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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER: 0-19615
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)
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
COMMON STOCK, PAR VALUE $.001 PER SHARE
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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate 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 10-K. [ ]
As of February 11, 1998, 44,216,250 shares of the registrant's common
stock, par value $.001 per share, were outstanding. Non-affiliates of the
registrant owned 36,152,946 shares of common stock as of February 11, 1998, with
an aggregate market value of approximately $44,710,301 (based upon the February
11, 1998 closing sales price of the common stock as reported by the Nasdaq Small
Cap Market).
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
FORM 10-K INDEX
10-K PART AND ITEM NO. PAGE
NO.
PART I
Item 1. Business.............................................. 1
Item 2. Properties............................................ 9
Item 3. Legal Proceedings..................................... 9
Item 4. Submission of Matters to a Vote of Security Holders... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................ 10
Item 6. Selected Financial Data............................... 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 12
Item 8. Financial Statements and Supplementary Data........... 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............ 44
PART III
Item 10. Directors and Executive Officers of the Registrant.... 45
Item 11. Executive Compensation................................ 50
Item 12. Security Ownership of Certain Beneficial Owners and
Management..................................... 55
Item 13. Certain Relationships and Related Transactions........ 57
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................... 58
<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, 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.
On January 26, 1998 the Company entered into a definitive merger
agreement with USA Waste Services, Inc. ("USA Waste"). Upon closing of the
transaction, each share of the Company's outstanding common stock will be
exchanged for .045232 shares of USA Waste common stock (the "Exchange Ratio").
The Exchange Ratio is subject to adjustment based upon the extent to which the
net debt, as defined, of the Company exceeds $43.2 million. The closing of the
transaction is subject to approval by the Company's stockholders, antitrust
clearance, qualification of the merger as a tax-free pooling-of-interest
transaction and certain other customary closing conditions. For a brief
discription of the reasons why the Company entered into the merger agreement,
see Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company's strategy has been to become a leader in the non-hazardous
solid waste industry in the southern region of the United States. In 1993, the
Company began its strategy of focusing on the acquisition and development of
selective non-hazardous 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. The Company's
divestiture of non-solid waste operations, consisting primarily of the oil
recovery and disposal operations, resulted in the recognition of an impairment
loss of $6.5 million during 1996. See further discussion in Note 5 of the Notes
to Consolidated Financial Statements.
The Company currently owns or operates sixteen collection, processing
and disposal facilities, consisting of five municipal solid waste collection
operations, six municipal solid waste landfills, three construction and
demolition landfills and two solid waste transfer stations.
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 has experienced a growth in landfill disposal revenue
primarily as a result of the operation of additional facilities. The Company's
landfill 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 at competitive
prices would have a positive material effect on the Company's profitability. The
Company believes it can increase waste streams to the Company's facilities 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. However, there can be no assurance that additional waste
streams will continue to be available.
The Company's strategy has included acquiring 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. 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.
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.
INDUSTRY BACKGROUND
The Company operates in the non-hazardous solid waste segment of the
waste management industry. Despite the size of the industry, it has historically
been fragmented with a multitude of local private and municipal operators
servicing relatively centralized areas. In recent years, increased governmental
regulation and the associated cost have resulted in a period of significant
consolidation within the industry.
In October 1991, the Environmental Protection Agency ("EPA") adopted
new regulations pursuant to Subtitle D of the Resource Conservation and Recovery
Act governing the disposal of solid waste. These regulations established
criteria for the location, operation and design of municipal solid waste ("MSW")
facilities, including standards for groundwater and landfill gas monitoring,
extensive post-closure monitoring and financial assurances that landfill
operators will be able to comply with the stringent regulations. The initial
cost of bringing operations into compliance and the continued cost of
maintaining compliance with current environmental regulations has reduced the
number of companies with sufficient financial resources to participate in the
non-hazardous solid waste industry. Many small independent operators have
decided to sell to stronger operators and some municipalities have chosen to
contract the management of solid waste services to private operators.
The increase of governmental regulation and a generally negative public
attitude towards nearby disposal facilities has reduced the number of actively
operating disposal facilities and negatively impacted the permitting of new
facilities to replace closed facilities. Many state and local governments have
inacted mandatory recycling programs, incineration, composting and other waste
minimization programs in an attempt to reduce the flow of waste.
