $8.9 million of Solid Waste Revenue Bonds issued in connection with
the Haleyville Landfill acquisition, the $1.5 million August Note and the
$700,000 December Note issued in connection with the acquisition of the Sanifill
Assets.
The aggregate current and long-term reserve for closure and post-closure
costs of $4.3 million at December 31, 1996 represents the accrued portion of the
total estimated cost of $6.0 million for final closure and post-closure
monitoring of the Company owned or managed facilities.
PRIVATE SECURITIES LITIGATION REFORM ACT DISCLOSURE
Certain forward-looking information contained in this report is being provided
in reliance upon the "safe harbor" provision of the Private Securities
Litigation Reform Act of 1995, as set forth in Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange of 1934, as
amended. Such information includes, without limitation, discussions as to
estimates, expectations, beliefs, plans and objectives concerning the Company's
future financial and operating performance. Such forward-looking information is
subject to assumptions and beliefs based on current information known to the
Company and factors that are subject to uncertainties, risks and other
influences, which are outside the Company's control, and could yield actual
results differing materially from those anticipated.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TransAmerican Waste Industries, Inc.:
We have audited the accompanying consolidated balance sheets of
TransAmerican Waste Industries, Inc. (a Delaware corporation) and subsidiaries
as of December 31, 1995 and 1996 , and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended August 31,
1994 and 1995, the four months ended December 31, 1995, and the year ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of TransAmerican Waste
Industries, Inc. and subsidiaries as of December 31, 1995 and 1996, and their
results of operations and their cash flows for the years ended August 31, 1994
and 1995, the four months ended December 31, 1995, and the year ended December
31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 27, 1997
21
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
December 31,
--------------------
ASSETS 1995 1996
-------- --------
CURRENT ASSETS
Cash and cash equivalents ........................... $ 1,532 $ 1,334
Restricted cash ..................................... 783 879
Accounts receivable, less allowance for doubtful
accounts of $143 and $316, respectively ........... 2,271 3,381
Other current assets ................................ 904 1,019
-------- --------
TOTAL CURRENT ASSETS ............................. 5,490 6,613
Restricted cash ........................................ 8,931 13,400
Property and equipment, net of accumulated depreciation 20,927 27,052
Deferred financing costs, net of accumulated
amortization of $403 and $634, respectively .......... 2,101 2,453
Net assets transferred under contractual arrangements .. 7,520 283
Other assets, net ...................................... 1,102 2,873
-------- --------
TOTAL ASSETS ..................................... $ 46,071 $ 52,674
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ..................................... $ 1,229 $ 1,447
Accrued liabilities and other ........................ 2,057 1,746
Current portion of promissory notes to Investment
Partnership .......................................... -- 1,338
Current portion of long-term debt .................... 1,426 1,731
Reserve for closure and post-closure costs ........... 307 211
-------- --------
TOTAL CURRENT LIABILITIES ........................ 5,019 6,473
Promissory notes to Investment Partnership, less current
portion .............................................. -- 693
Long-term debt, less current portion ................... 29,603 37,414
Reserve for closure and post-closure costs, less current
portion ................................................ 3,569 4,114
Other liabilities ...................................... 447 2,344
-------- --------
TOTAL LIABILITIES ................................ 38,638 51,038
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value; 100,000,000 shares
authorized; 29,649,124 and 30,694,041 shares issued
and outstanding, respectively ....................... 30 31
Additional paid-in capital ........................... 24,999 25,799
Warrants ............................................. 75 394
Retained earnings (deficit) .......................... (17,671) (24,588)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ....................... 7,433 1,636
======== ========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $ 46,071 $ 52,674
======== ========
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOUR
MONTHS YEAR
ENDED ENDED
YEAR ENDED AUGUST 31, DECEMBER DECEMBER
-------------------- 31, 31,
1994 1995 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue ...................................... $ 11,061 $ 7,350 $ 4,493 $ 16,022
Expenses:
Cost of services .......................... 8,534 4,553 2,485 8,699
Depreciation and amortization ............. 2,673 1,014 517 1,632
General and administrative ................ 4,102 3,509 1,103 3,220
Cost of completed acquisitions ............ 615 450 -- --
Cost of terminated acquisitions and
contracts ................................. 5,354 233 265 50
-------- -------- -------- --------
Operating income (loss) ................. (10,217) (2,409) 123 2,421
-------- -------- -------- --------
Other income (expense):
Interest expense, net ..................... (2,149) (2,371) (691) (2,155)
Gain on sale of assets .................... -- -- 236 437
Exchange offer charge ..................... -- (1,644) -- --
Loss on investment in affiliate ........... -- (563) -- --
Other income (expense), net ............... 56 241 (38) 135
-------- -------- -------- --------
Total other expense ..................... (2,093) (4,337) (493) (1,583)
-------- -------- -------- --------
Solid waste income (loss) .................... (12,310) (6,746) (370) 838
Loss from oil recovery and disposal operations (944) (701) (112) (7,705)
-------- -------- -------- --------
Loss before income taxes ................ (13,254) (7,447) (482) (6,867)
Provision (benefit) for income taxes ......... (1,507) (508) 46 50
-------- -------- -------- --------
Net loss ................................ $(11,747) $ (6,939) $ (528) $ (6,917)
======== ======== ======== ========
Loss per common share ........................ $ (.75) $ (.34) $ (.02) $ (.23)
======== ======== ======== ========
Weighted average common shares outstanding ... 15,574 20,507 29,580 30,281
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
----------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL WARRANTS (DEFICIT) TOTAL
-------- ------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE-AUGUST 31, 1993....... 15,450 $ 15 $ 11,003 $ --- $ 1,543 $ 12,561
Net loss...................... --- --- --- --- (11,747) (11,747)
Issuance of common stock for
over-allotment exercise of
unit offering............... 81 1 399 --- --- 400
Conversion of units........... 17 --- 69 --- --- 69
Other issuances of common stock 63 --- 132 --- --- 132
------- ------- ----------- --------- ------------ ------------
BALANCE-AUGUST 31, 1994....... 15,611 16 11,603 --- (10,204) 1,415
Net loss...................... --- --- --- --- (6,939) (6,939)
Issuance of common stock in
private placement........... 5,000 5 2,395 --- --- 2,400
Issuance of common stock in
exchange for debentures..... 5,416 5 8,469 --- --- 8,474
Issuance of common stock in
conversion of short-term
notes and valuation of
related warrants............ 2,117 2 1,494 --- --- 1,496
Issuance of common stock for
acquired business........... 1,000 1 1,006 --- --- 1,007
Other issuances of common stock 193 --- 26 --- --- 26
------- ------- ----------- --------- ------------ ------------
BALANCE-AUGUST 31, 1995....... 29,337 29 24,993 --- (17,143) 7,879
Net loss...................... --- --- --- --- (528) (528)
Warrants issued in conjunction
with short-term financing... --- --- --- 75 --- 75
Issuance of common stock under
stock option plan........... 2 --- 1 --- --- 1
Issuance of common stock for
exercise of warrants........ 310 1 5 --- --- 6
------- ------- ----------- --------- ------------ ------------
BALANCE-DECEMBER 31, 1995..... 29,649 30 24,999 75 (17,671) 7,433
Net loss...................... --- --- --- --- (6,917) (6,917)
Issuance of common stock under
stock option plan........... 496 --- 233 --- --- 233
Issuance of common stock for
purchased business.......... 333 1 324 --- --- 325
Issuance of common stock in
exchange for debentures..... 216 --- 243 --- --- 243
Warrants earned in connection
with development agreement.. --- --- --- 55 --- 55
Warrants issued in conjunction
with short-term financing... --- --- --- 264 --- 264
------- ------- ----------- --------- ------------ ------------
BALANCE-DECEMBER 31, 1996..... 30,694 $ 31 $ 25,799 $ 394 $ (24,588) $ 1,636
======= ======= =========== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR
MONTHS
ENDED YEAR ENDED
YEAR ENDED AUGUST 31, DECEMBER DECEMBER
------------------------ 31, 31,
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................ $ (11,747) $ (6,939) $ (528) $ (6,917)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation and amortization........ 2,673 1,014 517 1,632
Amortization of debt discount and
deferred financing costs............ 322 329 137 590
Deferred income taxes................ (1,847) --- --- ---
Provision for closure and
post-closure costs................... 1,310 359 45 114
Cost of completed acquisitions....... 615 450 --- ---
Cost of terminated acquisitions and
contracts............................ 5,354 233 265 50
Exchange offer charge................ --- 1,644 --- ---
Loss from oil recovery and disposal . 798 733 176 7,705
Loss on investment in affiliate...... --- 563 --- ---
Gain on sale of assets............... --- --- (236) (437)
Changes in assets and liabilities, net
of effects of acquisitions:
Accounts receivable....... (767) (444) (72) (284)
Other current assets................. 233 183 130 (115)
Accounts payable and accrued
liabilities............ 1,107 1,107 (191) 79
Other, net........................... 347 254 186 (440)
----------- ----------- ----------- -----------
Net cash provided (used) by operating
activities........................... (1,602) (514) 429 1,977
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of acquisitions and completed
management contracts................... (472) (1,975) (19) (824)
Deferred permitting costs............... (75) --- (161) ---
Costs incurred on possible acquisitions. (1,609) (425) (61) (1,608)
Purchases of property and equipment..... (3,667) (6,083) (2,619) (5,265)
Proceeds from sale of equipment and
contracts............................... 8 680 --- 959
Payments to oil recovery and disposal... (1,336) (457) (118) ---
Other................................... (94) (50) (52) ---
----------- ----------- ----------- -----------
Net cash used by investing activities.. (7,245) (8,310) (3,030) (6,738)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt and warrants......... 17,154 4,285 5,621 11,579
Payments of debt........................ (2,332) (1,107) (1,095) (2,101)
Proceeds from issuances of common stock. 48 2,519 --- 311
Stock issuance and registration costs... (123) (298) --- (78)
Deferred financing costs................ (1,331) (472) (391) (583)
Use (increase) of restricted cash....... (10,361) 1,721 (2,272) (4,565)
----------- ----------- ----------- -----------
Net cash provided by financing
activities............................. 3,055 6,648 1,863 4,563
----------- ----------- ----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS..... (5,792) (2,176) (738) (198)
CASH AND CASH EQUIVALENTS:
Beginning of period................. 10,238 4,446 2,270 1,532
----------- ----------- ----------- -----------
End of period....................... $ 4,446 $ 2,270 $ 1,532 $ 1,334
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND
TransAmerican Waste Industries, Inc. and subsidiaries (the "Company"), a
Delaware corporation, is engaged in the collection, processing and disposal of
non-hazardous 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's operations are primarily located in Alabama, Louisiana,
Mississippi, Tennessee, and Texas. The Company's customer base includes
residential, commercial and industrial waste generators, local municipalities,
and other waste companies. The Company's emphasis on solid waste operations
began during fiscal 1994. Concurrently, the Company shut-down certain other
operations, due to declining revenues and profitability.
Key operating results for the Company's solid waste operations
(excluding transaction and termination cost of $5,969,000, $683,000, $265,000
and $50,000 for the years ended August 31, 1994 and 1995, the four months ended
December 31, 1995, and the year ended December 31, 1996, respectively, and such
items as general and administrative expense and interest expense) are as follows
(in thousands):
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
YEAR ENDED AUGUST 31, DECEMBER DECEMBER
------------------------- 31, 31,
1994 1995 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue.......................... $ 2,948 $ 6,982 $ 4,493 $ 16,022
Cost of services................. (2,017) (4,151) (2,447) (8,914)
Depreciation and amortization.... (483) (839) (501) (1,570)
============ ============ ============ ============
$ 448 $ 1,992 $ 1,545 $ 5,538
============ ============ ============ ============
</TABLE>
During 1996, the Company transferred management and legal control of its
oil recovery and disposal operations, under the terms of contractual
arrangements, in order to address on-going operational difficulties and because
such businesses are not strategically aligned with the Company's core landfill
and collection operations. See further discussion in Note 5.
The Company has a geographic concentration in the southeastern United
States and a concentration in the solid waste industry. The solid waste industry
is subject to federal, state and local laws and regulations. The Company's
operations may be impacted by changes in laws and regulations and by economic or
other conditions affecting the Company's customer base.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and profits have been
eliminated.
CHANGE IN FISCAL YEAR. In February 1996, the Company changed its fiscal
year end from August 31 to December 31. The accompanying financial statements
include audited consolidated financial statements for the fiscal years ended
August 31, 1994 and 1995 ("fiscal 1994", and "fiscal 1995", respectively), the
four month transition period ended December 31, 1995, and the year ended
December 31, 1996. Unaudited income statement information for the year ended
December 31, 1995 is presented below for comparative purposes only (in
thousands):
26
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31,
---------------------
1995 1996
------- --------
(unaudited)
Revenue ............................................. $ 9,676 $ 16,022
Expenses:
Cost of services .................................. 5,713 8,699
Depreciation and amortization ..................... 1,198 1,632
General and administrative ........................ 3,305 3,220
Cost of completed acquisitions .................... 300 --
Cost of terminated acquisitions and contracts ..... 498 50
------- --------
Operating income (loss) .......................... (1,338) 2,421
------- --------
Other income (expense):
Interest expense, net ............................. (2,156) (2,155)
Gain on sale of assets ............................ 236 437
Exchange offer charge ............................. (1,644) --
Loss on investment in affiliate ................... (563) --
Other income (expense), net ....................... 123 135
------- --------
Total other income (expense) ..................... (4,004) (1,583)
------- --------
Solid waste income (loss) ........................... (5,342) 838
Loss from oil recovery and disposal operations ...... (509) (7,705)
------- --------
Loss before income taxes ......................... (5,851) (6,867)
Provision (benefit) for income taxes ................ (462) 50
------- --------
Net loss ......................................... $(5,389) $ (6,917)
======= ========
Loss per common share ............................ $ (.21) $ (.23)
======= ========
REVENUE RECOGNITION. The Company recognizes revenue upon the receipt and
acceptance of non-hazardous industrial and municipal waste at its landfills.
Direct costs associated with these operations are expensed as incurred.
PROPERTY AND EQUIPMENT. Property and equipment is recorded at cost.
Capitalized landfill costs, which include direct costs incurred to obtain
landfill permits and management contracts and to improve the sites, are being
amortized based upon the utilization of available airspace, subject to the
limitation of the useful life of the permits or the contract period as
applicable. Interest cost related to construction projects and direct and
incremental project related construction overhead is capitalized as a component
of construction costs. Interest capitalized during fiscal years 1994 and 1995,
the four months ended December 31, 1995, and the year ended December 31, 1996
was $157,000, $411,000, $167,000 and $806,000, respectively. Expenditures for
major additions and improvements are capitalized and maintenance and repairs are
charged to expense as incurred. When property is retired or disposed of, the
related cost and accumulated depreciation are removed from the accounts, and any
resulting gain or loss is reflected in income.
For financial reporting purposes, the Company calculates depreciation
using primarily the straight-line method. Estimated useful lives are as follows:
Estimated
Lives (In
Years)
--------------
Landfill and transfer facilities (see above)
Vehicles and equipment......... 5 - 10
Buildings...................... 15
Furniture and fixtures......... 3
27
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. When the estimated undiscounted future cash flows are less
than the carrying value of an asset, an impairment loss is recognized. The
impairment loss is measured as the amount by which the carrying amount exceeds
the fair value of the asset (assets to be held and used) or fair value less cost
to sell (assets to be disposed of). The fair value is typically calculated by
discounting the asset's expected future cash flow. See Note 5 for discussion of
the impairment loss in 1996.
FINANCIAL INSTRUMENTS. The recorded value of cash and cash equivalents
and trade receivables and payables approximate fair value due to the relatively
short period to maturity of these instruments. Similarly, the fair value of the
Company's notes payable are estimated to approximate current value due to the
relatively short period to maturity and interest rate characteristics. The fair
value of the Solid Waste Revenue Bonds, Certificates of Participation,
Convertible Subordinated Debentures cannot be readily determined, as these
instruments are not actively traded on the open market. The Company has been
informed that the Convertible Subordinated Debentures are currently trading at a
discount, however the actual amount of the discount cannot be determined because
of the limited activity. Based on the interest rates for recent financings
completed by the Company with similar maturities, the Company believes that the
fair value of the Solid Waste Revenue Bonds and Certificates of Participation
approximates, or is a nominal discount to, the recorded value. The Company does
not presently intend to repurchase any of these instruments prior to maturity.
In the normal course of business, the Company has letters of credit and
performance bonds which are not reflected on the consolidated balance sheet. The
Company has estimated that the fair value of such instruments is nominal or the
Company does not expect to be required to perform under the various agreements.
COST INCURRED ON POSSIBLE ACQUISITIONS. Costs incurred on possible
acquisitions are capitalized as incurred and consist primarily of third party
accounting, legal and other consulting fees incurred in the negotiation and due
diligence process. Upon consummation of an acquisition accounted for as a
purchase, deferred costs are capitalized as part of the purchase price.
Capitalized costs are reviewed for realization on a periodic basis, and costs
that management believes relate to transactions which will not be consummated
are charged to expense. At December 31, 1995 and 1996, costs incurred on
possible acquisitions included in other assets were $211,000 and $1,110,000,
respectively. Cost of terminated acquisitions and contracts was $5.4 million,
$233,000, $265,000 and $50,000 for the years ended August 31, 1994 and 1995, the
four months ended December 31, 1995, and the year ended December 31, 1996,
respectively. Fiscal 1994, includes $4.1 million for the terminated Crossridge
acquisition (see Note 3) and $1.3 million for other possible acquisitions and
contracts which were terminated during the period.
COST OF COMPLETED ACQUISITIONS. During the years ended August 31, 1994
and 1995, pursuant to an employment agreement which has now been terminated as
described in Note 12, a former executive officer of the Company was paid
finder's fees of $615,000 and $450,000, respectively. Such amounts were expensed
during the period in which the transactions were closed.
DEFERRED FINANCING COSTS. Deferred financing costs consist of third
party charges incurred in connection with various financings (see Note 7). These
costs are being amortized over the life of the applicable instrument using the
effective interest rate method.
RESERVE FOR CLOSURE AND POST-CLOSURE COSTS. Reserve for closure and
post-closure costs includes costs to be incurred for final closure and
post-closure monitoring of existing facilities. The Company provides estimated
closure and post-closure reserves based on utilization of air space (see Note
11).
28
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES. The Company accounts for income taxes under the liability
method. Under the liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying values of existing assets and liabilities and
their respective tax basis based on enacted tax rates. The Company provides a
valuation allowance when, based on management's estimates, it is more likely
than not that a deferred tax asset will not be realized in future periods.
STOCK-BASED COMPENSATION. The Company accounts for employee stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations. Accordingly, the issuance by the Financial Accounting
Standards Board of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" in 1996 had no effect on the Company's
results of operations.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during that reported period. Actual results could differ from those estimates.
CONSOLIDATED STATEMENTS OF CASH FLOWS. For purposes of the consolidated
statement of cash flows, the Company considers highly liquid debt instruments
having an original maturity of three months or less at the date of purchase to
be cash equivalents. The effect of non-cash transactions related to the
acquisitions and management contracts, discussed in Note 3, and certain other
non-cash transactions are excluded from the statements of cash flows.
Supplemental disclosures of cash flow information are as follows (in thousands):
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
YEAR ENDED AUGUST 31, DECEMBER DECEMBER
----------------------- 31, 31,
1994 1995 1995 1996
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Interest paid , net of amounts capitalized $ 1,791 $ 1,791 $ 540 $ 2,146
Income taxes (paid) received, net......... (74) 508 --- ---
Property and equipment financed by direct
debt 890 1,593 924 382
Conversion of debt to equity.............. 69 9,163 --- 243
Common stock issued for acquisitions and
management contracts.................... --- 1,064 --- 325
Acquisitions financed by seller debt...... --- 1,117 --- 1,467
Warrants issued for services rendered..... --- --- --- 55
Common stock issued for services rendered. --- 118 --- ---
</TABLE>
RECLASSIFICATIONS. Certain reclassifications have been made to the prior
period financial statements to conform to the current year presentation.
3. BUSINESS COMBINATIONS AND MANAGEMENT CONTRACTS
COMPLETED ACQUISITIONS AND MANAGEMENT CONTRACTS
During 1994, 1995 and 1996, the Company completed the acquisitions and
management contracts described below, all of which have been accounted for under
the purchase method of accounting and have been included in the consolidated
financial statements from the commencement of operations or purchase date, as
applicable.
29
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
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 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 Haleyville 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 Haleyville 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 operation 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 Haleyville 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 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 to support the operations of the landfill, the proceeds
will also be used for the construction of new cells, purchase of equipment,
purchase of 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 from the Haleyville Landfill and, until certain criteria are
met, by the management fee income from another Company-managed landfill.
CENTRAL LANDFILL. In May 1996, the Company completed the acquisition of
the Central Landfill which consists of a 20-acre landfill in southern
Mississippi. 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 (valued at $325,000) and a royalty
of 5% of revenue. If certain targets are obtained and an expansion permit is
received, the Company will pay additional consideration valued at $1.7 million,
payable in cash and restricted common stock.
FISCAL YEAR 1995 AND THE FOUR MONTHS ENDED DECEMBER 31, 1995
LASALLE - GRANT PARISH, LOUISIANA LANDFILL MANAGEMENT CONTRACT. In
September 1994, the Company entered into a landfill management contract with the
LaSalle - Grant Parish Police Juries ("Police Juries") under which operations
commenced September 15, 1994. Pursuant to the management contract, the Company
will manage and operate the 39-acre landfill for a term of 25 years. During the
term of the contract, the Company is required to receive, process, dispose of
and otherwise handle certain solid waste generated within the parishes and
received at the landfill for disposal. The Company agreed to design, construct,
operate, manage and permit the expansion of the landfill at the sole cost of the
Company. The Company also provided a $1 million performance bond in favor of the
Police Juries and will pay an aggregate royalty to the Police Juries equal to 5%
of the landfill's gross disposal revenue. In
30
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
addition, the Company pays a royalty equal to 5% of the gross landfill disposal
revenue to a company which assisted in securing the contract. The Company also
assumed responsibility for closure and post-closure expenses and activities.
MOBILE CONSTRUCTION & DEMOLITION LANDFILL. In April 1995, the Company
entered into a two-year management contract with an option to purchase with H&S
Land, Inc., pursuant to which the Company will manage and operate a 142-acre
construction and demolition landfill located in Mobile, Alabama. In
consideration for the right to operate the landfill, the Company issued 100,000
shares of restricted common stock and agreed to pay a royalty equal to 10% of
gross revenue, with a guaranteed minimum monthly royalty of $4,000 during the
two-year period. The landfill is permitted to accept construction and demolition
debris as well as certain types of industrial waste. The Company has elected not
to exercise its option to purchase the landfill and will complete its obligation
under the management contract in April 1997.
TRANSWASTE, INC. In June 1995, the Company acquired a solid waste
transfer station, a materials recovery facility and its related hauling
operation located in Alexandria, Louisiana, for total consideration of
$3,649,000, consisting of $1,525,000 in cash, 1,000,000 shares of restricted
common stock and a $1,117,000 unsecured promissory note.
HANCOCK COUNTY LANDFILL MANAGEMENT CONTRACT. In June 1995, the Company
entered into a landfill management contract with the Hancock County, Mississippi
Solid Waste District ("District") pursuant to which the Company will manage and
operate the District's construction and demolition landfill and will construct
and manage a new municipal solid waste landfill for 20 years, subject to
approval by the State of Mississippi and certain other conditions being
satisfied. During 1996, the Company received a one year extension on the
management contract for the District's construction and demolition landfill. At
December 31, 1996, the Company and the District are continuing to pursue the
necessary regulatory approvals and other conditions for the municipal solid
waste landfill. However, there can be no assurances given that such regulatory
approvals or other conditions will be satisfied. The landfills are located near
Waveland, Mississippi. During the term of the contract, the Company is required
to receive, process, dispose of and otherwise handle non-industrial solid waste.
The District, Hancock County and its residents will be able to deliver waste to
the construction and demolition landfill without charge. The Company assumed all
closure and post-closure responsibilities associated with the landfill. The
Company will pay a royalty to the District of between 5% and 7% of gross
municipal solid waste landfill revenue, depending upon the location where the
waste is generated. The Company has guaranteed a minimum royalty of $10,000 per
month beginning the earlier of two years after the commencement of the contract
or the month after minimum specified volume targets have been achieved. In
addition, the Company also will pay a royalty equal to 5% of gross municipal
solid waste landfill revenue to a company affiliated with the landfills.
UNION COUNTY LANDFILL MANAGEMENT CONTRACT. In July 1995, the Company
entered into a landfill management contract with the Union County, Tennessee
Solid Waste Authority ("Authority"), pursuant to which the Company will manage
and operate the Authority's municipal solid waste landfill for 20 years. The
Company has agreed to design, construct and operate the future expansion of the
municipal solid waste landfill. The landfill is located near Knoxville,
Tennessee. During the term of the contract, the Company is required to receive,
dispose of and otherwise handle non-industrial waste. The Authority will pay the
Company a tipping fee for each ton of waste deposited at the landfill. The
Company assumed closure and post-closure responsibilities associated with the
landfill and reimbursed the Authority $285,000 for costs associated with the
landfill. The Company pays a royalty of 5% of gross revenue to the Authority and
provided a $250,000 performance bond in favor of the Authority.
31
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEAR 1994
MOBILE, ALABAMA SOLID WASTE MANAGEMENT CONTRACT. In October 1993, the
Company entered into a contract with the City of Mobile, Alabama ("City") Solid
Waste Authority ("Waste Authority") pursuant to which the Company will manage
the Waste Authority's landfill for the greater of 20 years or the life of the
landfill. The landfill is situated on a 467-acre site, of which 80 acres are
currently permitted and occupied by landfill operations. The Waste Authority
pays the Company a tipping fee for each ton of solid waste disposed in the
landfill. The Company pays a royalty to the Waste Authority which is equal to 5%
of gross landfill disposal revenue and provided a $3 million performance bond in
favor of the Waste Authority. The Company assumed responsibility for closure and
post-closure costs for the existing site. The Waste Authority retains title to
the landfill and maintains the permit in the Waste Authority's name. The City
and the Waste Authority have agreed to indemnify the Company against certain
liabilities relating to conditions that may have existed at the landfill prior
to commencement of the contract. The Company has the right to seek additional
sources of waste streams. The Company also agreed to design, construct and
operate an expansion of the landfill at its own expense. As discussed in Note 7,
in March 1994, debt of $15,675,000 was issued by an affiliate of the Company to
finance the upgrade and expansion of the facility. In addition, the Company
agreed to pay 5% of the landfill revenue to a company which represented the
Company during contract negotiations and which will provide ongoing
representation with regard to the operation and management of the landfill.
SABINE PARISH, LOUISIANA LANDFILL MANAGEMENT AND COLLECTION CONTRACTS.
In April 1994, the Company entered into a landfill management contract and a
collection contract with Sabine Parish, Louisiana Police Jury ("Parish") under
which operations commenced May 16, 1994. Pursuant to the management contract,
the Company will manage and operate the Sabine Parish landfill for a term of 25
years. The landfill is situated on a 107-acre site, of which 71 acres are
currently permitted and occupied by landfill operations. During the term of the
management contract, the Company is required to receive, process, dispose of and
otherwise handle certain solid and other non-hazardous wastes generated within
the 95-mile radius of the landfill and delivered at the landfill for disposal.
The Company assumed all closure and post-closure costs associated with the
landfill and agreed to design, construct, operate, manage and permit the
expansion of the landfill at the sole cost and expense of the Company. The
Company provided a $1,000,000 performance bond in favor of the Parish. The
Company pays a royalty to the Parish which is equal to 5% of the landfill's
gross disposal revenue. The Parish and residents of the Parish deliver waste to
the landfill without charge. The Company also pays a royalty equal to 5% of the
gross landfill disposal revenue to a company which assisted in securing the
contracts.
Pursuant to the collection contract, the Company is required to assume
and perform the Parish's solid waste collection and transportation operations
within the geographical area of the Parish for an initial term of 10 years. The
Company provided a $500,000 performance bond in favor of the Parish. As more
fully discussed below, in April 1996, the Company sold its hauling equipment and
subcontracted the Sabine Parish residential collection operations.
CHILTON COUNTY, ALABAMA SANITARY LANDFILL. In May 1994, the Company
acquired the Chilton County Sanitary Landfill for $100,000 cash and the
assumption of estimated closure and post-closure cost associated with the
existing site. The Chilton County Sanitary Landfill is situated on a 97-acre
site located in Thorsby, Alabama. The Company commenced operations of the
landfill on June 1, 1994. In addition, the Company will pay a royalty equal to
5% of the gross landfill disposal revenue to a company which assisted in
securing the acquisition.
32
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The incremental cost of businesses and management contracts acquired
during fiscal 1994 and 1995 and the year ended December 31, 1996 (no
acquisitions were completed during the four months ended December 31, 1995),
including internal costs that have been expensed is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED AUGUST 31, DECEMBER 31,
----------------------------- -------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Common Stock issued...................... $ --- $ 1,064 $ 325
Cash paid................................ 472 1,975 50
Debt issued.............................. --- 1,117 1,467
Liabilities assumed...................... 3,982 1,161 522
------------- ------------- -------------
Incremental cost of businesses acquired.. $ 4,454 $ 5,317 $ 2,364
============= ============= =============
</TABLE>
Revenue attributable to the facilities and management contracts acquired
during each year was $2,986,000, $1,655,000 and $2,174,000 for fiscal 1994,
fiscal 1995 and for the year ended December 31, 1996, respectively.
TERMINATED ACQUISITIONS
The Company evaluates possible candidates for acquisition, management,
merger, and exchange of interests as part of its overall strategy. However, a
transaction may not ultimately be consummated based on management review
following the negotiation or due diligence process or due to other factors
beyond management control. Significant terminated acquisitions since the
beginning of fiscal 1994 are described below.
WASTE INDUSTRIES, INC. In July 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.
PHOENIX ENVIRONMENTAL INVESTMENTS, INC. The Company entered into a
letter of intent in January 1995 with the shareholders (the "Phoenix
Shareholders") of Phoenix Environmental Investments, Inc., pursuant to which the
Company and the Phoenix Shareholders intended to form a new company. In May
1995, the Company and the Phoenix Shareholders mutually agreed to terminate the
letter of intent.
CROSSRIDGE. In August 1992, the Company paid $200,000 and entered into
an option agreement to acquire the rail-served Crossridge landfill located in
southeastern Ohio. In January 1993, the Company paid an additional $100,000 and
entered into a definitive agreement to acquire the landfill for $10 million cash
and a royalty of $6.25 per ton for the life of the landfill. The closing date
was extended on a monthly basis as long as the Company continued to pay
non-refundable $100,000 monthly cash advances which would be applied to the
purchase price. The closing was subject to certain conditions including
completion of the Company's due diligence, receipt of necessary consents and
permits, obtaining sufficient financing and certain other customary conditions.
The Company vigorously pursued the closing of this acquisition. However,
during 1993 and 1994, disposal fees in the northeastern United States declined,
and in August 1994, the Company received notice from the east-west rail line
that it would not enter into new agreements to transport waste by box car. These
factors significantly impaired the Company's profit and cash flow expectations,
requiring the Company to seek a revision in the terms of the transaction. In
October 1994, the Company discontinued paying the $100,000 monthly advance to
extend the closing date until new terms could be negotiated. Although
negotiations continued with the seller, a written amended agreement was not
obtained and
33
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
management believed that there was substantial uncertainty that the
transaction would be completed. Accordingly, during the fourth quarter of fiscal
1994, the Company expensed all previously deferred costs and advances related to
the Crossridge acquisition of approximately $4.1 million. Management is no
longer pursuing this transaction.
RESOURCES & ENVIRONMENTAL CONSULTING CORPORATION. During July 1992, the
Company obtained an option to acquire Resources & Environmental Consulting
Corporation ("RECC"), a Company controlled by a former executive officer of the
Company, for 27,777 restricted shares of common stock. The primary assets of
RECC were a letter of intent to acquire the assets of a solid waste transfer
station and recycling facility. During May 1994, RECC and the Company terminated
the acquisition of the transfer station and accordingly, expensed $572,000 of
costs specifically related to the acquisition and prior advances.
SALE OF ASSETS
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 through April 2004. The promissory note is
collateralized by certain assets of the purchaser. At December 31, 1996, the
note receivable of $410,000 was included in other assets in the accompanying
consolidated balance sheet.
The Company and the purchaser of the commercial collection operations
(the "Purchaser") entered into a subcontract for the residential collection
contract with the Parish. Under the terms of the subcontract, the Company will
retain all requirements specified in its contract with the Parish with regard to
performance bonds and insurance.
The Company 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 under the terms of
these agreements 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 December 31,
1996, notes receivable totaling $1,650,000 were included in other assets and the
related deferred revenue totaling $1,540,000 was recorded in other liabilities
in the accompanying consolidated balance sheet.
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 ending January 31, 1999.
SALE OF CHILTON COUNTY COLLECTION OPERATIONS. In November 1995, the
Company sold assets used in the collection and transportation of municipal solid
waste near its Chilton County landfill for $750,000 and recognized a gain of
approximately $236,000 during the four months ended December 31, 1995. Under the
terms of the sales agreement, the Company agreed not to compete with these
operations for a period of five years.
INVESTMENT IN MCGINNES BROS., INC. McGinnes Bros., Inc., an investment
being accounted for under the cost method was liquidated in August 1995. In the
liquidation, the Company received certain assets valued at $360,000 and
recognized a loss $563,000.
34
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
The major categories of property and equipment are as follows (in
thousands):
DECEMBER 31,
------------------------------
1995 1996
-------------- --------------
Landfill and transfer facilities... $ 16,915 $ 20,485
Vehicles and equipment............. 6,817 8,091
Land and buildings................. 1,494 1,551
Furniture and fixtures............. 339 484
-------------- --------------
25,565 30,611
Less: accumulated depreciation..... (4,638) (3,559)
============== ==============
$ 20,927 $ 27,052
============== ==============
5. ASSETS TRANSFERRED UNDER CONTRACTUAL ARRANGEMENTS
On September 30, 1996, the Company entered into two agreements to
transfer 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 business. Cash flow
for purposes of the calculation is subject to certain adjustments as specified
in the terms of the respective agreements. Additionally, under the terms of the
agreements, the Company has no future cash obligation to fund the operations of
the businesses. At December 31, 1996, the Company is the guarantor of
approximately $450,000 of Inland's term debt.
In connection with these transactions, the Company relinquished its
management and legal control 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 reclassified to conform to the current
presentation.
CRI and Inland derive substantially all of their revenue from the
processing and recovery of crude oil sludge and the disposal of non-hazardous
oilfield waste in Hobbs, New Mexico and Kilgore, Texas. The Company transferred
management and legal control of these businesses in order to address on-going
operational difficulties and because such businesses are not strategically
aligned with the Company's core landfill and collection operations. Due to
increased activity in the local oil industry, CRI and Inland experienced
moderate increases in revenues from increased volumes of oil products processed
and disposed of during the fourth quarter of 1996. However, the incremental cost
associated with the increased volumes resulted in continued losses. Market
conditions and projections of the future relationship between the revenues and
costs of the operations indicate that the Company will not recover the carrying
value of its investment in CRI and Inland through undiscounted future cash flows
of the businesses. Accordingly, the Company has recognized an impairment loss of
approximately $6.5 million which is included in loss from oil recovery and
disposal operations in the accompanying consolidated statement of operations for
the year ended December 31, 1996.
35
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarized financial data for the combined CRI and Inland
operations for the periods prior to the transfer of management and legal control
of operations does not include corporate allocations of overhead from the
Company and the results are not necessarily indicative of those that would be
achieved on a stand-alone basis (in thousands):
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
YEAR ENDED AUGUST 31, DECEMBER DECEMBER
----------------------- 31, 31,
1994 1995 1995 1996
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue....................... $3,213 $ 3,208 $ 1,530 $ 2,229 (1)
Operating loss................ (819) (573) (95) (7,676) (2)
Net loss...................... (944) (701) (112) (7,705)
Net cash provided (used) by
operating activities........ (146) 32 64 (287)
Net cash used by investing
activities.................... (986) (3) --- ---
</TABLE>
(1) Reflects revenue through the date of transfer of management and control
of operations, September 30, 1996. Revenue for the period October 1,
1996 to December 31, 1996, as reported by CRI and Inland, was
approximately $929,000 (unaudited).
(2) Reflects cost of operations through the date of transfer of management
and control of operations, September 30, 1996, impairment loss of $6.5
million and amortization of approximately $65,000 of the difference
between the Company's cost of the investment in the operations and the
net assets of CRI and Inland. Operating cost for the period October 1,
1996 to December 31, 1996, as reported by CRI and Inland, was
approximately $940,000 (unaudited).
6. SHORT-TERM BORROWINGS
In August 1996, the Company borrowed $1,500,000 from an investment
partnership (the "Investment Partnership") under the terms of a promissory note
(the "August Note"). The borrowings bore interest at 12%. The August Note was
exchanged, in January 1997, for a 12% convertible promissory note (see Note 13).
The August Note and subsequent 12% convertible promissory note are secured by
certain accounts receivable which results in a portion of the note being
classified as a current liability in the accompanying balance sheet. In
connection with the issuance of the August Note, the Company issued to the
Investment Partnership warrants to purchase 275,000 shares of common stock at an
exercise price of $2.16 per share (the "August Warrants"). The August Warrants
expire in August 1999. The proceeds of the borrowings were allocated between the
August Note and the August Warrants based on their relative fair values at date
of issuance with the resulting debt discount being amortized over the life of
the August Note.
In December 1996, the Company borrowed $700,000 from the Investment
Partnership ("December Note") to fund the initial deposit required by the
definitive agreement to purchase the Sanifill Assets executed in December 1996
(see Note 13). The December Note bore interest at 12%, was to mature on the
earlier of the next debt or equity offering or August 1997 and was convertible
into shares of common stock at $1.00 per share. The December Note was repaid in
January 1997 (see Note 13). In connection with the issuance of the December
Note, the Company issued warrants to purchase 300,000 shares of common stock at
$.75 per share (the "December Warrants"), repriced the August Warrants from
$2.16 per share to $1.00 per share and extended the maturity of the August Note.
The December Warrants expire in December 2001. The proceeds of the borrowings
were allocated between the December Note and the December Warrants based on
their relative fair values at the date of issuance with the resulting debt
discount being amortized over the life of the December Note. The fair values of
the August Note and August Warrants were adjusted to reflect their amended terms
with the additional debt discount being amortized over the remaining life of the
note.
36
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 1995, the Company obtained short-term financing from a limited
number of investors by issuing 12% convertible promissory notes in the aggregate
principal amount of $1,550,000 ("Notes") and warrants entitling the holders to
purchase an aggregate of 310,000 shares of the Company's common stock at $.01
per share. The proceeds of this financing were used to fund the acquisition of a
transfer station, materials recovery facility and related hauling operation.
Following the July 1995 issuance of the $2,500,000 Solid Waste Revenue Bonds
described in Note 7, the holders of the 12% convertible promissory notes, which
were payable upon the receipt of outside financing, converted their Notes into
2,066,667 shares of Common Stock pursuant to the original conversion terms and
converted the aggregate interest accrued thereon into an additional 29,628
shares of common stock. In addition, 20,615 shares of common stock and other
consideration were paid to a company to facilitate the conversion. In September
1995, 310,000 shares of common stock were issued pursuant to the exercise of
related warrants.
In October 1995, the Company obtained short-term financing from a single
investor by issuing a 12% convertible promissory note with the maximum aggregate
principal of $3,000,000 and warrants to purchase 375,200 shares of common stock
at $1.60 per share. The proceeds of this financing were used to fund various
development projects. The Company borrowed $823,000 under this promissory note.
The outstanding balances were repaid in connection with the completion of the
December 1995 offering of $5,000,000 Solid Waste Revenue Bonds described in Note
7 and the promissory note expired. The warrants were recorded at fair value at
the date of issuance and the resulting debt discount was charged to interest
expense when the debt was retired.
37
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- ------------
<S> <C> <C>
Solid Waste Revenue Bonds (i) Series 1996-A (tax-exempt) $7,945,000
before unamortized discount of $308,000, bearing interest at 8.5%
payable annually through April 2016 (ii) Series 1996-B (taxable)
$1,000,000 before unamortized discount of $80,000, bearing interest
at 11.5% payable annually through April 2001; secured by certain
pledged landfill revenues............................................ $ --- $ 8,557
Solid Waste Revenue Bonds (i) Series 1995-A (tax-exempt) $4,000,000
before unamortized discount of $160,000 and $154,000, respectively,
bearing interest at 8% payable annually through December 2015 (ii)
Series 1995-B (taxable) $1,000,000 and $935,000, respectively, before
unamortized discount of $42,000 and $36,000, respectively, bearing
interest at 10.75% payable annually through December 2004; secured by
certain landfill revenues............................................ 4,798 4,745
Solid Waste Revenue Bonds (i) Series 1995-A (tax-exempt) $2,000,000
before unamortized discount of $118,000 and $113,000, respectively,
bearing interest at 8.25% payable annually through July 2015 (ii)
Series 1995-B (taxable) $500,000 before unamortized discount of
$42,000 and $36,000 respectively, bearing interest at 12% payable
annually through July 2002; secured by a certain transfer station and
related equipment.................................................... 2,340 2,351
Nonrecourse Certificates of Participation (i) Series A (tax-exempt)
$15,240,000, before unamortized discount of $487,000 and $457,000,
respectively, bearing interest at 7.6% payable semi-annually, with
principal payments commencing October 1997 through 2013, (ii) Series B
(taxable), $435,000 in 1995 before unamortized discount of $3,000,
bearing interest at 9% payable semi-annually, retired October 1996, with
such principal funded for both Series A and B to a trust in
monthly installments................................................ 15,185 14,783
10% Convertible Subordinated Debentures, $6,458,000 and $6,008,000,
respectively, before unamortized discount of $1,271,000, and
$1,087,000, respectively, interest payable semi-annually through July
2003................................................................. 5,187 4,921
Notes payable to previous owner of business acquired, interest at 8%
payable in monthly installments through June 2005.................... 1,080 1,001
Notes payable to banks and financial institutions, interest ranging
from 6% to 14%, payable monthly through February 2004, secured by
certain equipment and real property.................................. 2,439 2,787
----------- ------------
31,029 39,145
Less: current portion.................................................. (1,426) (1,731)
----------- ------------
$ 29,603 $ 37,414
=========== ============
</TABLE>
SOLID WASTE REVENUE BONDS. In April 1996, the Company completed the
offering of 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. The remaining proceeds from the offering are
held by a trustee bank to be used to fund the construction of new cells,
purchases of equipment, purchases of 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 from the Haleyville Landfill and, until
certain criteria are met, by the management fee income from another
Company-managed landfill.
38
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SOLID WASTE REVENUE BONDS. In December 1995, the Company completed the
offering of $4,000,000 principal amount Tax-Exempt Solid Waste Revenue Bonds
Series 1995-A and $1,000,000 principal amount Taxable Solid Waste Revenue Bonds
Series 1995-B issued by the Union County Solid Waste Authority (Tennessee).
Proceeds from the sale of such bonds will be used to replace funds invested by
the Company, to make future capital improvements and to purchase additional
equipment for the Company-managed municipal solid waste landfill and related
handling and disposal facilities in Union County, Tennessee. The bonds were sold
with an aggregate discount of $203,000. Proceeds from the offering are held by a
trustee bank in restricted accounts and are disbursed to the Company upon
presentation of invoices related to construction and expansion activities. These
bonds are secured by the revenues derived from the Union County landfill, and
until certain operating levels are obtained, the revenues from another
Company-owned landfill.