<PAGE>
RECENT ACQUISITIONS AND MANAGEMENT CONTRACTS
The following table summarizes the Company's management contracts and
acquisitions completed during fiscal 1995 through December 31, 1997:
<TABLE>
<CAPTION>
TYPE OF TOTAL PERMITTED
DATE NAME OF BUSINESS TYPE OF BUSINESS LOCATION TRANSACTION ACRES ACREAGE
---- ---------------- ---------------- -------- ----------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
25-year
LaSalle-Grant Jena, management
September 1994 Parish Landfill MSW landfill Louisiana contract 239 39
- --------------- -------------------- ---------------------- ------------- -------------- ------------ --------------
Carriere,
February 1995 Central Landfill MSW landfill Mississippi Purchase 440 20
- --------------- -------------------- ---------------------- ------------- -------------- ------------ --------------
Transfer station,
materials recovery
June facility and hauling Alexandria,
1995 TransWaste, Inc. 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
- --------------- -------------------- ---------------------- ------------- -------------- ------------ --------------
January North County Dickinson,
1997 Landfill C&D landfill Texas Purchase 20 20
- --------------- -------------------- ---------------------- ------------- -------------- ------------ --------------
Residential and
January Sanifill commercial Houston,
1997 Hauling collection operation Texas Purchase --- ---
- --------------- -------------------- ---------------------- ------------- -------------- ------------ --------------
April Target Waste
1997 Industries, Inc. Commercial Mobile,
Hauling collection operation Alabama Purchase --- ---
- --------------- -------------------- ---------------------- ------------- -------------- ------------ --------------
August Waste Management Residential and
1997 Assets commercial Natchitoches,
Hauling collection operation Louisiana Purchase --- ---
- --------------- -------------------- ---------------------- ------------- -------------- ------------ --------------
August Omega One Assets Residential and
1997 commercial Many,
collection operation Louisiana Purchase --- ---
- --------------- -------------------- ---------------------- ------------- -------------- ------------ --------------
August Boudin Waste & Residential and Bay St.
1997 Recycling, Inc. commercial Louis,
Hauling collection operation Mississippi Purchase --- ---
- --------------- -------------------- ---------------------- ------------- -------------- ------------ --------------
</TABLE>
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, warrants
to purchase 1.5 million shares of common stock at an exercise price of $1.50 per
share and the assumption of certain contractual obligations (estimated to be
approximately $7.6 million). 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 (the "North County Landfill"), two
offices, 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 with a combination of debt and
equity financing as described in "Recent Financings" of Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
TARGET WASTE INDUSTRIES, INC. In April 1997, the Company purchased
Target Waste Industries, Inc. ("Target"), a commercial solid waste collections
company operating in the greater Mobile, Alabama metropolitan area. Total
consideration consisted of $100,000 cash and 720,000 shares of restricted common
stock. In connection with the acquisition, the Company received a non-compete
agreement from Target's principal shareholder for a period of two years.
WASTE MANAGEMENT ASSETS. In August 1997, the Company completed its
acquisition of certain assets (the Waste Management Assets) used in solid waste
collection, hauling and recycling operations in the western Louisiana area from
Waste Management of Louisiana, L.L.C. The Company also obtained a 5-year
management contract to operate a transfer station located in Natchitoches,
Louisiana. The total consideration consisted of $2,060,000 in cash and the
assumption of certain liabilities in connection with these operations.
THE OMEGA ONE ASSETS. In August, 1997, the Company acquired from The
Omega One Company certain assets used in the solid waste collection, hauling and
recycling operations in Sabine Parish, DeSoto Parish, and Natchitoches Parish,
Louisiana (The Omega One Assets). The total consideration consisted of
$1,200,000 in cash, the forgiveness of approximately $400,000 of indebtedness
and the assumption of certain liabilities in connection with the operations.
BOUDIN'S WASTE AND RECYCLING, INC. In August 1997, the Company
purchased all the issued and outstanding common stock of Boudin's Waste and
Recycling, Inc. ("Boudin"). The total consideration consisted of $125,000 cash,
350,000 shares of common stock of the Company, a seller promissory note in the
aggregate principal amount of $325,000 and the assumption of certain
liabilities.
The Company financed the acquisition of the Waste Management Assets,
The Omega One Assets and the acquisition of Boudin with the proceeds of a $5.0
million bank loan as described in "Recent Financings" of Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Additional information regarding the consideration and terms of the transactions
completed by the Company during 1997 are included in Note 3 of the Notes to
Consolidated Financial Statements included herein.
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.
<PAGE>
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. The Company provides solid waste collection
services to commercial, industrial and residential customers. Commercial and
industrial services are generally performed under service agreements with the
fees determined by the frequency of collection and the equipment used.
Residential services are performed under contracts with municipalities or
associations, or on a subscription basis with individual homeowners. Fees for
residential services are based primarily on the frequency and type of service.
MUNICIPAL SOLID WASTE DISPOSAL. The Company operates six 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 ("C&D") 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's two transfer stations and
material recovery facility receive waste 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") accounted for approximately 13% of
consolidated revenue for the year ended December 31, 1997. These revenues
represent an accumulation of revenues generated from geographically dispersed
affiliates and subsidiaries of WMX at various Company facilities.
EMPLOYEES
On January 25, 1998 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,
Browning Ferris Industries, Inc., 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 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. 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 is subject to potential liability for any environmental
damage its facilities may cause, particularly as a result of the contamination
of water or the soil. The Company maintains $5 million of environmental
impairment liability insurance, limited to $1 million per occurrence, covering
both the sudden and the gradual onset of environmental damage (subject to a
$100,000 deductible). There can be no assurance that liabilities that may be
incurred by the Company will be covered by the insurance or that the dollar
amount of such liabilities which are covered by its insurance will not exceed
the Company's policy limit. As a result, if the Company were to incur liability
for environmental damage, its financial condition could be 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:
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.
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 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.
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 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 Note 7 of Notes to Consolidated Financial Statements included
herein for information with respect to debt 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
None.
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, 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq SmallCap Market. The
Company's Class A Warrants and Class B Warrants traded on the Nasdaq SmallCap
Market until their expiration November 11, 1997. The Company's 10% Convertible
Subordinated Debentures due 2003 are quoted on the Nasdaq SmallCap Market. The
following table sets forth, for the periods indicated, the high and low sales
prices of the common stock, Class A Warrants and Class B Warrants as reported on
the Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
COMMON STOCK CLASS A WARRANTS CLASS B WARRANTS
------------------- -------------------- --------------------
HIGH LOW HIGH LOW HIGH LOW
--------- -------- --------- --------- --------- ---------
YEAR ENDED DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C> <C>
Quarter ended March 31, 1996......................... 2 5/16 1 3/8 29/32 3/8 1/2 11/32
Quarter ended June 30, 1996.......................... 2 27/32 1 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
YEAR ENDED DECEMBER 31, 1997
Quarter ended March 31, 1997......................... 1 21/32 1 3/32 1/32 1/16 1/32
Quarter ended June 30, 1997.......................... 1 17/32 1 1/32 3/32 1/16 1/16 1/32
Quarter ended September 30, 1997..................... 1 9/16 1 1/16 1/16 1/32 3/32 1/32
Quarter ended December 31, 1997...................... 1 5/8 1 1/32 1/32 1/32 1/32
</TABLE>
The Company had approximately 375 owners of record as of January 31,
1998. The Company currently believes there are approximately 3,600 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.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial information with respect to
the Company's balance sheets as of December 31, 1996 and 1997, and the Company's
statements of operations and cash flows for the year ended August 31, 1995, four
months ended December 31, 1995, and the years ended December 31, 1996 and 1997,
have 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, 1993, 1994 and 1995, and the Company's statements of operations
and cash flows for the years ended August 31, 1993 and 1994 have 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
ENDED
YEAR ENDED AUGUST 31, DECEMBER 31, YEAR ENDED DECEMBER 31,
--------------------------------------- ------------- -------------------------
1993 1994 1995 1995 1996 1997
------------ ----------- ------------ ------------- ------------ ------------
CASH FLOW DATA:
Net cash provided (used) by:
<S> <C> <C> <C> <C> <C> <C>
Operating activities............... $ 620 $ (1,602) $ (514) $ 429 $ 1,977 $ 3,909
Investing activities............... (3,961) (7,245) (8,310) (3,030) (6,738) (25,079)