SOLID WASTE REVENUE BONDS. In July 1995, the Company completed the
offering of $2,000,000 Tax-Exempt Solid Waste Revenue Bonds, Series 1995-A and
$500,000 principal amount Taxable Solid Waste Revenue Bonds, Series 1995-B by
the England Economic and Industrial Development District (Louisiana). Proceeds
from such sale were used to replace funds invested by the Company to pay the
cash portion of the purchase price for TransWaste, Inc., to upgrade the
TransWaste facility, to establish a debt service reserve fund and to pay the
costs associated with issuing the bonds. The bonds were sold with an aggregate
discount of $165,000. Proceeds from the offering are held by a trustee bank in
restricted accounts and are disbursed to the Company upon presentation of
invoices related to construction and expansion activities. These bonds are
secured by the TransWaste facility and related assets.
NONRECOURSE CERTIFICATES OF PARTICIPATION. During March 1994, a newly
created subsidiary of the Company (whose balances and activities are
consolidated herein) completed the issuance of two series of Certificates of
Participation ("Certificates") totaling $15,675,000. The Certificates were
issued at a discount of $543,000. The proceeds from the Certificates are being
used to upgrade and expand the Company managed Chastang landfill near Mobile,
Alabama. Proceeds from the offering are held by a trustee bank in restricted
accounts and are disbursed to the Company upon presentation of invoices related
to construction and expansion activities. A portion of the funds is also held in
debt service and interest reserve accounts. The debt is secured solely by a
pledge of revenue derived from the landfill's operations and is without recourse
to the Company.
10% CONVERTIBLE SUBORDINATED DEBENTURES. During 1993, the Company
completed the offering of 16,022 units consisting of an aggregate $16,022,000 of
10% convertible subordinated debentures due 2003 ("Debentures") and 640,880
shares of common stock. The Debentures are unsecured obligations subordinated to
all existing and future senior indebtedness.
The Debentures are convertible into shares of common stock at an initial
conversion price of $5.50 per share (subject to adjustment). The Debentures will
be automatically converted if the average closing sale price of common stock for
any 30 consecutive trading days exceeds 165% of the conversion price then in
effect. The Debentures were issued at a discount of $3,644,000 attributable to
the common stock included in the units, based upon the average price of common
stock for the 30-day period preceding the closing of the offering. The discount
is being amortized using the effective interest method over the term of the
Debentures. In February 1994, $96,000 principal amount of Debentures was
converted into 17,000 shares of common stock at a conversion price of $5.50 per
share.
In February 1995, the Company made an offer to all holders of its
Debentures to reduce the conversion price of the original terms. Pursuant to the
exchange offer 3,894,699 shares of common stock were exchanged for $8,269,000
principal face amount of its issued and outstanding Debentures, and 950,935
shares of common stock were issued in payment of $520,000 of accrued interest
thereon through March 15, 1995. On the date of the exchange offer, the fair
value of the common stock exchanged for the
39
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debentures exceeded the fair value of common stock issuable under the original
conversion terms by $1,644,000, which was recognized as a non-cash expense on
the date of the exchange offer.
In August 1995, in a privately negotiated transaction, the Company
exchanged 564,729 shares of common stock for $1,199,000 principal face amount of
its issued and outstanding Debentures and 5,667 shares of common stock were
issued in payment of the accrued interest thereon through August 25, 1995.
In December 1996, in a privately negotiated transaction, the Company
exchanged 202,500 shares of common stock for $450,000 principal face amount of
its issued and outstanding Debentures and 13,500 shares of common stock were
issued in payment of the accrued interest thereon through December 13, 1996.
Accrued interest for the Company's total indebtedness was $729,000 and
$899,000 at December 31, 1995, and December 31, 1996 respectively.
Future maturities of long-term debt as of December 31, 1996, were as
follows (in thousands):
Years Ending
December 31,
------------
1997 $ 1,731
1998 1,341
1999 958
2000 844
2001 626
Thereafter 33,645
-------------
$ 39,145
=============
8. INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return. The Company's provision for income taxes is determined by applying the
Company's effective income tax rate to pre-tax financial reporting income,
adjusted for permanent book-tax differences. The Company's provision for income
taxes for the periods reported consist of the following (in thousands):
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
YEAR ENDED AUGUST 31, DECEMBER DECEMBER
----------------------- 31, 31,
1994 1995 1995 1996
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Current...................... $ 340 $ (508) $ 46 $ 50
Deferred..................... (1,847) --- --- ---
========== ========== ============ ===========
Income tax provision
(benefit).................... $ (1,507) $ (508) $ 46 $ 50
========== ========== ============ ===========
</TABLE>
40
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1995 and 1996, the individually significant components
which comprise the Company's deferred tax assets and liabilities are as follows
(in thousands):
December 31,
---------------------
1995 1996
------- -------
Deferred tax assets
Net operating loss carryforward ................. $ 5,891 $ 4,896
Other ........................................... 1,816 2,348
Valuation allowance ............................. (4,832) (5,302)
------- -------
2,875 1,942
------- -------
Deferred tax liabilities
Excess of book basis over tax basis of
property ........................................ 2,190 985
Other ........................................... 685 957
------- -------
2,875 1,942
------- -------
Net deferred tax liability ......................... $ -- $ --
======= =======
At December 31, 1996, the Company had a net operating loss carryforward
(NOL) of approximately $13 million which will expire if not utilized beginning
in 2001. The amount of the NOL which can be utilized to offset taxable income in
any individual year is limited. The deferred tax asset attributable primarily to
the NOL has been reduced by a valuation allowance due to uncertainties
surrounding the NOL's realization. The NOL will reduce taxable income when
realized unless the valuation allowance is reduced at an earlier date upon
resolution of the uncertainties.
The table below reconciles the Company's statutory income tax benefit to
its effective income tax provision (in thousands):
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
YEAR ENDED AUGUST 31, DECEMBER DECEMBER
----------------------- 31, 31,
1994 1995 1995 1996
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Statutory federal tax benefit..... $ (4,506) $ (2,532) $ (164) $ (2,335)
State income taxes................ (363) (146) 23 53
Adjustment of valuation allowance. 3,622 674 137 470
Non-deductible expenses........... --- 862 14 38
Non-deductible loss on
disposition of subsidiary.. --- --- --- 1,700
Amortization of costs in excess
of fair value of assets
acquired....................... 43 42 16 36
Other............................. (303) 592 20 88
---------- ---------- ------------ -----------
Effective tax provision (benefit). $ (1,507) $ (508) $ 46 $ 50
========== ========== ============ ===========
</TABLE>
9. STOCKHOLDERS' EQUITY
COMMON STOCK. The number of authorized shares of the Company's Common
Stock is 100,000,000.
STOCK OPTION PLAN. In June 1996, at the Company's Annual Meeting of
Stockholders, the Company's stock option plan for officers, directors and key
employees was increased by 1,000,000 shares. The stock option plan, as amended
("Stock Option Plan"), authorizes the grant of options to purchase a maximum of
4,500,000 shares of Common Stock. The plan provides for the issuance of
stock-based incentive awards, including deferred stock, restricted stock, and
stock appreciation rights.
41
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The exercise price of options granted under the plan may not be less than the
fair market value of the Common Stock on the date of grant. The vesting period
of each grant is determined by the Board of Directors. The term of each option
shall not be more than ten years.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS 123) which is effective for fiscal years beginning after
December 15, 1994. As permitted by SFAS 123, the Company applies APB Opinion No.
25 and related interpretations in accounting for its Stock Option Plan.
Accordingly, no compensation cost has been recognized in the accompanying
consolidated statement of operations. Had compensation cost been recognized
based on the fair value at the grant dates for awards made during the four
months ended December 31, 1995 and the year ended December 31, 1996, net loss
and loss per common share would have been adjusted to the pro forma amounts
indicated below (in thousands, except per share amounts):
FOUR MONTHS
ENDED YEAR ENDED
DECEMBER DECEMBER
31, 31,
1995 1996
------------ -----------
Net loss
As reported............. $ (528) $ (6,917)
Pro forma............... (541) (7,210)
Loss per common share
As reported............. $ (.02) $ (.23)
Pro forma............... (.02) (.24)
The fair value of grants made during the four months ended December 31,
1995 and the year ended December 31, 1996 were estimated on the date of grant
using an option pricing model as described in SFAS 123. The significant
weighted-average assumptions used in the model are as follows:
FOUR
MONTHS
ENDED YEAR ENDED
DECEMBER DECEMBER
31, 31,
1995 1996
----------- ------------
Risk-free interest rate 5.73% 5.80%
Volatility 124.03% 99.54%
Expected lives 6 years 6 years
Dividend yield None None
Because the SFAS 123 method of accounting has not been applied to
options granted prior to September 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
42
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Stock Option Plan for the years ended
August 31, 1994 and 1995, the four months ended December 31, 1995, and the year
ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
AUGUST 31, DECEMBER 31, DECEMBER 31,
1994 AUGUST 31, 1995 1995 1996
---------------- ---------------- ---------------- ----------------
Wtd. Wtd. Wtd. Wtd.
Avg. Avg. Avg. Avg.
Shares Exercise Shares Exercise Shares Exercise Shares Exercise
(000's) Price (000's) Price (000's) Price (000's) Price
------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period............. 813 $ 3.20 1,413 $ 2.87 2,212 $ 1.48 2,563 $ 1.48
Granted.............. 683 2.29 1,320 .62 752 1.31 905 1.60
Exercised............ 4 1.90 26 .71 2 .56 496 .63
Canceled............. 79 4.89 495 2.68 399 1.15 804 1.52
======= ======= ======= =======
Outstanding at end of
period................ 1,413 2.87 2,212 1.48 2,563 1.48 2,168 1.72
======= ======= ======= =======
Exercisable at end of
period................ 899 2.85 1,156 2.07 1,330 1.73 1,090 2.06
Available for grant..... 881 1,055 702 1,601
Weighted-average fair
value of options granted $ 1.29 $ 1.29
</TABLE>
The stock options outstanding at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ------------------------
Wtd. Avg No. of
Remaining Wtd. Shares Wtd.
Contract Avg. Under Avg.
life in Exercise Exercisable Exercise
Range Of Exercise Prices Shares Years Price Options Price
- ----------------------------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$ .56.......... 410,000 8.83 $ .56 201,750 $ .56
$1.28 - $1.56.......... 1,052,667 9.01 1.43 280,917 1.41
$2.06 - $2.50.......... 476,000 7.26 2.14 387,625 2.09
$3.60 - $4.38.......... 160,583 4.86 3.70 150,581 3.64
$5.00 - $6.25.......... 69,166 5.78 5.36 69,166 5.36
----------- -----------
2,168,416 1,090,039
=========== ===========
</TABLE>
IPO WARRANTS. As of December 31, 1996, the Company has outstanding
1,150,000 redeemable Class A warrants and 1,150,000 redeemable Class B warrants.
Each Class A warrant entitles the registered holder thereof to purchase, one
share of Common Stock and one Class B warrant at an aggregate exercise price of
$4.50, subject to adjustment in certain circumstances. Each Class B warrant
entitles the registered holder thereof to purchase 1.03 shares of Common Stock
at an exercise price of $6.53, subject to adjustment in certain circumstances.
In November 1996, the Company extended the expiration date of the Class A
warrants and Class B warrants from November 1996 to November 1997.
OTHER WARRANTS. In connection with various agreements entered into by
the Company, the Company has issued warrants to purchase 4,443,012 shares of
Common Stock. The exercise prices range from $ .75 to $4.50 per share and have
expiration dates through December 2001. The warrants were recorded based on the
more determinable of the fair value of the consideration received or the fair
market value of the warrant at the date of issuance.
43
<PAGE>
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHARES RESERVED FOR ISSUANCE. Shares reserved for issuance at December
31, 1996 are summarized as follows:
Shares
-------------
IPO warrants......................................... 3,528,545
Other warrants....................................... 4,443,012
Conversion of Debentures, including purchase option.. 1,402,909
Stock options........................................ 3,769,206
-------------
13,143,672
=============
REDEEMABLE CONVERTIBLE PREFERRED STOCK. The Company has authorized the
issuance of 5,000,000 shares of Preferred Stock with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. None are currently outstanding.
10. EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") have been computed based on the
weighted average number of common shares outstanding during the applicable
periods. For fiscal 1994 and 1995, the four months ended December 31, 1995, and
the year ended December 31, 1996, common equivalent shares, including stock
options and warrants, did not impact loss per common share as they were
anti-dilutive.
The 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 fiscal 1994 and
1995, the four months ended December 31, 1995, and the year ended December 31,
1996, the assumed conversion of the Debentures has an anti-dilutive effect on
the fully diluted EPS computation 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>
FOUR
MONTHS
ENDED YEAR ENDED
YEAR ENDED AUGUST 31, DECEMBER DECEMBER
----------------------- 31, 31,
1994 1995 1995 1996
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Common shares outstanding, end of year ... 15,611 29,337 29,649 30,694
Effect of shares issued during year using
weighted average common shares......... (37) (8,830) (69) (413)
---------- ---------- ----------- ------------
Common shares used in computing earnings
per share.............................. 15,574 20,507 29,580 30,281
========== ========== =========== ============
</TABLE>
11. 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.
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. In recent
years, environmental groups and others have put increased pressure on applicable
regulatory authorities to either reject certain operating permits or to impose
restrictions on the Company's disposal practices. The Company believes it is in
material compliance with all of its operating permits. The Company does not
carry insurance coverage for environmental liability
44
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 million. At December 31, 1996, the Company
had accrued approximately $4.3 million for such estimated costs. 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 December
31, 1996, the Company has provided performance bonds totaling $7.9 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 a
review of each contract bonded and certain other conditions. In certain cases,
the Company will be required to provide cash deposits.
MAJOR CUSTOMERS. The Company's sole customer at its former wastewater
treatment facility was a major wastewater treatment plant operated by a
quasi-governmental entity which accounted for $7.0 million and $367,000 of the
Company's revenue for the years ended August 31, 1994 and 1995, respectively.
Operating income (loss) attributable to the entity was approximately $600,000
and ($31,000) for the years ended August 31, 1994 and 1995, respectively, and
through fiscal 1994 represented a substantial portion of the Company's cash
flow. In September 1994, the Company's contract with this customer expired and
operations at the facility ceased.
The Company has two customers which accounted for 23% and 14% of
consolidated revenue for the year ended December 31, 1996. A customer accounted
for approximately 15% of consolidated revenue for the four months ended December
31, 1995. Another customer accounted for 17% of consolidated revenue for the
year ended August 31, 1995.
LITIGATION. McGinnes Industrial Maintenance Corporation ("MIMC"), a
wholly owned subsidiary of the Company, has been named as one of 17
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 wastewater sludge
treatment facility located in Galveston County, Texas, and names as defendants,
in addition to MIMC, 13 industrial companies located along or near the Houston
Ship Channel, two subdivisions and one engineering firm. The suit alleges
personal injury and property damages resulting from alleged releases of
hazardous and toxic substances from the Company's 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, has agreed on 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
45
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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. While
the Circuit Court of Chilton County, Alabama upheld the transfer of the landfill
to the Company, it overturned the approval of certain permit modifications that
increased the allowable daily volume and expanded the permissible service area
of the facility. During 1996, the Company was permitted to continue to operate
under a daily volume limit. On March 14, 1997, the Supreme Court of Alabama
issued an opinion on the merits and reversed the plaintiffs summary judgment and
upheld the permit modifications including the volume increase. As a result, the
landfill is now permitted to accept up to 1,500 tons per day of solid waste from
an eighteen county service area.
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.
COMPENSATION AND CONSULTING ARRANGEMENTS. As of December 31, 1996, the
Company's commitments under employment and consulting agreements are $300,000,
$300,000 and $150,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
LEASE COMMITMENTS. At December 31, 1996, total minimum rental
commitments under operating leases for premises and equipment were $220,000 for
1997 and a nominal amount in all other periods. Rental expense incurred under
operating leases was $875,000, $613,000, $283,000 and $363,000 for fiscal years
1994 and 1995, the four months ended December 31, 1995, and the year ended
December 31, 1996, respectively.
12. RELATED PARTY TRANSACTIONS
The Company and a corporation of which the Chairman of the Company's
Board of Directors (the "Chairman") is a principal, entered into a consulting
agreement (as amended), which commenced on April 2, 1992. The consulting
agreement will continue for five years unless earlier terminated by either party
upon 60 days' written notice. Pursuant to such consulting agreement, the Company
pays the corporation $25,000 per month. The compensation arrangement is
reviewable annually. Approximately, $240,000, $300,000, $100,000 and $240,000,
were earned pursuant to this agreement during the years ended August 31, 1994
and 1995, the four months ended December 31, 1995, and the year ended December
31, 1996, respectively.
In November 1995, the Company's Board of Directors granted the Chairman
250,000 stock options at $1.31 per share (the market price at the date of
grant), subject to the Company achieving certain income targets for the twelve
month period ended August 31, 1996. As the Company did not achieve the specified
income targets, these options were canceled.
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 provided the Company with certain
development services related to locating landfill facilities. The agreement had
46
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
a five-year term and could be terminated by either party upon 90 days prior
notice. In consideration for these services, ECD received warrants to purchase 2
million shares of common stock at $1.50 per share. The warrants were to vest
fully on March 1, 2001 as long as ECD was providing services to the Company on
that date, however the vesting would accelerate one warrant for every one dollar
of direct costs incurred by ECD in performing services under the agreement. The
fair value of the warrants was amortized over the vesting period. ECD was also
entitled to additional compensation upon the closing of each transaction related
to landfill facilities identified for the Company by ECD. This additional
compensation consisted 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 was sooner. The Company notified ECD, in a letter dated
January 24, 1997, of the termination of the Development Services Agreement.
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
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 were exercised and unvested stock options
were canceled.
In July 1994, the Company entered into a five-year agreement with an
investment banking firm, in which a director of the Company was the controlling
shareholder and chief executive officer, to exclusively represent the Company in
the solid waste industry with regard to obtaining tax-exempt debt financing. The
Company agreed to pay the firm a percentage of the gross proceeds derived from
such financings. The Company issued the firm 400,000 warrants to purchase common
stock, subject to certain forfeiture provisions, at $2.875 per share for this
exclusive arrangement. In addition, warrants to purchase 150,000 restricted
shares of common stock, at the then current market price, were issued to the
firm for each $15 million of financing completed. The number of such warrants
was adjusted on a pro rata basis depending upon the actual amount of the
financing completed. Either party could have terminated this agreement at any
time by giving 120 days prior written notice. In a letter dated January 24,
1997, the Company notified the investment banking firm of the termination of
this agreement.
In April 1994, the Company entered into a one-year consulting agreement
with a director of the Company to provide business development opportunities to
the Company. The director was paid an annual consulting fee of $120,000 in
Common Stock (as amended). The agreement expired September 1, 1995 and no
further fees are to be paid.
The Company leased its corporate office space from an entity in which
the Chairman is a substantial owner. The terms of the lease agreement provide
for annual lease payments of $95,000 per year through April 1997. The lease was
not renewed as the Company moved its corporate office to a facility acquired in
the purchase of certain assets from Sanifill, Inc. (see Note 13).
The Company incurred $782,000 and $1,156,000 in construction services
provided by McGinnes Brothers, Inc. ("MBI"), an affiliated company, during the
years ended August 31, 1994 and 1995, respectively. No such services were
provided to the Company by MBI for the four months ended December 31, 1995 or
the year ended December 31, 1996.
47
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TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company leased office space to a company in which a director of the
Company was an executive officer. Payments received by the Company were $107,000
for fiscal 1994. The lease was terminated in September 1994.
In March 1995, the Company completed a private placement of 5,000,000
shares of Common Stock in which 1,800,000 shares of Common Stock were sold to
certain directors and officers of the Company for total consideration of
$900,000.
13. SUBSEQUENT EVENTS
SANIFILL TRANSACTION. On January 31, 1997, the Company acquired certain
solid waste collection and disposal assets and operations of Sanifill, Inc.
("Sanifill") located in the Houston, Texas area (the "Sanifill Assets"). In
connection with the acquisition of Sanifill by USA Waste Services, Inc. ("USA
Waste") in 1996, the United States Department of Justice ordered the divestiture
of the Sanifill Assets, and pursuant to the order, the Company submitted a bid
which was ultimately accepted. The total consideration for the purchase of the
Sanifill Assets was $13,600,000 in cash plus warrants to purchase 1,500,000
shares of Common Stock at an exercise price of $1.50 per share ("USA Warrants").
The USA Warrants are exercisable for a period of five years from the closing
date of the Company's acquisition of the Sanifill Assets. The Company is
obligated to register for resale the common stock issuable upon the exercise of
the USA Warrants.
The Sanifill Assets consist of assets used in connection with the
servicing of approximately 100,000 residential and 4,000 commercial waste
collection and disposal customers in the Houston, Texas metropolitan area, a
20-acre construction and demolition landfill located in Galveston County, Texas,
two office, maintenance and parking facilities and preferred pricing at two of
USA Waste's landfills. The preferred pricing agreement gives the Company the
option to dispose of two million tons of municipal solid waste, limited to
270,000 tons per year, at USA Waste's landfills at favorable prices, which in no
event shall be less favorable than the most favorable terms provided to USA
Waste's other customers. The Company moved its corporate office to one of the
acquired buildings.
The Company financed the acquisition of the Sanifill assets with a
combination of debt and equity sources consisting of an $8.5 million bank
facility (the "Bank Facility") and a $6.8 million (approximately $6.1 million,
net of placement agent's commission and offering expenses) private placement of
the Company's common stock (the "Private Placement").
BANK FACILITY. The Bank Facility is composed of a $7.5 million
promissory note bearing interest at the prime rate plus 1% to be repaid based
upon a five year amortization schedule and having a final maturity of February
15, 1999, and a $1 million revolving line of credit at prime plus 1% having a
final maturity of February 15, 1998. The Bank Facility is subject to certain
financial and other covenants and restrictions. The Bank Facility is secured by
a security interest in certain assets of the Company, including the Sanifill
Assets and is guaranteed by the Company, the Company's Chairman, and an
individual member of the board of directors (the "Board Member"). As
consideration for the Board Member's guarantee, the Company issued the Board
Member warrants, having a term of five years, to purchase a total of three
million shares of the Company's common stock. The exercise price of such
warrants with respect to two million shares is $1.00 per share, and the exercise
price with respect to the remaining one million shares is $1.25 per share. The
exercise prices are subject to certain anti-dilution provisions. The warrants
are recorded at their fair market value with the resulting debt discount being
amortized over the life of the Bank Facility.
PRIVATE PLACEMENT. In the Private Placement, the Company issued
11,250,000 shares of common stock (the "Shares") at a price of $.60 per share
including the exercise of the placement agent's over-
48
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TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
allotment for total proceeds to the Company, net of placement agent's commission
and related expenses, of $6.1 million. The Company will file within four months
of the closing of the acquisition of the Sanifill Assets (the "Closing") a
registration statement covering the resale of the Shares under the Securities
Act of 1933 with the Securities and Exchange Commission and in such states as
the Company and the holders may select. The Company has agreed to use its best
efforts to cause such registration statement to become effective within seven
months of the Closing. If the registration is not effective within seven months
of the closing, subject to certain other conditions and exceptions, it will
result in substantial penalty to the Company. Additionally, the Company issued
warrants to purchase 1,125,000 shares of the Company's stock at $.66 per share,
subject to certain anti-dilution provisions, to the placement agent.
SHORT-TERM FINANCING. In January 1997, the Company repaid the December
Note and exchanged the August Note for a new convertible promissory note,
repriced the August Warrants and December Warrants to $.60 per share (see Note
6) as consideration for the necessary waivers, consents and releases from the
Investment Partnership to complete the acquisition of the Sanifill Assets. The
convertible promissory note is payable in twelve monthly installments of
principal and interest beginning in September 1997 and is convertible into
shares of common stock at $1.12 per share, subject to certain anti-dilution
provisions.
1997 STOCK PARTICIPATION PLAN. Effective January 1, 1997, the Board of
Directors of the Company approved the TransAmerican Waste Industries, Inc. 1997
Stock Participation Plan ("Participation Plan"), pursuant to which the Company
will issue restricted shares of Common Stock to the executive officers and
certain key employees of the Company who are selected in the discretion of the
Compensation Committee of the Board of Directors ("Committee"). Pursuant to the
Participation Plan, the Company has issued 833,334 shares of Common Stock to
seven participants under the Participation Plan.
The shares awarded under the Participation Plan (the "Restricted
Shares") are registered in the name of the grantee but are held by the Chairman
until such time as the restrictions on their transfer have expired. The
Restricted Shares will vest in equal 20% increments on each anniversary of the
grant date over a five-year period. If the grantee should voluntarily terminate
his employment or retire, or if his employment is terminated by the Company for
any reason other than for cause, the grantee will forfeit his right to receive
any shares that are not vested at the time of termination. In the event that the
grantee is terminated for cause, he will forfeit all rights to receive any
vested or unvested shares. If the grantee's employment is terminated due to his
death or disability, or if a change in control of the Company should occur
before the grantee's employment has been terminated, then all unvested shares
will automatically become 100% vested.
In the event that the grantee's employment is not terminated within the
five-year vesting period, as of the expiration of such period, the Company will
issue and deliver to the grantee a certificate for all the grantee's vested
shares free of restrictions. In the event that the grantee's employment is
terminated for any reason except cause before the end of the five-year vesting
period, or in the event of a change of control of the Company regardless of
whether his employment is terminated, at such time the Committee shall issue and
deliver to grantee a certificate for all vested shares free of restrictions.
The Company has received a bank loan in the amount of $500,000 ("Bank
Loan") to acquire 833,334 shares of common stock from the Company at $.60 per
share pursuant to the Participation Plan. The terms of the Bank Loan required
the Company to execute a $500,000 note bearing interest at 9% per annum to be
repaid based upon a five-year amortization schedule. The Bank Loan is secured by
the shares of the Company's common stock to be granted pursuant to the
Participation Plan and is guaranteed personally by the Chairman.
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Items 10, 11, 12 and 13 of Part III are incorporated by reference from
the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders, which
is expected to be filed no later than April 30, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report:
Page No.
--------
1. Financial Statements.
Report of Independent Public Accountants ............ 21
Consolidated Balance Sheets as of December 31, 1995
and 1996 ........................................ 22
Consolidated Statements of Operations for the
years ended August 31, 1994 and 1995, four
months ended December 31, 1995, and the year
ended December 31, 1996 ......................... 23
Consolidated Statements of Stockholders' Equity for
the years ended August 31, 1994 and 1995, four
months ended December 31, 1995, and the year
ended December 31, 1996 ......................... 24
Consolidated Statements of Cash Flows for the years
ended August 31, 1994 and 1995, four months ended
December 31, 1995, and the year ended December
31, 1996 ........................................ 25
Notes to Consolidated Financial Statements .......... 26
2. Financial Statement Schedules.
All schedules have been omitted since the required
information is not present or not present in amounts sufficient to
require submission of the schedule, or because the information is
included in the consolidated financial statements or notes thereto.
3. Exhibits.
Exhibit
Number Description
------ -----------
3.1 ** - Restated Certificate of Incorporation of the
Registrant, as amended (filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 (File
No. 33-41017)).
3.2 ** - Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant, dated March 23, 1993
(filed as Exhibit 3.2 to the Registrant's Annual Report
on Form 10-K for the year ended August 31, 1993).
50
<PAGE>
3.3 ** - Certificate of Elimination of the Registrant, dated
October 11, 1993 (filed as Exhibit 3.3 to the
Registrant's Annual Report on Form 10-K for the year
ended August 31, 1993).
3.4 ** - Amended and Restated Bylaws of the Registrant (filed as
Exhibit 4.2 to the Registrant's Registration Statement
on Form S-8 (File No. 33-57326)).
4.1 ** - Specimen certificates representing the Class A
Warrants, Class B Warrants and Common Stock (filed as
Exhibit 4.3 to the Registrant's Registration Statement
on Form S-1 (File No. 33-41017)).
4.2 ** - Indenture dated July 30, 1993, between the Registrant
and American Stock Transfer & Trust Company, for the
10% Convertible Subordinated Debentures due 2003 (filed
as Exhibit 4.2 to the Registrant's Annual Report on
Form 10-K for the year ended August 31, 1993).
4.3 ** - Specimen certificate representing the Registrant's 10%
Convertible Subordinated Debentures due 2003 (filed as
Exhibit 4.3 to the Registrant's Annual Report on Form
10-K for the year ended August 31, 1993).
4.4 ** - Specimen certificate representing the Registrant's
Units, each Unit consisting of $1,000 principal amount
of 10% Convertible Subordinated Debentures due 2003 and
40 shares of Common Stock (filed as Exhibit 4.4 to the
Registrant's Annual Report on Form 10-K for the year
ended August 31, 1993).
4.5 ** - Form of Unit Purchase Option (filed as Exhibit 4.3 to
the Registrant's Registration Statement on Form S-1
(File No. 33-63324)).
4.6 ** - Form of Warrant Agreement (with Warrant Certificate)
between the Registrant and American Stock Transfer &
Trust Company (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended February 28, 1993).
4.7 ** - Form of IPO Unit Purchase Option (filed as Exhibit 4.1
to the Registrant's Registration Statement on Form S-1
(File No. 33-41017)).
4.8 ** - Form of Warrant Agreement (with Warrant Certificate)
between the Registrant and D.H. Blair & Co., Inc.
(filed as Exhibit 4.2 to the Registrant's Registration
Statement on Form S-1 (File No. 33-41017)).
4.9 ** - Form of 1991 Bridge Warrant (filed as Exhibit 10.12 to
the Registrant's Registration Statement on Form S-1
(File No. 33-41017)).
4.10 ** - Stock Purchase Warrant dated January 31, 1997 (filed as
Exhibit 4.1 to the Registrant's Current Report on Form
8-K filed on January 31, 1997).
4.11 ** - Warrant to Purchase Common Stock of TransAmerican Waste
Industries, Inc. dated January 31, 1997 entitling
Robert K. Moses, Jr. to purchase 2,000,000 shares
(filed as Exhibit 4.2 to the Registrant's Current
Report on Form 8-K filed on January 31, 1997).
51
<PAGE>
4.12 ** - Warrant to Purchase Common Stock of TransAmerican Waste
Industries, Inc. dated January 31, 1997 entitling
Robert K. Moses, Jr. to purchase 1,000,000 shares
(filed as Exhibit 4.3 to the Registrant's Current
Report on Form 8-K filed on January 31, 1997).
4.13 ** - Warrant to Purchase Common Stock of TransAmerican Waste
Industries, Inc. dated January 31, 1997 entitling
Sanders Morris Mundy Inc. to purchase 1,000,000 shares
(filed as Exhibit 4.4 to the Registrant's Current
Report on Form 8-K filed on January 31, 1997).
4.14 ** - Warrant to Purchase Common Stock of TransAmerican Waste
Industries, Inc. dated February 10, 1997 entitling
Sanders Morris Mundy Inc. to purchase 125,000 shares
(filed as Exhibit 4.5 to the Registrant's Current
Report on Form 8-K filed on January 31, 1997).
10.1 ** - Advisory Agreement with Peter N. Christos (filed as
Exhibit 10.6 to the Registrant's Registration Statement
on Form S-1 (File No. 33-41017)).
10.2 ** - Amended and Restated 1990 Incentive Stock Plan (filed
as Exhibit 28.1 to the Registrant's Registration
Statement on Form S-8 (File No. 33-57326)).
10.3 ** - Letter Agreement between the Registrant and D.H. Blair
& Co., Inc. with respect to finders' fees (filed as
Exhibit 10.9 to the Registrant's Registration Statement
on Form S-1 (File No. 33-41017)).
10.4 ** - Letter Agreement dated December 1, 1992 between the
Registrant and D.H. Blair Investment Banking Corp. with
respect to finders' fees and other matters (filed as
Exhibit 10.7 to the Registrant's Annual Report on Form
10-K for the year ended August 31, 1993).
10.5 ** - Consulting Agreement between the Registrant and First
Financial Alliance, Inc. (filed as Exhibit 10.14 to the
Registrant's Registration Statement on Form S-1 (File
No. 33-41017)).
10.6 ** - Agreement and Plan of Reorganization, dated April 2,
1992, by and among the Registrant, G.C. Environmental,
Inc. ("GCE") and the shareholders of GCE (filed as
Exhibit 2.1 to the Registrant's current report on Form
8-K, dated April 2, 1992, filed with the Commission on
April 17, 1992).
10.7 ** - First Amended and Restated Agreement and Plan of
Reorganization, dated April 2, 1992, by and among GCE,
McGinnes Industrial Maintenance Corporation
("McGinnes") and the shareholders of McGinnes (filed as
Exhibit 10.16 to the Registrant's Registration
Statement on Form S-1 (File No. 33-41017)).
10.8 ** - Registration Rights Agreement, dated April 2, 1992, by
and among the Registrant and Lawrence P. McGinnes and
Billie Doris McGinnes Gladfelter (filed as Exhibit
10.17 to the Registrant's Registration Statement on
Form S-1 (File No. 33-41017)).
52
<PAGE>
10.9 ** - Consulting Agreement, dated April 2, 1992, between the
Registrant and Lawrence P. McGinnes (filed as Exhibit
10.18 to the Registrant's Registration Statement on
Form S-1 (File No. 33-41017)).
10.10 ** - Agreement and Plan of Merger, dated effective as of
September 1, 1992, between the Registrant, GCE, M.A.
Oliver Contractors, Inc., McGinnes Bros., Inc. and
Oliver Acquisition, Inc. (filed as Exhibit 10.21 to the
Registrant's Registration Statement on Form S-1 (File
No. 33-41017)).
10.11 ** - Services Agreement, dated effective as of September 1,
1992, between the Registrant and Oliver Acquisition,
Inc. (filed as Exhibit 10.22 to the Registrant's
Registration Statement on Form S-1 (File No.
33-41017)).
10.12 ** - Registration Rights Agreement, dated as of October 29,
1992, by and between the Registrant and Michael W.
Windsor (filed as Exhibit 10.25 to the Registrant's
Registration Statement on Form S-1 (File No.
33-41017)).
10.13 ** - Registration Rights Agreement, dated as of December 22,
1992, by and among the Registrant and Hobbs Rental,
Inc. (filed as Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended November 30, 1992).
10.14 ** - Registration Rights Agreement, dated as of December 22,
1992, by and among the Registrant and KRM, Inc. (filed
as Exhibit 10.5 to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended November 30,
1992).
10.15 ** - Registration Rights Agreement, dated as of December 22,
1992, by and among the Registrant and S.M. Rice (filed
as Exhibit 10.6 to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended November 30,
1992).
10.16 ** - Asset Purchase Agreement, dated as of January 8, 1993,
by and among the Registrant, TransAmerican Waste
Industries of Ohio, Inc., Crossridge, Inc. and Joseph
Scugoza (filed as Exhibit 10.36 to the Registrant's
Registration Statement on Form S-1 (File No.
33-41017)).
10.17 ** - First Amendment to Asset Purchase Agreement, dated
January 8, 1993, by and among the Registrant,
TransAmerican Waste Industries of Ohio, Inc.,
Crossridge, Inc. and Joseph Scugoza (filed as Exhibit
10.37 to the Registrant's Registration Statement on
Form S-1 (File No. 33-41017)).
10.18 ** - Form of Merger and Acquisition Agreement between the
Registrant and D.H. Blair Investment Banking Corp.
(filed as Exhibit 10.44 to the Registrant's
Registration Statement on Form S-1 (File No.
33-63324)).
10.19 ** - Solid Waste Management Contract, dated October 6, 1993,
between the City of Mobile Solid Waste Authority and
the Registrant (filed as Exhibit 28.1 to the
Registrant's Current Report on Form 8-K dated October
6, 1993).
53
<PAGE>
10.20 ** - Letter Agreement, dated September 24, 1993, between the
Registrant and Marr & Friedlander, P.C. concerning
legal services and fees (filed as Exhibit 10.42 to the
Registrant's Annual Report on Form 10-K for the year
ended August 31, 1993).
10.21 ** - Letter Agreement, dated March 14, 1994 by and among
United Waste Services, Inc., Lowell Harrelson and the
Registrant (filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended February 28, 1994).
10.22 ** - First Amendment to Consulting Agreement between the
Registrant and First Financial Alliance, Inc. (filed as
Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended May 31, 1994).
10.23 ** - Consulting Agreement, dated April 6, 1994, by and among
the Registrant, Entrecorp and Ben Barnes (filed as
Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended May 31, 1994).
10.24 ** - Professional Services Agreement, dated July 12, 1994,
between the Registrant and Blount, Parrish and Roton,
Inc. (filed as Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period
ended May 31, 1994).
10.25 ** - Contract of Landfill Management, dated April 29, 1994,
by and between the Sabine Parish Police Jury and the
Registrant (filed as Exhibit 28.1 to the Registrants's
Current Report on Form 8-K dated April 29, 1994).
10.26 ** - Contract of Hauling, dated April 29, 1994, by and
between the Sabine Parish Police Jury and the
Registrant (filed as Exhibit 28.2 to the Registrant's
Current Report on Form 8-K dated April 29, 1994).
10.27 ** - Contribution and Purchase Agreement by and among
TransAmerican Waste Industries, Inc., TransWaste, Inc.,
Jeff Courtney and Jack Courtney, Jr., dated as of
January 3, 1995 (filed as Exhibit 2.1 to the
Registrants' Quarterly Report on Form 10-Q for the
quarterly period ended November 30, 1994).
10.28 ** - Asset Purchase Agreement by and among TransAmerican
Waste Central Landfill, Inc., TransAmerican Waste
Industries, Inc., Central Landfill, Inc. and the
Shareholders of Central Landfill, Inc., dated February
28, 1995 (filed as Exhibit 2.1 to the Registrants'
Quarterly Report on Form 10-Q for the quarterly period
ended February 28, 1995).
10.29 ** - Contract of Landfill Management, dated September 15,
1994, by and between the LaSalle Parish Police Jury,
the Grant Parish Police Jury, the LaSalle-Grant
Landfill Committee and the Registrant (filed as Exhibit
28.1 to the Registrant's Current Report on Form 8-K
dated September 15, 1994).
10.30 ** - Consulting Contract, dated February 18, 1994, between
the Registrant and Fonex, Inc. (filed as Exhibit 10.28
to the Registrant's Annual Report on Form 10-K for the
year ended August 31, 1994).
54
<PAGE>
10.31 ** - Consulting Contract, dated April 3, 1994, between the
Registrant and Tom Coker and Associates (filed as
Exhibit 10.29 to the Registrant's Annual Report on Form
10-K for the year ended August 31, 1994).
10.32 ** - Purchase Agreement by and among TransAmerican Waste
Industries, Inc., TransAmerican-TransWaste Acquisition
Corp., TransWaste, Inc., Jeff Courtney, Jack Courtney,
Jr., Courtney Construction Company of Alexandria, Inc.
and Courtney Equipment Company, Inc. dated June 9,
1995. Exhibits and Schedules to this Agreement are
omitted, but will be furnished supplementally to the
Securities and Exchange Commission upon request (filed
as Exhibit 2.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended May 31, 1995).
10.33 ** - Agreement of Purchase and Sale ("Agreement of Purchase
and Sale"), dated October 4, 1995, by and between
TransAmerican Waste Industries, Inc. and St. James
Capital Partners, L.P., relating to the 12% Convertible
Promissory Notes and Warrants. Exhibits and Schedules
to this Agreement are omitted, but will be furnished
supplementally to the Securities and Exchange
Commission upon request (filed as Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K for the year
ended August 31, 1995).
10.34 ** - Form of 12% Convertible Promissory Note issued pursuant
to the Agreement of Purchase and Sale (filed as Exhibit
10.34 to the Registrant's Annual Report on Form 10-K
for the year ended August 31, 1995).
10.35 ** - Form of Warrant to Purchase Common Stock issued
pursuant to the Agreement of Purchase and Sale (filed
as Exhibit 10.35 to the Registrant's Annual Report on
Form 10-K for the year ended August 31, 1995).
10.36 ** - Security Agreement securing the 12% Convertible
Promissory Notes, dated as of October 4, 1995, by and
between TransAmerican Waste Industries, Inc. and St.
James Capital Partners, L.P. (filed as Exhibit 10.36 to
the Registrant's Annual Report on Form 10-K for the
year ended August 31, 1995).
10.37 ** - Registration Rights Agreement dated October 4, 1995, by
and between TransAmerican Waste Industries, Inc. and
St. James Capital Partners, L.P., entered into pursuant
to the Agreement of Purchase and Sale (filed as Exhibit
10.37 to the Registrant's Annual Report on Form 10-K
for the year ended August 31, 1995).
10.38 ** - Letter of Exchange dated August 25, 1995 by and between
TransAmerican Waste Industries, Inc. and Susquehanna
Capital Group (filed as Exhibit 10.38 to the
Registrant's Annual Report on Form 10-K for the year
ended August 31, 1995).
10.39 ** - Registration Rights Agreement dated June 12, 1995, by
and between TransAmerican Waste Industries, Inc. and
certain designated Purchasers of certain notes and
warrants (filed as Exhibit 10.5 of the Registrants'
Quarterly Report on Form 10-Q for the Quarterly period
ended May 31, 1995).
55
<PAGE>
10.40 ** - Contract for Landfill Management by and between Hancock
County, Mississippi Solid Waste District and
TransAmerican Waste Industries, Inc. dated June 7, 1995
(filed as Exhibit 10.6 of the Registrants' Quarterly
Report on Form 10-Q for the Quarterly period ended May
31, 1995).
10.41 ** - Registration Rights Agreement by and between
TransAmerican Waste Industries, Inc. and Jeff Courtney
dated June 9, 1995 (filed as Exhibit 10.7 of the
Registrants' Quarterly Report on Form 10-Q for the
Quarterly period ended May 31, 1995).
10.42 ** - Loan Agreement between Union County Solid Waste
Authority and TransAmerican Waste Industries, Inc.
dated December 1, 1995 (filed as Exhibit 10.4 of the
Registrant's Registration Statement on Form S-3 filed
on March 13, 1996).
10.43. ** - Guaranty Agreement between AmSouth Bank of Alabama and
TransAmerican Waste Industries, Inc. dated December 1,
1995 (filed as Exhibit 10.5 of the Registrant's
Registration Statement on Form S-3 filed on March 13,
1996).
10.44 ** - Stock Purchase Agreement between TransAmerican Waste
Industries, Inc. and Everett O. Harwell, Jr. dated
April 10, 1996 (filed as Exhibit 10.1 of the
Registrant's Current Report on Form 8-K filed on April
23, 1996).
10.45 ** - Asset Purchase Agreement by and among TransAmerican
Waste Industries, Inc. and Haleyville Sanitary
Landfill, Ltd. dated April 10, 1996 (filed as Exhibit
10.2 of the Registrant's Current Report on Form 8-K
filed on April 23, 1996).
10.46 ** - Lease Agreement between the Haleyville Solid Waste
Disposal Authority and TransAmerican Waste Industries,
Inc. dated as of April 1, 1996 (filed as Exhibit 10.46
to the Registrant's Annual Report on Form 10-K for the
transition period ended December 31, 1995).
10.47 ** - Guaranty Agreement between TransAmerican Waste
Industries, Inc. and AmSouth Bank of Alabama dated as
of April 1, 1996 (filed as Exhibit 10.47 to the
Registrant's Annual Report on Form 10-K for the
transition period ended December 31, 1995).
10.48 ** - Settlement Agreement between Lowell Harrelson and
United Waste Services and TransAmerican Waste
Industries, Inc. dated as of February 21, 1996 (filed
as Exhibit 10.48 to the Registrant's Annual Report on
Form 10-K for the transition period ended December 31,
1995).
10.49 ** - Development Services Agreement between TransAmerican
Waste Industries, Inc. and EC Development, L.P. dated
March 1, 1996 (filed as Exhibit 10.49 to the
Registrant's Annual Report on Form 10-K for the
transition period ended December 31, 1995).
10.50 ** - Stock Purchase Agreement between TransAmerican Waste
Industries, Inc., Controlled Recovery, Inc., and Johnny
D. Cope and KRM Inc., dated as of September 30, 1996
(filed as Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1996).
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<PAGE>
10.51 ** - Stock Purchase Agreement between TransAmerican Waste
Industries, Inc., Inland Products, Inc. and The Inland
Group, LLC, dated as of September 30, 1996 (filed as
Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended September 30,
1996).
10.52 ** - Purchase and Sale Agreement among TransAmerican Waste
Industries, Inc. and Sanifill, Inc., Sanifill of Texas
Hauling, Inc., Sunray Services, Inc., S & J Landfill
Limited Partnership, and Brazoria County Recycling
Center, Inc. dated December 3, 1996 (filed as Exhibit
2.1 to the Registrant's Current Report on Form 8-K
filed on January 31, 1997).
10.52 ** - Amendment to Stock Purchase Agreement dated December 4,
1996 (filed as Exhibit 2.2 to the Registrant's Current
Report on Form 8-K filed on January 31, 1997).
10.53 ** - Second Amendment to Stock Purchase Agreement dated
December 12, 1996 (filed as Exhibit 2.3 to the
Registrant's Current Report on Form 8-K filed on
January 31, 1997).
10.54 ** - Third Amendment to Stock Purchase Agreement dated
December 31, 1996 (filed as Exhibit 2.4 to the
Registrant's Current Report on Form 8-K filed on
January 31, 1997).
10.55 ** - Fourth Amendment to Stock Purchase Agreement dated
January 30, 1996 (filed as Exhibit 2.5 to the
Registrant's Current Report on Form 8-K filed on
January 31, 1997).
10.56 * - Loan agreement dated January 27, 1997, between
TransAmerican Waste Industries of Houston, Inc. and
Southwest Bank of Texas, N.A.
10.57 * - Guaranty Agreement guaranteeing the Loan Agreement,
dated as of January 27, 1997, between TransAmerican
Waste Industries, Inc. and Southwest Bank of Texas,
N.A.
21.1 ** - List of Subsidiaries (filed as Exhibit 22.1 to the
Registrant's Registration Statement on Form S-1 (File
No. 33-58222)).
23.1 * - Consent of Independent Public Accountants.
27.1 * - Financial Data Schedule
* Indicates documents filed herewith.
** Indicates documents incorporated by reference from the prior
filing indicated.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of
fiscal 1996.
Form 8-K dated February 18, 1997 relating to the acquisition of
certain Sanifill, Inc. assets, related financings, and 1997 stock
participation plan with related participation plan bank loan.
57
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 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 IN THE CITY OF HOUSTON, STATE OF
TEXAS, ON MARCH 28, 1997.
TRANSAMERICAN WASTE INDUSTRIES, INC.
BY: /s/ TOM J. FATJO, JR.
Tom J. Fatjo, Jr.,
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ TOM J. FATJO, JR Chairman of the Board March 28, 1997
Tom J. Fatjo, Jr. of Directors and Chief
Executive Officer (Principal
Executive Officer)
/s/ LANCE C. RUUD Director, Senior Vice President March 28, 1997
Lance C. Ruud and Chief Financial Officer
(Principal Financial Officer)
/s/ GEORGE BALL Director March 28, 1997
George Ball
/s/ BEN F. BARNES Director March 28, 1997
Ben F. Barnes
/s/ RICHARD E. BEAN Director March 28, 1997
Richard E. Bean
/s/ WILLIAM B. BLOUNT Director March 28, 1997
William B. Blount
/s/ PHILIP BURGUIERES Director March 28, 1997
Philip Burguieres
/s/ PRESTON MOORE, JR. Director March 28, 1997
Preston Moore, Jr.
/s/ ROBERT K. MOSES, JR. Director March 28, 1997
Robert K. Moses, Jr.
/s/ ED L. ROMERO Director March 28, 1997
Ed L. Romero
/s/ JOHN V. SINGLETON, JR. Director March 28,1997
Judge John V. Singleton, Jr.
58
EXHIBIT 10.56
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of January 27, 1997 (this "Agreement"), is
between TRANSAMERICAN WASTE OF HOUSTON, INC., a Texas corporation ("Borrower"),
and SOUTHWEST BANK OF TEXAS, N.A., a national banking association ("Lender").
R E C I T A L S :
Borrower has requested that Lender extend credit to Borrower in the form
of (a) revolving credit advances which shall not exceed an aggregate principal
amount of $1,000,000 at any time outstanding and (b) a term loan in the original
principal amount of $7,500,000. Lender is willing to make such extensions of
credit to Borrower upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I.
Definitions
Section 1.01. Definitions. As used in this Agreement, the following terms
have the following meanings:
"Accountants" means Arthur Andersen, L.L.P. or other independent
certified public accountants of recognized standing acceptable to Lender.
"Advance" means an advance of funds by Lender to Borrower pursuant
to Article II.
"Advance Request Forms" means a certificate, in substantially the
form of Exhibit "K" hereto, properly completed and signed by Borrower
requesting an Advance.
"Arbitration Agreement" means the Arbitration Agreement executed
by Borrower, the Subsidiaries and Guarantors in substantially the form of
Exhibit "M" hereto, as the same may be amended, supplemented, or
modified.
"Agreement Regarding Purchase of Notes" means the Agreement
Regarding Purchase of Notes executed by RKM, TJF and Lender in
substantially the form of Exhibit "S" hereto, as the name may be amended,
supplemented or modified from time to time.
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"Ben-Singer" means Ben-Singer, Inc., a Texas corporation, and its
successors and assigns.
"Business Day" means any day on which commercial banks are not
authorized or required to close in Houston, Texas.
"Cash Flow Coverage Ratio" means, for the period for which such
calculation is being made, EBITDA for such period divided by the sum of
(a) the scheduled principal maturities of Long Term Debt for such period,
plus (b) interest expense of Borrower and the Subsidiaries for such
period.
"Closing Date" means the date on which this Agreement has been
executed and delivered by the parties hereto and the conditions set forth
in Section 6.01 have been satisfied.
"Collateral" has the meaning specified in Section 5.01.
"Commitment" means the obligation of Lender to make Advances
hereunder in an aggregate principal amount at any time outstanding up to
but not exceeding $1,000,000.00, as such amount may be reduced as
provided hereby.
"Current Assets" means, at any particular time, all amounts which,
in conformity with GAAP, would be included as current assets on a
consolidated balance sheet of Borrower and its Subsidiaries.
"Current Liabilities" means, at any particular time, all amounts
which, in conformity with GAAP, would be included as current liabilities
on a consolidated balance sheet of Borrower and its Subsidiaries;
provided that for purposes of calculating the Current Ratio (i) the Debt
evidenced by Note-A and Note-B shall not constitute Current Liabilities
and (ii) the Debt of Borrower to WSTE in the original principal amount of
$1,250,000, the payment of which has been subordinated to the payment of
the Obligations in the Guaranty-WSTE, shall not constitute Current
Liabilities.
"Current Ratio" means the ratio of Current Assets to Current
Liabilities.
"Debt" means for any Person (a) all indebtedness, whether or not
represented by bonds, debentures, notes, securities, or other evidences
of indebtedness, for the repayment of money borrowed, (b) all
indebtedness representing deferred payment of the purchase price of
property or assets, (c) all indebtedness under any lease which, in
conformity with GAAP, is required to be capitalized for balance sheet
purposes, (d) all indebtedness under guaranties, endorsements,
assumptions, or other contingent obligations, in respect of, or to
purchase or otherwise acquire, indebtedness of others, (e) all
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indebtedness secured by a Lien existing on property owned, subject to
such Lien, whether or not the indebtedness secured thereby shall have
been assumed by the owner thereof, and (f) any obligation to redeem or
repurchase any of such Person's capital stock, warrants, or stock
equivalents.
"Deed Of Trust-Galveston" means the Deed of Trust, Security
Agreement, Assignment of Rents and Financing Statement executed by
Borrower in favor of Lender, in substantially the form of Exhibit "I"
hereto, as the same may be amended, supplemented, or modified from to
time.
"Deed Of Trust-Harris" means the Deed of Trust, Security
Agreement, Assignment of Rents and Financing Statement executed by
Borrower in favor of Lender, in substantially the form of Exhibit "J"
hereto, as the same may be amended, supplemented, or modified from to
time.
"Default Rate" means the lesser of (a) the sum of the Prime Rate
in effect from day to day plus three percent (3%) or (b) the Maximum
Rate.
"EBITDA" means for Borrower and its Subsidiaries, on a
consolidated basis, the sum of (a) income before taxes, (b) depreciation
and amortization, plus (c) interest expense.
"Environmental Laws" means any and all federal, state and local
laws, regulations, and requirements pertaining to health, safety, or the
environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
ss. 9601 et seq.,the Resource Conservation and Recovery Act of 1976, 42
U.S.C. ss. 6901 et seq., the Occupational Safety and Health Act, 29
U.S.C. ss. 651 et seq., the Clean Water Act, 33 U.S.C. ss. 1251 et seq.,
the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq., and all
similar laws, regulations, and requirements of any governmental authority
or agency having jurisdiction over Borrower, any Subsidiary or WSTE or
any of their respective properties or assets, as such laws, regulations,
and requirements may be amended or supplemented from time to time.
"ERISA" means the Employee Retirement Income Security Act of 1974,
an amended from time to time, and the regulations and published
interpretations thereunder.
"Event of Default" has the meaning specified in Section 11.01.
"GAAP" means generally accepted accounting principles, applied on
a consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants or in
statements of the Financial
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Accounting Standards Board or their respective successors and which are
applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting
principles observed in a current period are comparable in all material
respects to those accounting principles applied in a preceding period.
"Guaranties" means the Guaranty-Ben-Singer, the Guaranty-RKM, the
Guaranty-Sanifill Hauling, the Guaranty-TJF and the Guaranty-WSTE.
"Guaranty-Ben-Singer" means the Guaranty Agreement executed by
Ben-Singer in favor of Lender in substantially the form of Exhibit "Q"
hereto, as the same may be amended, supplemented or modified from time to
time.
"Guaranty-RKM" means the Guaranty Agreement executed by RKM in
favor of Lender in substantially the form of Exhibit "D" hereto, as the
same may be amended, supplemented or modified from time to time.
"Guaranty-Sanifill Hauling" means the Guaranty Agreement executed
by Sanifill Hauling in favor of Lender in substantially the form of
Exhibit "P" hereto, as the same may be amended, supplemented or modified
from time to time.
"Guaranty-TJF" means the Guaranty Agreement executed by TJF in
favor of Lender in substantially the form of Exhibit "E" hereto, as the
same may be amended, supplemented or modified from time to time.
"Guaranty-WSTE" means the Guaranty Agreement executed by WSTE in
favor of Lender in substantially the form of Exhibit "F" hereto, as the
same may be amended, supplemented or modified from time to time.
"Guarantors" means RKM, TJF and WSTE.
"Hazardous Substances" means (a) any "hazardous waste" as defined
by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section
6901 et seq), as amended from time to time, and regulations promulgated
thereunder, (b) any "hazardous substance". as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. Section 9601 et seq.) ("CERCLA"), as amended from time to
time, and regulations promulgated thereunder, (c) asbestos, (d)
polychlorinated biphenyls, (e) any substance the presence of which on the
Real Property or any other property owned or leased by Borrower, any
Subsidiary or WSTE is prohibited by any Governmental Requirements (as
defined below), (f) any petroleum-based products which are deemed
hazardous by any Governmental Requirements, (g) underground
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storage tanks which are deemed hazardous by any Governmental
Requirements, and (h) any other substance which by any Governmental
Requirements requires special handling or notification of any
federal, state or local governmental entity in its collection,
storage, treatment, or disposal. For purposes herein "Governmental
Requirements" shall mean all laws, ordinances, statutes, codes,
rules, regulations, orders and decrees of the United States, the
state, the county, the city, or any other political subdivision in
which the Real Property or any other property owned or leased by
Borrower, any Subsidiary or WSTE is located, and any other political
subdivision, agency or instrumentality exercising jurisdiction over
Borrower, the Real Property or any other property owned or leased
by Borrower, any Subsidiary or WSTE.
"Landfill" means the construction and demolition landfill located
in Galveston County, Texas and constituting part of the Real Property.
"Lien" means any lien, mortgage, security interest, tax lien,
financing statement, pledge, charge, hypothecation, assignment,
preference, priority, or other encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or title
retention agreement), whether arising by contract, operation of law, or
otherwise.
"Loan Documents" means this Agreement and all promissory notes,
security agreements, assignments, guaranties and other instruments,
documents and agreements executed and delivered pursuant to or in
connection with this Agreement, as such instruments, documents, and
agreements may be amended, modified, renewed, extended, or supplemented
from time to time.
"Long Term Debt" means for Borrower and its Subsidiaries on a
consolidated basis, Debt of such Persons for borrowed money which has a
final maturity more than twelve months from the date of calculation.
"Maximum Rate" means the maximum rate of nonusurious interest
permitted from day to day by applicable law, including as to Article
52069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "Indicated rate ceilings" and
calculated after taking into account any and all relevant fees, payments,
and other charges in respect of the Loan Documents which are deemed to be
interest under applicable law.
"No Default Certificate" means a certificate of Borrower
substantially in the form of Exhibit "L".
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"Note-A" means the promissory note executed by Borrower payable to
the order of Lender, in substantially the form of Exhibit "A" hereto, and
all extensions, renewals, and modifications thereof and all substitutions
therefor.
"Note-B" means the promissory note executed by Borrower payable to
the order of Lender, in substantially the form of Exhibit "B" hereto, and
all extensions, renewals, and modifications thereof and all substitutions
therefor.
"Notes" means Note-A and Note-B.
"Obligated Party" means each Guarantor, each Subsidiary and any
other Person who is or becomes party to any agreement pursuant to which
such Person guarantees or secures payment and performance of the
Obligations or any part thereof.
"Obligations" means all obligations, indebtedness, and liabilities
of Borrower to Lender, now existing or hereafter arising, whether direct,
indirect, related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several, or joint and several, including, without
limitation, the obligations, indebtedness, and liabilities of Borrower
under this Agreement and the other Loan Documents, and all interest
accruing thereon and all attorneys' fees and other expenses incurred in
the enforcement or collection thereof. ,
"Option Tract" means the real property described in Exhibit "R"
hereto.
"Parent Debt" shall have the meaning given to such term in
Section 9.01.
"Pledge Agreement-RKM" means the Pledge and Security Agreement
executed by RKM in favor of Lender in substantially the form of Exhibit
"G" hereto, as the same may be amended, supplemented, or modified.
"Pledge Agreement-WSTE" means the Pledge and Security Agreement
executed by WSTE in favor of Lender in substantially the form of Exhibit
"H" hereto, as the same may be amended, supplemented, or modified.
"Person" means any individual, corporation, business trust,
association, company, partnership, joint venture, governmental authority,
or other entity.
"Prime Rate" means that variable rate of interest per annum
established by Lender from time to time as its prime rate which shall
vary from time to time. Such rate is set by Lender as a general reference
rate of interest, taking into account such factors as Lender may deem
appropriate, it being
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understood that many of Lender's commercial or other loans are priced in
relation to such rate, that it is not necessarily the lowest or best rate
charged to any customer and that Lender may make various commercial or
other loans at rates of interest having no relationship to such rate.
"Real Property" means (a) the real property and interests in real
property described in the Deed of Trust-Galveston and the Deed of
Trust-Harris and all improvements and fixtures thereon and all
appurtenances thereto and (b) after the acquisition thereof by Borrower,
the Option Tract and all improvements and fixtures thereon and all
appurtenances thereto.
"RKM" means Robert K. Moses, Jr. and his heirs, executors,
successors and assigns.
"Sanifill" means any one or more of Sanifill, Inc., Sanifill
Hauling, Sunray Services, Inc., S&J Landfill Limited Partnership and
Brazoria County Recycling Center, Inc.
"Sanifill Hauling" means Sanifill of Texas Hauling, Inc., a Texas
corporation, and its successors and assigns.
"Security Agreement-Ben-Singer" means the Security Agreement
executed by Ben-Singer in favor of Lender in substantially the form of
Exhibit "O" hereto, as the same may be amended, supplemented or modified.
"Security Agreement-Borrower" means the Security Agreement
executed by Borrower in favor of Lender in substantially the form of
Exhibit "C" hereto, as the same may be amended, supplemented or modified.
"Security Agreement-Sanifill Hauling" means the Security Agreement
executed by Sanifill Hauling in favor of Lender in substantially the form
of Exhibit "N" hereto, as the same may be amended, supplemented or
modified.
"Subsidiaries" means Sanifill-Hauling and Ben-Singer.
"Survey" shall mean a survey showing (a) a metes and bounds
description of the real property covered thereby, (b) all recorded or
visible boundary lines, building locations, locations of utilities,
easements, rights-of-way, rights of access, building or set-back lines,
dedications, and natural and manufactured objects affecting such real
property, (c) any encroachments upon or protrusions from such real
property, (d) any area federally designated as a flood hazard, and (e)
such other matters as Lender may require.
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"Term Loan" means the loan made by Lender to Borrower pursuant to
Article III.
"Termination Date" means 11:00 a.m., Houston, Texas time on
February 15, 1998, or such earlier date on which the Commitment
terminates as provided in this Agreement.
"TJF" means Thomas J. Fatjo, Jr. and his heirs, executors,
successors and assigns.
"WSTE" means TransAmerican Waste Industries, Inc., a Delaware
corporation, and its successors and assigns.
Section 1.02. Other Definitional Provisions. All definitions contained
in this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein", and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. Unless otherwise
specified, all Article and Section references pertain to this Agreement. All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP. Terms used herein that are defined in the Uniform
Commercial Code as adopted by the State of Texas, unless otherwise defined
herein, shall have the meanings specified in the Uniform Commercial Code as
adopted by the State of Texas.
ARTICLE II.
Advances
Section 2.01. Advances. Subject to the terms and conditions of this
Agreement, Lender agrees to make one or more Advances to Borrower from time to
time from the date hereof to and including the Termination Date in an aggregate
principal amount at any time outstanding up to but not exceeding the Commitment.
Subject to the foregoing limitation, and the other terms and provisions of this
Agreement, Borrower may borrow, repay and reborrow hereunder.
Section 2.02. Note-A. The obligation of Borrower to repay the Advances
shall be evidenced by Note-A executed by Borrower, payable to the order of
Lender, in the principal amount of the Commitment.
Section 2.03. Repayment of Advances. Borrower shall repay the unpaid
principal amount of all Advances on the earlier of (a) the Termination Date or
(b) such other dates on which the Advances are required to be paid pursuant to
this Agreement.
Section 2.04. Interest. The unpaid principal amount of the Advances shall
bear interest prior to maturity at a varying rate
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per annum equal from day to day to the lesser of (a) the Maximum Rate or (b) the
Prime Rate in effect from day to day plus one percent (1.0%), and each change in
the rate of interest charged on the Advances shall become effective, without
notice to Borrower, on the effective date of each change in the Prime Rate or
the Maximum Rate, as the case may be; provided, however, if at any time the rate
of interest specified in clause (b) preceding shall exceed the Maximum Rate,
thereby causing the interest on the Advances to be limited to the Maximum Rate,
then any subsequent reduction in the Prime Rate shall not reduce the rate of
interest on the Advances below the Maximum Rate until the aggregate amount of
interest actually accrued on the Advances equals the amount of interest which
would have accrued on the Advances if the interest rate specified in clause (b)
preceding had at all times been in effect. Accrued and unpaid interest on the
Advances shall be payable on each March 31, June 30, September 30 and December
31, commencing on March 31, 1997, and on the earlier of the Termination Date or
any other date on which the principal amount of the Advances is paid (whether as
a result of optional or mandatory prepayment or acceleration). All past due
principal and interest shall bear interest at the Default Rate.
Section 2.05. Requests for Advances. Borrower shall give Lender notice
of each requested Advance at least one (1) Business Day prior to the requested
date of such Advance by delivery to Lender of an Advance Request Form properly
completed and containing the information required therein and any other
information which Lender may request pursuant to Section 6.02. Lender at its
option may accept telephonic requests for Advances, provided that any telephonic
request for an Advance by Borrower shall be promptly confirmed by submission of
a properly completed Advance Request Form to Lender. Each telephonic request for
an Advance shall constitute a representation by Borrower to Lender that no Event
of Default exists and that the amount of the outstanding Advances plus the
amount of the requested Advance will not exceed the Commitment.
Section 2.06. Use of Proceeds. The proceeds of Advances shall be used for
general working capital purposes.
Section 2.07. Facility Fee. Borrower agrees to pay to Lender a facility
fee in the amount of one percent (1.0%) of the Commitment ($10,000.00) on the
Closing Date. Such facility fee shall be fully earned when paid.
ARTICLE III.
Term Loan
Section 3.01. Agreement for Term Loan. Subject to the terms and
conditions of this Agreement, Lender agrees to make the Term Loan to Borrower in
the amount of $7,500,000.00.
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Section 3.02. Note-B. The obligation of Borrower to repay the Term Loan
shall be evidenced by Note-B executed by Borrower, payable to the order of
Lender, in the principal amount of $7,500,000.00.
Section 3.03. Interest. The Term Loan shall bear interest prior to
maturity at a varying rate per annum equal from day to day to the lesser of (a)
the Maximum Rate or (b) the Prime Rate in effect from day to day plus one
percent (1.0%), and each change in the rate of interest charged on the Term Loan
shall become effective, without notice to Borrower, on the effective date of
each change in the Prime Rate or the Maximum Rate, as the case may be; provided,
however, if at any time the rate of interest specified in clause (b) preceding
shall exceed the Maximum Rate, thereby causing the interest on the Term Loan to
be limited to the Maximum Rate, then any subsequent reduction in the Prime Rate
shall not reduce the rate of interest on the Term Loan below the Maximum Rate
until the aggregate amount of interest actually accrued on the Advances equals
the amount of interest which would have accrued on the Term Loan if the interest
rate specified in clause (b) preceding had at all times been in effect.
Section 3.04. Payment of Principal and Interest. Principal of and
interest on the Term Loan shall be due and payable as provided in Note-B.
Section 3.05. Purpose. The purpose of the Term Loan shall be to finance
the purchase of assets from Sanifill, Inc.
Section 3.06. Facility Fee. Borrower agrees to pay to Lender a facility
fee in the amount of one percent (1.0%) of the Term Loan ($75,000.00) on the
Closing Date. Such facility fee shall be fully earned when paid.
ARTICLE IV.
Payments
Section 4.01. Method of Payment. All payments of principal, interest, and
other amounts to be made by Borrower under this Agreement, the Notes or any
other Loan Documents shall be made to Lender at its office at 4400 Post Oak
Parkway, Houston, Texas 77027, without setoff, deduction, or counterclaim in
immediately available funds. Whenever any payment under this Agreement, any Note
or any other Loan Document shall be stated to be due on a day that is not a
Business Day, such payment may be made on the next Business Day, and interest
shall continue to accrue during such extension.
Section 4.02. Voluntary Prepayment. Borrower may prepay either Note in
whole at any time or from time to time in part
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without premium or penalty but with accrued interest to the date of prepayment
on the amount so prepaid.
Section 4.03. Commutation of Interest. Interest on the indebtedness
evidenced by the Notes shall be computed on the basis of a year of 360 days and
the actual number of day elapsed (including the first day but excluding the last
day) unless such calculation would result in a usurious rate, in which case
interest shall be calculated on the basis of a year of 365 or 366 days, as the
case may be.
ARTICLE V.
Collateral
Section 5.01. Collateral. To secure full and complete payment and
performance of the Obligations, Borrower shall execute and deliver or cause to
be executed and delivered the documents described below covering the property
and collateral described therein and in this Section 5.01 (which, together with
any other property and collateral which may now or hereafter secure the
Obligations or any part thereof, is sometimes herein called the "Collateral")
(a) Borrower shall grant to Lender a first priority security
interest in all of its accounts, accounts receivable, inventory,
equipment, machinery, rolling stock, trade fixtures, chattel paper,
documents, instruments, and general intangibles, including the contracts
with Sanifill under which Borrower receives preferred pricing for waste
disposal, whether now owned or hereafter acquired, and all products and
proceeds thereof, pursuant to the Security Agreement.
(b) Borrower shall grant to Lender a first priority lien on the
Real Property pursuant to the Deed of Trust-Galveston and the Deed of
Trust-Harris.
(c) The Subsidiaries shall grant to Lender a first priority
security interest in all of their respective accounts, accounts
receivable, inventory, equipment, machinery, rolling stock, trade
fixtures, chattel paper, documents, instruments, and general intangibles,
including contracts for commercial and residential waste removal, whether
now owned or hereafter acquired, and all products and proceeds thereof,
pursuant to the Security Agreement-Sanifill Holding and the Security
Agreement-Ben-Singer.
(d) RKM will pledge to Lender shares of capital stock of
Weatherford Enterra, Inc. which have a market value of at least
$4,000,000.00 pursuant to the Pledge Agreement-RKM.
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(e) WSTE will pledge to Lender all the outstanding capital stock
of Borrower pursuant to the Pledge Agreement-WSTE.
(f) Borrower, the Subsidiaries, RKM and WSTE shall execute and
cause to be executed such further documents and instruments, including
without limitation, Uniform Commercial Code financing statements, as
Lender, in its sole discretion, deems necessary or desirable to evidence
and perfect its liens and security interests in the Collateral.
Section 5.02. Setoff. After the occurrence and during the continuance of
an Event of Default, Lender shall have the right to set off and apply against
the Obligations in such a manner as Lender may determine, at any time and
without notice to Borrower, subject to the rights of customers of Borrower and
other contractual obligations of Borrower that are superior to the rights of
Lender, any and all deposits (general or special, time or demand, provisional or
final) or other sums at any time credited by or owing from Lender to Borrower or
any Subsidiary whether or not the Obligations are then due. In addition to
Lender's right of setoff and as further security for the Obligations, Borrower
hereby grants to lender a security interest in all deposits (general or special,
time or demand, provisional or final) and other accounts of Borrower now or
hereafter on deposit with or held by Lender and all other sums at any time
credited by or owing from Lender to Borrower. The rights and remedies of Lender
hereunder are in addition to other rights and remedies (including, without
limitation, to the rights of setoff) which Lender may have.
Section 5.03. Guaranties. Guarantors and the Subsidiaries shall
unconditionally and irrevocably guarantee payment and performance of the
Obligations by execution and delivery of the Guaranties.
ARTICLE VI.
Conditions Precedent
Section 6.01. Initial Extension of Credit. The obligation of Lender to
make the initial Advance or make the Term Loan is subject to the condition
precedent that Lender shall have received on or before the day of such Advance
or Term Loan all of the documents set forth below in form and substance
satisfactory to Lender.
(a) Resolutions - Borrower. Resolutions of the Board of Directors
of Borrower certified by its Secretary or an Assistant Secretary which
authorize the execution, delivery and performance by Borrower of this
Agreement and the other Loan Documents to which Borrower is or is to be a
party.
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(b) Incumbency Certificate - Borrower. A certificate of incumbency
certified by the Secretary or an Assistant Secretary of Borrower
certifying the names of the officers of Borrower authorized to sign this
Agreement and each of the other Loan Documents to which Borrower is or is
to be party together with specimen signatures of such officers.
(c) Certificate of Good Standing - Borrower. A certificate of good
standing of Borrower in the State of Texas certified by the Comptroller
of the State of Texas.
(d) Articles of Incorporation - Borrower. The articles of
incorporation of Borrower certified by the Secretary or an Assistant
Secretary of Borrower.
(e) Bylaws - Borrower. The bylaws of Borrower certified by the
Secretary or an Assistant Secretary of Borrower.
(f) Resolutions - WSTE and Subsidiaries. Resolutions of the Board
of Directors of WSTE and each Subsidiary certified by its Secretary or an
Assistant Secretary which authorize the execution, delivery and
performance by WSTE or such Subsidiary of its respective Guaranty and the
other Loan Documents to which WSTE or such Subsidiary is or is to be a
party.
(g) Incumbency Certificate - WSTE and Subsidiaries. A certificate
of incumbency certified by the Secretary or an Assistant Secretary of
WSTE and each Subsidiary certifying the names of the officers of WSTE or
such Subsidiary authorized to sign the respective Guaranty to be executed
by such Person and each of the other Loan Documents to which WSTE or such
Subsidiary is or is to be a party together with specimen signatures of
such officers.
(h) Certificate of Existence and Good Standing - WSTE. A
certificate of existence and good standing of WSTE certified by the
Secretary of State of Delaware.
(i) Certificate of Existence - Subsidiaries. A certificate of
existence of each Subsidiary certified by the Secretary of State of
Texas.
(j) Certificates of Existence and Good Standing - WSTE.
Certificates of existence and good standing of WSTE as a foreign
corporation in the State of Texas certified by the appropriate officials
of the State of Texas.
(k) Articles of Incorporation - WSTE and Subsidiaries. The
articles of incorporation of WSTE and each Subsidiary certified by the
Secretary or an Assistant Secretary of WSTE or such Subsidiary.
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(1) Bylaws - WSTE and Subsidiaries. The bylaws of WSTE and each
Subsidiary certified by the Secretary or an Assistant Secretary of WSTE
or such Subsidiary.
(m) Notes. Note-A and Note-B executed by Borrower.
(n) Security Agreements. The Security Agreement-Borrower executed
by Borrower, the Security Agreement -Sanifill Hauling executed by
Sanifill Hauling, and the Security Agreement-Ben-Singer executed by
Ben-Singer.
(o) Deeds of Trust. The Deed of Trust-Galveston and the Deed of
Trust-Harris executed by Borrower.
(p) Guaranties. The Guaranty-RKM executed by RKM, the Guaranty-TJF
executed by TJF, the Guaranty-WSTE executed by WSTE, the
Guaranty-Sanifill Hauling executed by Sanifill Hauling and the
Guaranty-Ben-Singer executed by Ben-Singer.
(q) Pledge Agreements: Stock and Stock Powers. The Pledge
Agreement-RKM executed by RKM, and the Pledge Agreement-WSTE executed by
WSTE, together with certificates evidencing the stock pledged under such
Pledge Agreements and powers of attorney with respect thereto.
(r) Financing Statements. Uniform Commercial Code financing
statements executed by Borrower, RKM, the Subsidiaries and WSTE.
(s) Agreement Regarding Purchase of Notes. The Agreement Regarding
Purchase of Notes executed by the parties thereto.
(t) Mortgagee Title Insurance Policies. Paid mortgagee policies of
title insurance in the amount of the owner's title insurance policies
obtained by Borrower with respect to the Real Property, but not less than
$4,000,000.00, insuring that the Deeds of Trust create in favor of Lender
first priority liens on the Real Property. The mortgagee policies of
title insurance shall have been issued at Borrower's expense by a title
insurance company acceptable to Lender, shall show a state of title and
exceptions thereto, if any, acceptable to Lender, and shall contain such
endorsements as may be required by Lender.
(u) Easements, etc. Copies of all recorded easements, rights-of
way, restrictive covenants, leases, encumbrances, and other documents and
instruments filed of record that affect the Real Property.
(v) Insurance Policies. Copies of all insurance policies required
by Section 8.05, together with lender 1oss
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payable endorsements in favor of Lender with respect to all insurance
policies covering Collateral.
(w) UCC Search. A Uniform Commercial Code search showing all
financing statements and other documents or instruments on file against
Borrower, each Subsidiary and WSTE in Harris County, Texas and the office
of the Secretary of State of Texas.
(x) Facility Fees. The facility fees referred to in Section 2.07
and 3.06.
(y) Appraisal. A preliminary indication of value of the assets of
Borrower and the Subsidiaries, performed by an appraiser acceptable to
Lender, to the effect that (i) the tangible assets of Borrower and the
Subsidiaries (including trucks, containers and landfills) have a
liquidation value of not less than $5,000,000.00 and (ii) all assets of
Borrower and the Subsidiaries (excluding stock of the Subsidiaries held
by Borrower) have a liquidation value of not less than $10,000.000.00.
(z) Environmental Updates. An updated assessment of the
environmental condition of the Landfill.
(aa) Attorneys' Fees and Expenses. Evidence that the costs and
expenses (including reasonable attorneys' fees) referred to in Section
12.01, to the extent incurred, have been paid in full by Borrower.
(bb) Additional Documentation. Such additional approvals, opinions
or documents as Lender may reasonably request.
Section 6.02. All Advances. The obligation of Lender to make any Advance
(including the initial Advance) shall be subject to the additional conditions
precedent that Lender shall have received (a) an Advance Request Form or
telephonic request for an Advance in accordance with Section 2.05 and (b) such
additional approvals, opinions or documents as Lender may reasonably request.
ARTICLE VII.
Representations and Warranties
To induce Lender to enter into this Agreement, Borrower represents and
warrants to Lender that, as of the Closing Date and at all times thereafter:
Section 7.01. Corporate Existence. Each of Borrower, each Subsidiary and
WSTE (a) it a corporation duly organized, validly
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existing, and in good standing under the laws of the state of its incorporation,
and if it is not organized under the laws of the State of Texas, is existing and
in good standing as a foreign corporation under the laws of the State of Texas,
(b) has all requisite corporate power and authority to own its assets and carry
on its business as now being or as proposed to be conducted and (c) is qualified
to do business in all jurisdictions necessary and where failure to so qualify
would have a material adverse effect on its business, condition (financial or
otherwise), operations, prospects, or properties. Borrower has the corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and the other Loan Documents to which it is or may become a party.
Section 7.02. Financial Statements. Borrower has delivered to Lender
audited financial statements of WSTE as at and for the four month transition
period ended December 31, 1995, and financial statements of WSTE for the nine
month period ended September 30, 1996. Such financial statements are true and
correct, have been prepared in accordance with GAAP, and fairly and accurately
present the financial condition of WSTE as of the respective dates indicated
therein and the results of operations for the respective periods indicated
therein. WSTE has no material contingent liabilities, liabilities for taxes,
material forward or long-term commitments, or unrealized or anticipated losses
from any unfavorable commitments not reflected in such financial statements.
There has been no material adverse change in the business, condition (financial
or otherwise), operations, prospects, or properties of WSTE since the effective
date of the most recent financial statements referred to in this Section.
Section 7.03. Corporate Action: No Breach. The execution, delivery, and
performance by Borrower of this Agreement and the other Loan Documents to which
Borrower is or may become a party have been duly authorized by all requisite
action on the part of Borrower and do not and will not violate or conflict with
the articles of incorporation or bylaws of Borrower or any law, rule or
regulation or any order, writ, injunction, or decree of any court, governmental
authority, or arbitrator, and do not and will not conflict with, result in a
breach of, or constitute a default under, or result in the imposition of any
Lien (except as provided in this Agreement) upon any of the revenues or assets
of Borrower pursuant to the provisions of any indenture, mortgage, deed of
trust, security agreement, franchise, permit, license, or other instrument or
agreement by which Borrower or any of its properties is bound.
Section 7.04. Operation of Business. Borrower, the Subsidiaries and WSTE
possess all material licenses, permits, franchises, patents, copyrights,
trademarks, and tradenames, or rights thereto, to conduct their business
substantially as now
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conducted and as presently proposed to be conducted except for a permit for
expansion of the Landfill.
Section 7.05. Litigation and Judgments. Except as disclosed in the
reports delivered by WSTE to the Securities & Exchange Commission, there is no
action, suit, investigation, or proceeding before or by any court, governmental
authority, or arbitrator pending, or to the knowledge of Borrower, threatened
against or affecting Borrower, any Subsidiary or any Guarantor that would, if
adversely determined, have a material adverse effect on the business, condition
(financial or otherwise), operations, prospects or properties of Borrower, any
Subsidiary or any Guarantor or the ability of Borrower to pay and perform the
Obligations. There are no outstanding judgments against Borrower, any Subsidiary
or any Guarantor.
Section 7.06. Rights in Properties; Liens. Borrower, the Subsidiaries and
WSTE have good and indefeasible title to or valid leasehold interests in their
respective properties and assets, real and personal, including the properties,
assets and leasehold interests reflected in the financial statements described
in Section 7.02, and none of the properties, assets or leasehold interests of
Borrower or any Subsidiary is subject to any Lien, except as permitted by this
Agreement.
Section 7.07. Enforceability. This Agreement constitutes, and the other
Loan Documents to which Borrower is party, when delivered, shall constitute the
legal, valid, and binding obligations of Borrower, enforceable against Borrower
in accordance with their respective terms, except as enforceability thereof may
be limited by bankruptcy, insolvency, or other laws of general application
relating to the enforcement of creditor's rights.
Section 7.08. Approvals. No authorization, approval, or consent of, and
no filing or registration with, any court, governmental authority, or third
party is or will be necessary for the execution, delivery, or performance (a) by
Borrower of this Agreement and the other Loan Documents to which Borrower is or
may become a party or the validity or enforceability thereof or (b) by any
Subsidiary or any Guarantor of the Loan Documents to which such Person is or may
become a party or the validity or enforceability thereof.
Section 7.09. Debt. Borrower and the Subsidiaries have no Debt except (a)
Debt to Lender and (b) Debt to WSTB in the original principal amount of
$1,250,000.00.
Section 7.10. Use of Proceeds; Martin Securities. None of Borrower, any
Subsidiary or WSTE is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulations G, T, U, or X of the
Board of Governors of
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the Federal Reserve System), and no part of the proceeds of any extension of
credit under this Agreement will be used to purchase or carry any such margin
stock or to extend credit to others for the purpose of purchasing or carrying
margin stock.
Section 7.11. ERISA. Borrower, the Subsidiaries and WSTE have complied
with all applicable minimum funding requirements and all other applicable and
material requirements of ERISA, and there are no existing conditions that would
give rise to liability thereunder. No Reportable Event (as defined in Section
4043 of ERISA) has occurred in connection with any employee benefit plan that
might constitute grounds for the termination thereof by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United States
District Court of a trustee to administer such plan.
Section 7.12. Taxes. To the best of Borrower's knowledge, Borrower, each
Subsidiary and each Guarantor have filed all tax returns (federal, state, and
local) required to be filed, including all income, franchise, employment,
property, and sales taxes, and has paid all of their respective liabilities for
taxes, assessments, governmental charges, and other levies that are due and
payable, and Borrower knows of no pending investigation of Borrower, any
Subsidiary or any Guarantor by any taxing authority or of any pending but
unassessed tax liability of Borrower, any Subsidiary or any Guarantor. ,
Section 7.13. Disclosure. Except as disclosed in the reports delivered by
WSTE to the Securities & Exchange Commission, there is no fact known to Borrower
which has a material adverse effect, or which might in the future have a
material adverse effect, on the business, condition (financial or otherwise),
operations, prospects, or properties of Borrower, any Subsidiary or any
Guarantor that has not been disclosed in writing to Lender.
Section 7.14. Subsidiaries. Borrower has no subsidiaries other than the
Sanifill Hauling. Sanifill Hauling has no subsidiaries other than Ben-Singer.
Section 7.15. Compliance with Laws. To the best of Borrower's knowledge,
none of Borrower, any Subsidiary or WSTE is in violation in any material
respect of any law, rule, regulation, order, or decree of any court,
governmental authority, or arbitrator, which violation could result in a
material adverse effect on the business or operations of such Person or the
ability of Borrower to pay the Obligations or WSTE to perform under the
Guaranty-WSTE.
Section 7.16. Solvency. None of Borrower, any Subsidiary or WSTE is
insolvent or will be rendered insolvent by the transactions contemplated by this
Agreement and no bankruptcy or insolvency
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proceedings are pending against or contemplated by any of such Persons.
Section 7.17. Environmental Matters. Borrower, each Subsidiary and WSTE
and their respective properties are in compliance with all applicable
Environmental Laws and none of Borrower, any Subsidiary or WSTE is subject to
any liability or obligation for remedial action thereunder. There is no pending
or threatened investigation or inquiry by any governmental authority of
Borrower, any Subsidiary, WSTE or any of their respective properties pertaining
to any Hazardous Substance. Except in the ordinary course of business and in
accordance with law, there are no Hazardous Substances located on or under any
of the properties of Borrower, any Subsidiary or WSTE. Except in the ordinary
course of business and in accordance with law, none of Borrower, any Subsidiary
or WSTE has caused or permitted any Hazardous Substance to be disposed of on or
under or released from any of its properties. To the best of Borrower's
knowledge, Borrower, the Subsidiaries and WSTE have obtained all permits,
licenses, and authorizations which are required under and by all Environmental
Laws, the failure of which to obtain could result in a material adverse effect
on the business or operations of such Person or the ability of Borrower to pay
the Obligations or WSTE to perform under the Guaranty-WSTE.
ARTICLE VIII.
Positive Covenants
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any Commitment hereunder, Borrower
will perform and observe the covenants set forth below, unless Lender shall
otherwise consent in writing.
Section 8.01. Reporting Requirements. Borrower will deliver to Lender:
(a) Annual Financial Statements - Borrower. As soon as available,
and in any event within one hundred twenty (120) days after the end of
each fiscal year of Borrower, beginning with the fiscal year ending
December 31, 1997, (i) a copy of the annual financial statements of
Borrower and the Subsidiaries for such fiscal year, and (ii) the
consolidating financial statements of WSTE (which shall include Borrower)
reviewed by the Accountants in preparing the audited financial statements
of WSTE on Form 10-K for such year, and (iii) a certificate of the
Accountants confirming compliance by Borrower with the covenants
contained in Article X. The Borrower's financial statements shall
include, on a consolidated basis, balance sheets, statements of income,
statements of stockholders equity and statements of cash flows
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as at the end of such fiscal year and for the 12-month period then ended,
in each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and prepared in
accordance with GAAP.
(b) Annual Financial Statements - WSTE. As soon as available, and
in any event within one hundred twenty (120) days after the end of each
fiscal year of WSTE, beginning with the fiscal year ending December 31,
1996, a copy of the annual audited financial statements of WSTE and its
subsidiaries for such fiscal year on Form 10-K, containing, on a
consolidated basis, balance sheets, statements of income, statements of
stockholders equity and statements of cash flows as at the end of such
fiscal year and for the 12-month period then ended, in each case setting
forth in comparative form the figures for the preceding fiscal year, all
in reasonable detail and audited and certified by the Accountants.
(c) Quarterly Financial Statements - Borrower. As soon as
available, and in any event within sixty (60) days after the end of each
of the first three fiscal quarters of each fiscal year of Borrower, (i) a
copy of the unaudited financial statements of Borrower and the
Subsidiaries as of the end of such quarter and for the portion of the
fiscal year then ended, and (ii) the consolidating financial statements
of WSTE (which shall include Borrower) reviewed by the Accountants in
preparing the financial statements of WSTE on Form 10-Q for such quarter.
The Borrower's financial statements shall include, on a consolidated
basis, balance sheets, statements of income and statements of cash flows,
all in reasonable detail and certified by the financial vice president of
Borrower to have been prepared in accordance with GAAP and to fairly and
accurately present (subject to year-end audit related adjustments) the
financial condition and results of operations of Borrower and the
Subsidiaries, on a consolidated basis, at the dates and for the periods
indicated therein. The unaudited fourth quarter consolidated financial
statements of Borrower shall be included along with the annual financial
statements as required in Section 8.01(a).
(d) Quarterly Financial Statements - WSTE. As soon as available,
and in any event within sixty (60) days after the end of each of the
first three fiscal quarters of each fiscal year of WSTE, a copy of the
unaudited financial statements of WSTE on Form 10-Q as of the end of such
quarter and for the portion of the fiscal year then ended, containing, on
a consolidated basis, balance sheets, statements of income and statements
of cash flows, all in reasonable detail and certified by the president or
the chief financial officer of WSTE to have been prepared in accordance
with GAAP and to fairly and accurately present (subject to year-end audit
adjustments) the financial condition and results of operations
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of WSTE and its subsidiaries, on a consolidated basis, at the date and
for the period indicated therein. The unaudited fourth quarter
consolidated financial statements of WSTE shall be included along with
the annual financial statements as required in Section 8.01(b).
(e) Semi-Annual Financial Statements - REM and TJF. AS soon as
available, and in any event on or before each February 28 and August 31,
a copy of the financial statement of each of REM and TJF as of the
preceding December 31 and June 30, respectively, consisting of a balance
sheet, a statement of income and expenses, a list of liabilities,
including contingent liabilities (and stating the holder of such
liabilities, the repayment terms thereof and any collateral therefor),
and a statement of cash flows.
(f) No Default Certificate. Simultaneously with the delivery of
financial statements of Borrower under Section 8.01 (a) and (c), a No
Default Certificate as of the last day of such quarter, executed by the
financial vice president of Borrower.
(g) Quartely Accounts Receivable Reports. Simultaneously with the
delivery of financial statements of Borrower under Section 8.01 (a) and
(c), aged accounts receivable reports for Borrower and each Subsidiary as
of the last day of such quarter certified by the financial vice president
of Borrower.
(h) Notice of Litigation. Promptly after the commencement thereof,
notice of all actions, suits and proceedings before any court or
governmental department, affecting Borrower, any Subsidiary or any
Guarantor which, if determined adversely to Borrower, such Subsidiary or
such Guarantor, could have a material adverse effect on the business,
condition (financial or otherwise), operations, prospects, or properties
of Borrower, such Subsidiary or such Guarantor.
(i) Notice of Default. As soon as possible and in any event within
five (5) days after the occurrence of each Event of Default and each
event which, with the giving of notice or lapse of time or both, would
constitute an Event of Default, a written notice setting forth the
details of such Event of Default or event and the action which Borrower
has taken and proposes to take with respect thereto.
(j) Proxy Statements, Etc. As soon as available, one copy of each
financial statement, report, notice or proxy statement sent by Borrower,
any Subsidiary or WSTE to its stockholders generally and one copy of each
regular, periodic or special report, registration statement, or
prospectus filed
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by Borrower, any Subsidiary or WSTE with any securities exchange or the
Securities and Exchange Commission or any successor agency.
(k) General Information. Promptly, such other information
concerning Borrower, any Subsidiary or any Guarantor as Lender may from
time to time reasonably request.
Section 8.02. Maintenance of Existence: Conduct of Business. Borrower
will preserve and maintain, and will cause each Subsidiary and WSTE to preserve
and maintain, its corporate existence and all of its leases, privileges,
licenses, permits, franchises, qualifications and rights that are necessary or
desirable in the ordinary conduct of its business.
Section 8.03. Maintenance of Properties. Borrower will maintain, and will
cause each Subsidiary and WSTE to maintain, its assets and properties in good
condition and repair.
Section 8.04. Taxes and Claims. Borrower will pay or discharge, and will
cause each Subsidiary and WSTE to pay or discharge, at or before maturity or
before becoming delinquent (a) all taxes, levies, assessments, and governmental
charges imposed on it or its income or profits or any of its property, and (b)
all lawful claims for labor, material, and supplies, which, if unpaid, might
become a Lien upon any of its property; provided, however, that none of
Borrower, any Subsidiary or WSTE shall be required to pay or discharge any tax,
levy, assessment, or governmental charge which is being contested in good faith
by appropriate proceedings diligently pursued, and for which adequate reserves
have been established,
Section 8.05. Insurance. Borrower will maintain, and will cause each
Subsidiary and WSTE to maintain, with financially sound and reputable insurance
companies workmen's compensation insurance, liability insurance, and insurance
on its property, assets and business at least in such amounts and against such
risks as are usually insured against by Persons engaged in similar businesses.
Each insurance policy covering Collateral shall name Lender as lender 1oss payee
and shall provide that such policy will not be canceled without ten (10) days
prior written notice to Lender.
Section 8.06. Inspections. At any reasonable time and from time to time,
Borrower will permit, and cause the Subsidiaries and WSTE to permit,
representatives of Lender to examine and make copies of the books and records
of, and visit and inspect the properties or assets of Borrower, the Subsidiaries
and WSTE and to discuss the business, operations, and financial condition of any
such Persons with their respective officers and employees with their independent
certified public accountants.
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Section 8.07. Keeping Books and Records. Borrower will maintain, and will
cause each Subsidiary and WSTE to maintain, proper books of record and account
in which full, true, and correct entries in conformity with GAAP shall be made
of all dealings and transactions in relation to its business and activities.
Section 8.08. Compliance with Laws. Borrower will comply, and will cause
each Subsidiary and WSTE to comply, in all material respects with all applicable
laws, rules, regulations, and orders of any court, governmental authority, or
arbitrator.
Section 8.09. Compliance with Agreements. Borrower will comply, and will
cause each Subsidiary and WSTE to comply, in all material respects with all
agreements, contracts, and instruments binding on it or affecting its properties
or business.
Section 8.10. Further Assurances. Borrower will execute and deliver, and
will cause each Subsidiary and WSTE to execute and deliver, such further
instruments as may be requested by Lender to carry out the provisions and
purposes of this Agreement and the other Loan Documents and to preserve and
perfect the Liens of Lender in the Collateral.
Section 8.11. ERISA. Borrower will comply, and will cause each Subsidiary
and WSTE to comply, with all minimum funding requirements, and all other
material requirements, of ERISA, if applicable, so as not to give rise to any
liability thereunder.
Section 8.12. Post Closing Matters. (a) Not later than thirty (30) days
following the Closing Date, Borrower will deliver to Lender an appraisal of the
value of the assets of Borrower and the Subsidiaries, performed by an appraiser
acceptable to Lender, to the effect that (i) the tangible assets of Borrower and
the Subsidiaries (including trucks, containers and landfills) have a liquidation
value of not less than $5,000,000.00 and (ii) all assets of Borrower and the
Subsidiaries (excluding stock of the Subsidiaries held by Borrower) have a
liquidation value of not leas than $10,000.000.00.
(b) Not later than thirty (30) days following the Closing Date, Borrower
will deliver to Lender titles endorsed to Lender to all vehicles owned by
Borrower or either Subsidiary.
(c) Not later than thirty days following the Closing Date, Borrower shall
deliver to Lender (i) Surveys of the Real Property which shall be acceptable to
Lender and (ii) endorsements to the mortgagee title insurance policies deleting
the survey exception.
(d) Not later than thirty (30) days following the Closing Date, Borrower
will deliver to Lender studies of the environmental condition of the Real
Property other than the Landfill, which shall be acceptable to Lender in form
and substance.
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(e) Prior to obtaining title to the Option Tract, Borrower will deliver
to Lender (i) a title commitment with respect thereto together with copies of an
documents creating encumbrances on the Option Tract, and (ii) a Survey of the
Option Tract, both in form and substance satisfactory to Lender.
(f) Simultaneously with obtaining title to the Option Tract, Borrower
will deliver to Lender (i) an executed deed of trust substantially in the form
of the Deeds of Trust covering the Option Tract and (ii) a mortgagee's policy in
the amount of Borrower's owner's policy insuring that such deed of trust creates
a first lien in favor of Lender.
(g) Not later than thirty (30) days following the Closing Date Borrower
will file a Stormwater Pollution Prevention Plan for the Landfill
ARTICLE IX.
Negative Covenants
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any Commitment hereunder, Borrower
will perform and observe the covenants set forth below, unless Lender shall
otherwise consent in writing.
Section 9.01. Debt. Borrower will not incur, create, assume or permit to
exist, and will not permit any Subsidiary to incur, create, assume or permit to
exist, any Debt, except (a) Debt to Lender, (b) accounts payable in the ordinary
course of business, (c) Debt which does not exceed a principal amount of
$400,000.00 outstanding at any time, (d) Debt arising from the endorsement of
instruments for collection in the ordinary course of business, (e) Debt to WSTE
in the principal amount of $1,250,000 the payment of which has been subordinated
to the payment of the Obligations as provided in the Guaranty-WSTE, (f) landfill
closure and post closure costs, including financial assurances related thereto,
and (g) Parent Debt (hereinafter defined), provided that (i) the aggregate
principal amount of Parent Debt which may be incurred by Borrower shall not
exceed $750,000.00, (ii) no Parent Debt may be incurred after January 31, 1998,
(iii) no Event of Default shall exist at the time Borrower incurs any Parent
Debt and no Event of Default shall arise as a result of the incurrence by
Borrower of any Parent Debt. As used herein the term "Parent Debt" means Debt of
Borrower incurred in connection with working capital advances made by WSTE to
Borrower.
Section 9.02. Limitation on Liens. Borrower will not incur, create,
assume, or permit to exist, any Lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired, except (a) Liens in favor of
Lender, (b) Liens securing
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Debt permitted by Section 9.01(c), (c) encumbrances consisting of minor
easements, zoning restrictions, or other restrictions on the use of real
property that do not (individually or in the aggregate) materially affect the
value of the assets encumbered thereby or materially impair the ability of
Borrower or such Subsidiary to use such assets in its business, and none of
which is violated in any material aspect by existing or proposed structures or
land use, (d) Liens for taxes, assessments, or other governmental charges which
are not delinquent or which are being contested in good faith and for which
adequate reserves have been established, and (e) Liens of mechanics,
materialmen, warehousemen, carriers or other similar statutory Liens securing
obligations that are not yet due and are incurred in the ordinary course of
business.
Section 9.03. Mergers, Acquisitions, Dissolutions and Disposition of
Assets. Borrower will not, and will not permit any Subsidiary to, (a) become a
party to a merger, consolidation, partnership or joint venture or purchase or
otherwise acquire all or a substantial part of the assets of any Person or any
shares or other evidence of beneficial ownership of any Person, (b) dissolve or
liquidate, (c) create a new subsidiary or (d) sell, lease, assign, transfer or
otherwise dispose of any of its assets, except (i) dispositions of assets in the
ordinary course of business which have a fair market value which does not exceed
an aggregate amount of $250,000.00 during any fiscal year for Borrower and the
Subsidiaries, and (ii) dispositions of assets in the ordinary course of
business, provided that Borrower or such Subsidiary has replaced such assets
with replacement items having a value equal to or greater than the value of the
items of which Borrower or such Subsidiary disposed.
Section 9.04. Restricted Payments. Borrower will not declare or pay any
dividends or make any other payment or distribution (in cash, property, or
obligations) on account of its capital stock, or redeem, purchase, retire, or
otherwise acquire any of its capital stock, or grant or issue any capital stock
or any warrant, right, or option pertaining to its capital stock, or issue any
security convertible into capital stock.
Section 9.05. Loans and Investments. Borrower will not, and will not
permit any Subsidiary to, make any advance, loan, extension of credit, or
capital contribution to or investment in, or purchase any stock, bonds, notes,
debentures, or other securities of any Person, except (a) readily marketable
direct obligations of the United States of America, (b) fully insured
certificates of deposit with maturities of one year or less from the date of
acquisition of Lender or any other commercial bank operating in the United
States having capital and surplus in excess of $50,000,000.00, (c) commercial
paper of a domestic issuer if at the time of purchase such paper is rated in one
of the two highest rating categories of Standard and Poor's Corporation or Moody
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Investors Service, Inc. and (d) investments made pursuant to other agreements,
arrangements or contracts between Borrower and Lender.
Section 9.06. Compliance with Environmental Laws. Except in the ordinary
course of business and in accordance with law, Borrower will not knowingly, and
will not permit any Subsidiary or WSTE knowingly to, (a) use (or permit any
tenant to use) any of their respective properties or assets for the handling,
processing, storage, transportation, or disposal of any Hazardous Substance, (b)
generate any Hazardous Substance, (c) conduct any activity which is likely to
cause a release or threatened release of any Hazardous Substance, or (d)
otherwise conduct any activity or use any of their respective properties or
assets in any manner that is likely to violate any Environmental Law, which
violation could result in a material adverse effect on the business or
operations of such Person or the ability of Borrower to pay the Obligations or
WSTE to perform under the Guaranty-WSTE.
Section 9.07. Accounting. Borrower will not, and will not permit any
Subsidiary or WSTE to, make any change in accounting treatment or reporting
practices, except as required by GAAP.
ARTICLE X.
Financial Covenants
Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or Lender has any Commitment hereunder, Borrower
will observe and perform the following financial covenants set forth below,
unless Lender shall otherwise consent in writing. The covenants set forth below
shall be calculated in accordance with GAAP.
Section 10.01. Current Ratio. Borrower will at all times maintain a
Current Ratio of not less than 1.0 to 1.0.
Section 10.02. EBITDA. By June 30, 1997, Borrower will generate
accumulated EBITDA of at least $800,000.00 for the five (5) months then ended.
Section 10.03. Cash Flow Coverage Ratio. Borrower will have a Cash Flow
Coverage Ratio of not less than 1.1 to 1.0 (a) for the quarter ended September
30, 1997 and for the first three fiscal quarters of each fiscal year thereafter,
and (b) for the fiscal year ended December 31, 1997 and for each fiscal year
thereafter.
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ARTICLE XII.
Default
Section 11.01. Events of Default. Each of the following shall be deemed
an "Event of Default":
(a) Borrower shall fail to pay the Obligations or any part thereof
within seven (7) days of the date when due.
(b) Any representation or warranty made or deemed made by Borrower
or any Obligated Party (or any of their respective officers) in any Loan
Document or in any certificate, report, notice, or financial statement
furnished at any time in connection with this Agreement shall be false,
misleading, or erroneous in any material respect when made or deemed to
have been made.
(c) Borrower or any Obligated Party shall fail to perform,
observe, or comply with any covenant, agreement, or term contained in
this Agreement or any other Loan Document for a period of fifteen (15)
days following the date on which Lender gives notice of such failure to
Borrower or such Obligated Party.
(d) Borrower or any Obligated Party shall commence a voluntary
proceeding seeking liquidation, reorganization, or other relief with
respect to itself or its debts under any bankruptcy, insolvency, or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian, or other similar official of it
or a substantial part of its property or shall consent to any such relief
or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it or shall make a
general assignment for the benefit of creditors or shall generally fail
to pay its debts as they become due or shall take any corporate action to
authorize any of the foregoing.
(e) An involuntary proceeding shall be commenced against Borrower
or any Obligated Party seeking liquidation, reorganization, or other
relief with respect to it or its debts under any bankruptcy, insolvency,
or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other
similar official for it or a substantial part of its property, and such
involuntary proceeding shall remain undismissed and unstayed for a period
of ninety (90) days.
(f) Borrower, any Subsidiary or WSTE shall fail to discharge
within a period of ninety (90) days after the commencement thereof any
attachment, sequestration, or similar
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proceeding or proceedings involving an aggregate amount in excess of
$50,000.00 against any of its assets or properties.
(g) Borrower, any Subsidiary or WSTE shall fail to satisfy and
discharge promptly any final, non-appealable judgement or judgements
against it for the payment of money in an aggregate amount in excess of
$50,000.00.
(h) Borrower, any Subsidiary or WSTE shall fail to pay when due
(including any applicable grace periods) any principal of or interest on
any Debt, or the maturity of any such Debt shall have been accelerated,
or any such Debt for Borrowed money shall have been required to be
prepaid prior to the stated maturity thereof, or any event shall have
occurred that permits (or, with the giving of notice or lapse of time or
both, would permit) any holder or holders of such Debt or any Person
acting on behalf of such holder or holders to accelerate the maturity
thereof or require any such prepayment.
(i) This Agreement or any other Loan Document shall cease to be in
full force and effect or shall be declared null and void or the validity
or enforceability thereof shall be contested or challenged by Borrower or
any Obligated Party, or Borrower or any Obligated Party shall deny that
it has any further liability or obligation under any of the Loan
Documents, or any lien or security interest created by the Loan Documents
shall for any reason cease to be a valid security interest in and lien
upon any of the Collateral purported to be covered thereby having the
priority described in this Agreement.
(j) The financial statements of Borrower delivered pursuant to
Section 8.01(a) or (c) shall evidence that Borrower has failed to achieve
positive income from operations for (i) two consecutive fiscal quarters
or (ii) any fiscal year.
Section 11.02. Remedies Upon Default. If any Event of Default shall
occur, Lender may do any one or more of the following: (a) declare the
outstanding principal of and accrued and unpaid interest on the Notes and the
Obligations or any part thereof to be immediately due and payable, and the same
shall thereupon become immediately due and payable, without notice, demand,
presentment, notice of dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, protest, or other formalities of any
kind, all of which are hereby expressly waived by Borrower, (b) terminate the
Commitment without notice to Borrower or any Obligated Party, (c) foreclose or
otherwise enforce any Lien granted to the Lender to secure payment and
performance of the Obligations, and (d) exercise any and all rights and remedies
afforded by the laws of the State of Texas or
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any other jurisdiction by any of the Loan Documents, by equity or otherwise;
provided, however, that upon the occurrence of an Event of Default under Section
ll.0l(d) or Section ll.0l(e), the Commitment shall automatically terminate, and
the outstanding principal of and accrued and unpaid interest on the Notes and
the other Obligations shall become immediately due and payable without notice,
demand, presentment, notice of dishonor, notice of acceleration, notice of
intent to accelerate, notice of intent to demand, protest, or other formalities
of any kind, all of which are hereby expressly waived by Borrower.
Section 11.03. Performance by Lender. If Borrower shall fail to perform
any covenant, duty or agreement contained in any of the Loan Documents, Lender
may perform or attempt to perform such covenant, duty, or agreement on behalf of
Borrower. In such event, Borrower shall, at the request of Lender, promptly pay
any amount expended by Lender in such performance or attempted performance to
Lender, together with interest thereon at the Default Rate from the date of such
expenditure until paid. Notwithstanding the foregoing, it is expressly agreed
that Lender shall not have any liability or responsibility for the performance
of any obligation of Borrower under this Agreement or any other Loan Document.
ARTICLE XII.
Miscellaneous
Section 12.01. Expenses of Lender. Borrower hereby agrees to pay Lender
on demand (a) all reasonable costs and expenses incurred by Lender in connection
with the preparation, negotiation, and execution of this Agreement and the other
Loan Documents and any and all amendments, modifications, renewals, extensions,
and supplements thereof and thereto, including, without limitation, the fees and
expenses of Lender's legal counsel, (b) all reasonable costs and expenses
incurred by Lender in connection with the enforcement of this Agreement or any
other Loan Document, including, without limitation, the fees and expenses of
Lender's legal counsel, and (c) all other reasonable costs and expenses incurred
by Lender in connection with this Agreement or any other Loan Document,
including, without limitation, all costs, expenses, filing fees, and other
charges levied by an governmental authority or otherwise payable in respect of
this Agreement or any other Loan Document or in obtaining any insurance policy,
audit or appraisal in respect of the Collateral, provided that if no Event of
Default exists, prior to obtaining any insurance policy, audit or appraisal for
which Lender would seek reimbursement from Borrower under this Agreement, Lender
shall obtain the consent of Borrower, which consent will not be unreasonably
withheld.
Section 12.02. Indemnification. Borrower hereby indemnifies Lender and
each affiliate thereof and their respective officers,
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directors, employees, attorneys, and agents from, and holds each of them
harmless against, any and all losses, liabilities, claims, damages, penalties,
judgments, disbursements, costs, and expenses (including attorneys' fees)
(collectively, "Claims") to which any of them may become subject which directly
or indirectly arise from or relate to (a) the negotiation, execution, delivery,
performance, administration, or enforcement of any of the Loan Documents, (b)
any of the transactions contemplated by the Loan Documents, (c) any breach by
Borrower of any representation, warranty, covenant, or other agreement contained
in any of the Loan Documents, or (d) the presence, release, threatened release,
disposal, removal, or cleanup of any Hazardous Substance located on, about,
within, or affecting any of the properties or assets of Borrower or any
Obligated Party; provided that the indemnification obligations contained in this
Section 12.02 shall not be applicable to the extent any Claims arise from the
gross negligence or willful misconduct of Lender
Section 12.03. Limitation of Liability. Neither Lender nor any
affiliate, officer, director, employee, attorney, or agent of Lender shall have
any liability with respect to, and Borrower hereby waives, releases, and agrees
not to sue any of them upon, any claim for any special, indirect, incidental, or
consequential damages suffered or incurred by Borrower in connection with,
arising out of, or in any way related to, this Agreement or any of the other
Loan Documents, or any of the transactions contemplated by this Agreement or any
of the other Loan Documents. Borrower hereby waives, releases, and agrees not to
sue Lender or any of Lender's affiliates, officers, directors, employees,
attorneys, or agents for punitive damages in respect of any claim in connection
with, arising out of, or in any way related to, this Agreement or any of the
other Loan Documents, or any of the transactions contemplated by this Agreement
or any of the other Loan Documents.
Section 12.04. No Waiver: Cumulative Remedies. No failure on the part of
Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power, or privilege under this Agreement shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power,
or privilege under this Agreement preclude any other or further exercise thereof
or the exercise of any other right, power, or privilege. The rights and remedies
provided for in this Agreement and the other Loan Documents are cumulative and
not exclusive of any rights and remedies provided by law.
Section 12.05. Succesors and Assigns. This Agreement is binding upon and
shall inure to the benefit of Lender and Borrower and their respective
successors and assigns, except that Borrower may not assign or transfer any of
its rights or obligations under this Agreement without prior written consent of
Lender.
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Section 12.06. Survival. All representations and warranties made in this
Agreement or any other Loan Document or in any document, statement, or
certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents, and no
investigation by Lender or any closing shall affect the representations and
warranties or the right of Lender to rely upon them. Without prejudice to the
survival of any other obligation of Borrower hereunder, the obligations of
Borrower under Sections 12.01, 12.02 and 12.03 shall survive repayment of the
Notes and termination of the Commitment.
Section 12.07. Amendment. The provisions of this Agreement and the other
Loan Documents to which Borrower is a party may be amended or waived only by an
instrument in writing signed by the parties hereto or thereto.
Section 12.08. Maximum Interest Rate. No provision of this Agreement or
of any other Loan Documents shall require the payment or the collection of
interest in excess of the maximum permitted by applicable law. If any excess of
interest in such respect is hereby provided for, or shall be adjudicated to be
so provided, in any other Loan Documents or otherwise in connection with this
loan transaction, the provisions of this Section shall govern and prevail and
neither Borrower nor the sureties, guarantors, successors, or assigns of
Borrower shall be obligated to pay the excess amount of such interest or any
other excess sum paid for the use, forbearance, or detention of sums loaned
pursuant hereto. In the event Lender ever receives, collects, or applies as
interest any such sum, such amount which would be in excess of the maximum
amount permitted by applicable law shall be applied as a payment and reduction
of the principal of the indebtedness evidenced by the Notes; and, if the
principal of the Notes has been paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable exceeds the Maximum Rate, Borrower and Lender shall, to the extent
permitted by applicable law, (a) characterize any non-principal payment as an
expense, fee, or premium rather than as interest, (b) exclude voluntary
prepayments and the effects thereof, and (c) amortize, prorate, allocate, and
spread in equal or unequal parts the total amount of interest throughout the
entire contemplated term of the indebtedness evidenced by the Notes so that
interest for the entire term does not exceed the Maximum Rate.
Section 12.09. Notices. All notices and other communications provided
for in this Agreement and the other Loan Documents shall be in writing and may
be sent by facsimile with transmission confirmed, mailed by certified mail
return receipt requested, or delivered to the intended recipient at the
addresses specified below or at such other address as shall be designated by any
party listed below in a notice to the other parties listed below given in
accordance with this Section.
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If to Borrower: TransAmerican Waste of Houston, Inc.
314 N. Post Oak Lane
Houston, Texas 77024
Attention: Chief Financial Officer
Telephone No.: 713-956-1212
Fax: 713-956-0262
If to RKM: Robert K. Moses, Jr.
4544 Post Oak Place, Suite 320
Houston, Texas 77027
Telephone No.: 713-621-6191
Fax: 713-621-6029
If to TJF: Thomas J. Fatjo, Jr.
314 N. Post Oak Lane
Houston, Texas 77024
Telephone No.: 713-956-1212
Fax: 713-956-0262
If to WSTE: TransAmerican Waste Industries, Inc.
314 N. Post Oak Lane
Houston, Texas 77024
Attention: Chief Financial Officer
Telephone No.: 713-956-1212
Fax: 713-956-0262
If to Lender: Southwest Bank of Texas, N.A.
4400 Post Oak Parkway
Houston, Texas 77027
Attention: Kurt Goeringer
Telephone No.: 713-235-8881 ext. 1234
Fax: 713-621-2031
Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
facsimile subject to confirmation of Transmission, when personally delivered or,
in the case of a mailed notice, when duly deposited in the mails, in each case
given or addressed as aforesaid; provided, however, that notices to Lender
pursuant to Article II shall not be effective until received by Lender.
Section 12.10. Applicable Law; Venue; Service of Process. This Agreement
and the other Loan Documents shall be governed by and construed in accordance
with the laws of the State of Texas and the applicable laws of the United States
of America. This Agreement and the other Loan Documents have been entered into
in Harris County, Texas. Except as provided in the Arbitration Agreement, any
action or proceeding against Borrower or any Obligated Party under or in
connection with any of the Loan Documents may be brought in any state or federal
court in Harris County, Texas, and Borrower, for itself and on behalf of the
Obligated Parties, hereby irrevocably submits to the nonexclusive
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jurisdiction of such courts and waives any objection it may now or hereafter
have as to the venue of any such action or proceeding brought in any such court
or that any such court is an inconvenient forum. Except as provided in the
Arbitration Agreement, nothing herein or in any of the other Loan Documents
shall affect the right of Lender to serve process in any other manner permitted
by law or shall limit the right of Lender to bring any action or proceeding
against Borrower or any Obligated Party or with respect to any of its property
in courts in other jurisdictions. Except as provided in the Arbitration
Agreement, any action or proceeding by Borrower or any Obligated Party against
Lender shall be brought only in a court located in Harris County, Texas.
Section 12.11. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 12.12. Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 12.13. Headings. The headings, captions, and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 12.14. Non-application of Chanter 15 of Texas Credit Code. The
provisions of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil
Statutes, Article 5069-15) are specifically declared by the parties hereto not
to be applicable to this Agreement or any of the other Loan Documents or to the
transactions contemplated hereby.
Section 12.15. ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES, AND THE OTHER
LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES
HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
BORROWER:
TRANSAMERICAN WASTE OF HOUSTON, INC.
By: /s/ Lance C. Ruud
Lance C. Ruud
Vice President
LENDER:
SOUTHWEST BANK OF TEXAS, N . A.
By: /s/ Kurt A. Goeringer
Kurt A. Goeringer
Vice President
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EXHIBIT 10.57
GUARANTY AGREEMENT
WHEREAS, the execution of this Guaranty Agreement is a condition to
SOUTHWEST BANK OF TEXAS, N.A., a national banking association ("Lender") making
certain loans to TRANSAMERICAN WASTE OF HOUSTON, INC., a Texan corporation
("Borrower"), pursuant to that certain Loan Agreement of even date herewith,
between Borrower and Lender (such Loan Agreement, an it may hereafter be amended
or modified from time to time, is hereinafter referred to as the "Loan
Agreement");
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the undersigned, TRANSAMERICAN WASTE INDUSTRIES,
INC., a Delaware corporation (the "Guarantor"), hereby irrevocably and
unconditionally guarantees to Lender the full and prompt payment and performance
of the Guaranteed Indebtedness (hereinafter defined). This Guaranty Agreement
shall be upon the following terms:
1. The term "Guaranteed Indebtednes", as used herein means all of the
"Obligations", as defined in the Loan Agreement. The term "Guaranteed
Indebtedness" shall include any and all postpetition interest and expenses
(including attorneys' fees) whether or not allowed under any bankruptcy,
insolvency, or other similar law. As of the date of this Guaranty Agreement, the
Obligations include, but are not limited to, (a) that certain promissory note in
the original principal amount of $1,000,000.00, dated as of January 27, 1997,
(b) that certain promissory note in the original principal amount of
$7,500,000.00, dated as of January 27, 1997, executed by Borrower and payable to
the order of Lender and (c) all renewals, extensions and modifications thereof.
2. This instrument shall be an absolute, continuing, irrevocable, and
unconditional guaranty of payment and performance, and not a guaranty of
collection, and Guarantor shall remain liable on its obligations hereunder until
the payment and performance in full of the Guaranteed Indebtedness. No set-off,
counterclaim, recoupment, reduction, or diminution of any obligation, or any
defense of any kind or nature which Borrower may have against Lender or any
other party, or which Guarantor may have against Borrower, Lender, or any other
party, shall be available to, or shall be asserted by, Guarantor against Lender
or any subsequent holder of the Guaranteed Indebtedness or any part thereof or
against payment of the Guaranteed Indebtedness or any part thereof.
3. If Guarantor becomes liable for any indebtedness owing by Borrower to
Lender by endorsement or otherwise, other than under this Guaranty Agreement,
such liability shall not be in any manner impaired or affected hereby, and the
rights of Lender hereunder shall be cumulative of any and all other rights that
Lender may ever have against Guarantor. The exercise by Lender of any right
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or remedy hereunder or under any other instrument, or at law or in equity, shall
not preclude the concurrent or subsequent exercise of any other right or remedy.
4. In the event of default by Borrower in payment or performance of the
Guaranteed Indebtedness, or any part thereof, when such Guaranteed Indebtedness
becomes due, whether by its terms, by acceleration, or otherwise, Guarantor
shall promptly pay the amount due thereon to Lender without notice or demand in
lawful currency of the United States of America and it shall not be necessary
for Lender, in order to enforce such payment by Guarantor, first to institute
suit or exhaust its remedies against Borrower or others liable on such
Guaranteed Indebtedness, or to enforce any rights against any collateral which
shall ever have been given to secure such Guaranteed Indebtedness.
Notwithstanding anything to the contrary contained in this Guaranty Agreement,
Guarantor hereby irrevocably waives any and all rights it may now or hereafter
have under any agreement or at law or in equity (including, without limitation,
any law subrogating the Guarantor to the rights of Lender) to assert any claim
against or seek contribution, indemnification or any other form of reimbursement
from Borrower or any other party liable for payment of any or all of the
Guaranteed Indebtedness for any payment made by Guarantor under or in connection
with this Guaranty Agreement or otherwise.
5. If acceleration of the time for payment of any amount payable by
Borrower under the Guaranteed Indebtedness is stayed upon the insolvency,
bankruptcy, or reorganization of Borrower, all such amounts otherwise subject to
acceleration under the terms of the Guaranteed Indebtedness shall nonetheless be
payable by Guarantor hereunder forthwith on demand by Lender.
6. Guarantor hereby agrees that its obligations under this Guaranty
Agreement shall not be released, discharged, diminished, impaired, reduced, or
affected for any reason or by the occurrence of any event, including, without
limitation, one or more of the following events, whether or not with notice to
or the consent of Guarantor: (a) the taking or accepting of collateral as
security for any or all of the Guaranteed Indebtedness or the release,
surrender, exchange, or subordination of any collateral now or hereafter
securing any or all of the Guaranteed Indebtedness; (b) any partial release of
the liability of Guarantor hereunder, or the full or partial release of any
other guarantor from liability for any or all of the Guaranteed Indebtedness;
(c) any disability of Borrower, or the dissolution, insolvency, or bankruptcy of
Borrower, Guarantor, or any other party at any time liable for the payment of
any or all of the Guaranteed Indebtedness; (d) any renewal, extension,
modification, waiver, amendment, or rearrangement of any or all of the
Guaranteed Indebtedness or any instrument, document, or agreement evidencing,
securing, or
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otherwise relating to any or all of the Guaranteed Indebtedness; (e) any
adjustment, indulgence, forbearance, waiver, or compromise that may be granted
or given by Lender to Borrower, Guarantor, or any other party ever liable for
any or all of the Guaranteed Indebtedness; (f) any neglect, delay, omission,
failure, or refusal of Lender to take or prosecute any action for the collection
of any of the Guaranteed Indebtedness or to foreclose or take or prosecute any
action in connection with any instrument, document, or agreement evidencing,
securing, or otherwise relating to any or all of the Guaranteed Indebtedness;
(g) the unenforceability or invalidity of any or all of the Guaranteed
Indebtedness or of any instrument, document, or agreement evidencing, securing,
or otherwise relating to any or all of the Guaranteed Indebtedness; (h) any
payment by Borrower or any other party to Lender is held to constitute a
preference under applicable bankruptcy or insolvency law or if for any other
reason Lender is required to refund any payment or pay the amount thereof to
someone else (i) the settlement or compromise of any of the Guaranteed
Indebtedness; (j) the non-perfection of any security interest or lien securing
any or all of the Guaranteed Indebtedness; (k) any impairment of any collateral
securing any or all of the Guaranteed Indebtedness; (1) the failure of Lender to
sell any collateral securing any or all of the Guaranteed Indebtedness in a
commercially reasonable manner or as otherwise required by law; (m) any change
in the corporate existence, structure, or ownership of Borrower; or (n) any
other circumstance which might otherwise constitute a defense available to, or
discharge of, Borrower or Guarantor.
7. Guarantor represents and warrants to Lender as follows:
(a) Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation,
is qualified to do business in all jurisdictions in which the nature of
the business conducted by it makes such qualification necessary and
where failure to so qualify would have a material adverse effect on its
business, financial condition, or operations.
(b) Guarantor has the corporate power, authority and legal right
to execute, deliver, and perform its obligations under this Guaranty
Agreement and this Guaranty Agreement constitutes the legal, valid, and
binding obligation of Guarantor, enforceable against Guarantor in
accordance with its respective terms, except as limited by bankruptcy,
insolvency, or other laws of general application relating to the
enforcement of creditor's rights.
(c) The execution, delivery, and performance by Guarantor of
this Guaranty Agreement have been duly authorized by all requisite
action on the part of Guarantor and do not and will
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not violate or conflict with the articles of incorporation or bylaws of
Guarantor or any law, rule, or regulation or any order, writ, injunction
or decree of any court, governmental authority or agency, or arbitrator
and do not and will not conflict with, result in a breach of, or
constitute a default under, or result in the imposition of any lien upon
any assets of Guarantor pursuant to the provisions of any indenture,
mortgage, deed of trust, security agreement, franchise, permit, license,
or other instrument or agreement to which Guarantor or its properties is
bound.
(d) No authorization, approval, or consent of, and no filing or
registration with, any court, governmental authority, or third party is
necessary for the execution, delivery or performance by Guarantor of
this Guaranty Agreement or the validity or enforceability thereof.
(e) The value of the consideration received and to be received
by Guarantor as a result of Borrower and Lender entering into the Loan
Agreement and Guarantor executing and delivering this Guaranty Agreement
is reasonably worth at least as much as the liability and obligation of
Guarantor hereunder, and such liability and obligation and the Loan
Agreement have benefited and may reasonably be expected to benefit
Guarantor directly or indirectly.
(f) Each of the representations which Borrower has made
regarding Guarantor in the Loan Agreement are true and correct.
8. Guarantor covenants and agrees that, as long as the Guaranteed
Indebtedness or any part thereof is outstanding or Lender has any commitment
under the Loan Agreement:
(a) Guarantor will deliver to Lender the financial statements of
Guarantor described in the Loan Agreement at the times required by the
Loan Agreement.
(b) Guarantor will furnish promptly to Lender written notice of
the occurrence of any default under this Guaranty Agreement or an Event
of Default under the Loan Agreement of which Guarantor has knowledge.
(c) Guarantor will furnish promptly to Lender such additional
information concerning Guarantor as Lender may request.
(d) Guarantor will be bound by and perform each of the covenants
and agreements which Borrower has made on behalf of
-4-
<PAGE>
Guarantor in the Loan Agreement as if Guarantor had made such covenants
and agreements directly with Lender.
9. Upon the occurrence of an Event of Default (as defined in the Loan
Agreement) Lender shall have the right to set off and apply against this
Guaranty Agreement or the Guaranteed Indebtedness or both, at any time and
without notice to Guarantor, subject to the rights of customers of Guarantor or
other contractual obligations of Guarantor related to such funds which are
superior to the rights of Lender, any and all deposits (general or special, time
or demand, provisional or final) or other sums at any time credited by or owing
from Lender to Guarantor whether or not the Guaranteed Indebtedness is then due
and irrespective of whether or not Lender shall have made any demand under this
Guaranty Agreement. In addition to Lender's right of setoff and as further
security for this Guaranty Agreement and the Guaranteed Indebtedness, Guarantor
hereby grants Lender a security interest in all deposits (general or special,
time or demand, provisional or final) and all other accounts of Guarantor now or
hereafter on deposit with or held by Lender and all other sums at any time
credited by or owing from Lender to Guarantor. The rights and remedies of Lender
hereunder are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which Lender may have.
10. Guarantor hereby agrees that the Subordinated Indebtedness shall be
subordinate and junior in right of payment to the prior payment in full of all
Guaranteed Indebtedness, in the manner provided in the next sentence. The
"Subordinated Indebtedness" shall not be payable, and no payment of principal
or, except as provided in the proviso to this sentence, interest on account
thereof, shall be made directly or indirectly, by or on behalf of Borrower or
received, accepted, retained or applied by Guarantor unless and until Borrower
has paid and satisfied in full all the Guaranteed Obligations and Lender has no
further commitment regarding the Guaranteed Obligations; provided, however, that
Borrower may pay to Guarantor and Guarantor may accept from Borrower interest on
the Subordinated Indebtedness if no Event of Default (as defined in the Loan
Agreement) has occurred. If any sums shall be paid to Guarantor by Borrower or
any other person or entity on account of the Subordinated Indebtedness, such
sums shall be held in trust by Guarantor for the benefit of Lender and shall
forthwith be paid to Lender without affecting the liability of Guarantor under
this Guaranty Agreement. For purposes of this Guaranty Agreement, the term
"Subordinated Indebtedness" means all indebtedness, liabilities, and obligations
of Borrower to Guarantor, including indebtedness in the amount of $1,250,000
existing on the date of this Guaranty Agreement, whether such indebtedness,
liabilities, and obligations now exist or are hereafter incurred or arise, or
whether the obligations of Borrower
-5-
<PAGE>
thereon are direct, indirect, contingent, primary, secondary, several, joint and
several, or otherwise, and irrespective of the person or persons in whose favor
such indebtedness, obligations, or liabilities may, at their inception, have
been, or may hereafter be created, or the manner in which they have been or may
hereafter be acquired by Guarantor. Notwithstanding any other provision of this
paragraph to the contrary, Parent Debt (an defined in the Loan Agreement) does
not constitute Subordinated Debt, and, provided that no Event of Default exists
at the time of such payment or would occur as a result of such payment, Borrower
may pay principal of and interest on Parent Debt.
11. No amendment or waiver of any provision of this Guaranty Agreement
or consent to any departure by the Guarantor therefrom shall in any event be
effective unless the same shall be in writing and signed by Lender. No failure
on the part of Lender to exercise, and no delay in exercising, any right, power,
or privilege hereunder shall operate as a waiver thereof; 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. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
12. This Guaranty Agreement is for the benefit of Lender and its
successors and assigns, and in the event of an assignment of the Guaranteed
Indebtedness, or any part thereof, the rights and benefits hereunder, to the
extent applicable to the indebtedness so assigned, may be transferred with such
indebtedness. This Guaranty Agreement is binding not only on Guarantor, but on
Guarantor's successors and assigns.
13. Guarantor recognizes that Lender is relying upon this Guaranty
Agreement and the undertakings of Guarantor hereunder in making extensions of
credit to Borrower under the Loan Agreement and further recognizes that the
execution and delivery of this Guaranty Agreement is a material inducement to
Lender in entering into the Loan Agreement. Guarantor hereby acknowledges that
there are no conditions to the full effectiveness of this Guaranty Agreement.
14. This Guaranty Agreement is executed and delivered as an incident to
a lending transaction negotiated, consummated, and performable in Harris County,
Texas, and shall be governed by and construed in accordance with the laws of the
State of Texas. Any action or proceeding against Guarantor under or in
connection with this Guaranty Agreement may be brought in any state or federal
court in Harris County, Texas, and Guarantor hereby irrevocably submits to the
nonexclusive jurisdiction of such courts, and waives any objection it may now or
hereafter have as to the venue of any
-6-
<PAGE>
such action or proceeding brought in such court. Guarantor agrees that service
of process upon it may be made by certified or registered mail, return receipt
requested, at its address specified in the Loan Agreement. Nothing herein shall
affect the right of Lender to serve process in any other matter permitted by law
or shall limit the right of Lender to bring any action or proceeding against
Guarantor or with respect to any of Guarantor's property in courts in other
jurisdictions. Any action or proceeding by Guarantor against Lender shall be
brought only in a court located in Harris County, Texas.
15. Guarantor shall pay on demand all reasonable attorneys' fees and all
other costs and expenses incurred by Lender in connection with the
administration, enforcement, or collection of this Guaranty Agreement.
16. Guarantor hereby waives promptness, diligence, notice of any default
under the Guaranteed Indebtedness, demand of payment, notice of acceptance of
this Guaranty Agreement, presentment, notice of protest, notice of dishonor,
notice of the incurring by Borrower of additional indebtedness, and all other
notices and demands with respect to the Guaranteed Indebtedness and this
Guaranty Agreement.
17. The Loan Agreement, and all of the terms thereof, are incorporated
herein by reference, the same as if stated verbatim herein, and Guarantor agrees
that Lender may exercise any and all rights granted to it under the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement)
without affecting the validity or enforceability of this Guaranty Agreement. Any
notices given hereunder shall be given in the manner provided by and to the
addresses set forth in the Loan Agreement.
18. Guarantor hereby represents and warrants to Lender that Guarantor
has adequate means to obtain from Borrower on a continuing basis information
concerning the financial condition and assets of Borrower and that Guarantor is
not relying upon Lender to provide (and Lender shall have no duty to provide)
any such information to Guarantor either now or in the future.
19. THIS GUARANTY AGREEMENT EMBODIES THE FINAL, ENTIRE AGREEMENT OF
GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED
INDEBTEDNESS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER
EXTRINSIC EVIDENCE OF ANY NATURE. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR
AND LENDER. THIS GUARANTY AGREEMENT MAY NOT BE AMENDED EXCEPT IN WRITING BY
GUARANTOR AND LENDER.
-7-
<PAGE>
DATED AND EXECUTED an of January 27, 1997.
GUARANTOR:
TRANSAMERICAN WASTE INDUSTRIES, INC.
By: _______________________
Lance C. Ruud
Senior Vice President and
Chief Financial Officer
-8-
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated March 27, 1997 included in this
Form 10-K, into the Company's previously filed Registration Statements on Form
S-8 File No. 33-57326 and on Form S-3 File No. 33-97268.
ARTHUR ANDERSEN LLP
Houston, Texas
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TRANSAMERICAN WASTE INDUSTRIES, INC. ANNUAL REPORT FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996 AS FILED ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,334
<SECURITIES> 0
<RECEIVABLES> 3,381
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,613
<PP&E> 30,611
<DEPRECIATION> 3,559
<TOTAL-ASSETS> 52,674
<CURRENT-LIABILITIES> 6,473
<BONDS> 37,414
0
0
<COMMON> 25,830
<OTHER-SE> 394
<TOTAL-LIABILITY-AND-EQUITY> 52,674
<SALES> 16,022
<TOTAL-REVENUES> 16,022
<CGS> 8,699
<TOTAL-COSTS> 13,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,155
<INCOME-PRETAX> (6,867)
<INCOME-TAX> 50
<INCOME-CONTINUING> (6,917)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,917)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