Financing activities............... 11,658 3,055 6,648 1,863 4,563 22,543
------------ ----------- ------------ ------------- ------------ ------------
Total.......................... $ 8,317 $ (5,792) $ (2,176) $ (738) $ (198) $ 1,373
============ =========== ============ ============= ============ ============
FOUR MONTHS
ENDED
YEAR ENDED AUGUST 31, DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------------- ------------- -------------------------
1993 1994 1995 1995 1996 1997
------------ ----------- ------------ ------------- ------------ -----------
INCOME STATEMENT DATA:
Revenue............................ $ 8,775 $ 11,061 $ 7,350 $ 4,493 $ 16,022 $ 35,039
Operating income (loss)............ 754 (10,217) (2,409) 123 2,421 5,726
Net income (loss).................. 8 (11,747) (6,939) (528) (6,917) 1,310
Earnings (loss) per common share... --- (.75) (.34) (.02) (.23) .03
Weighted average common shares..... 15,030 15,574 20,507 29,580 30,281 42,615
Diluted earnings (loss) per common
and common equivalent share...... --- (.75) (.34) (.02) (.23) .03
Weighted average common and common
equivalent shares outstanding.... 15,030 15,574 20,507 29,580 30,281 44,129
Dividends per share............... --- --- --- --- --- ---
AUGUST 31, DECEMBER 31,
-------------------------------------- ---------------------------------------
1993 1994 1995 1995 1996 1997
------------ ----------- ------------ ------------- ------------ -----------
BALANCE SHEET DATA:
Working capital (deficit).......... $ 7,699 $ 593 $ 769 $ 471 $ 140 $ (1,025)
Restricted cash, net............... --- 10,361 6,153 8,931 13,400 15,929
Property and equipment, net........ 1,683 8,505 18,499 20,927 27,052 43,075
Total assets....................... 29,370 38,601 41,938 46,071 52,674 91,875
Long-term debt, less current
portion.......................... 10,978 28,152 24,425 29,603 38,107 58,659
Stockholders' equity............... 12,561 1,415 7,879 7,433 1,636 11,718
</TABLE>
<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, warrants to purchase 1.5 million shares of common stock at $1.50 per
share and the assumption of certain contractual obligations (estimated to be
$7.6 million). 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 provided the
Company with entrance into the Houston, Texas metropolitan market and the
collection business.
Starting in the fall 1997 and continuing in 1998, the Company
considered various strategic alternatives so that it could participate in what
the Company believed to be one of the more significant consolidation phases of
the waste management industry. At a minimum this would have required the Company
to aggressively pursue privatization opportunities and acquisition of collection
companies in its market areas around its existing landfills.
In order to take advantage of immediate growth opportunities and
continue development efforts, the Company reviewed its strategic alternatives
which would require the Company to raise a substantial amount of capital,
whether debt, equity or a combination of debt and equity. Raising sufficient
capital through a debt offering to participate aggressively in acquisitions
would have resulted, in the Company's estimation, in a balance sheet that would
have been more heavily leveraged. Moreover, in the Company's estimation, raising
substantial equity capital would result in further dilution to existing
shareholders.
The Company believed that a strategic combination with a larger
publicly traded entity would allow participation in the consolidation of the
waste industry to be accomplished quickly. Therefore, it considered such a
combination to be an attractive alternative for it and its stockholders.
Accordingly, in January 1998 the Company entered into a definitive merger
agreement with USA Waste, one of the industry's leading consolidators. For a
description of the proposed terms, see "Business-General".
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.
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Revenue increased $19 million, or 119 %, from 1996 to 1997. The
increase was primarily due to the acquisition of the Sanifill Assets and other
acquisitions. Internal growth at the Company's existing landfill operations
contributed additional revenues of $2.4 million (15% increase from 1996)
primarily due to volume increases. Although there can be no assurances, the
Company anticipates that revenue will continue to increase as the Company
continues to implement its strategy of privatizing municipal landfills, either
by acquisition or long-term management contract, and acquiring selected private
landfills, transfer facilities and collection operations.
Cost of services increased from $8.7 million for 1996 to $22.8 million
for 1997, representing an increase from 54% to 65% as a percentage of revenue.
The increase in cost of services is due to the acquisition of collection
operations, primarily the Sanifill Assets. The cost of services increased as a
percentage of revenue as collection operations generally have a higher
percentage of cost which fluctuate directly with revenue as compared to landfill
operations which generally have fixed cost that do not increase proportionately
with an increase in revenue.
Depreciation and amortization increased $2.0 million, or 123 % from
1996 to 1997. The increase is primarily due to acquisitions and upgrades at
existing operations. As a percentage of revenue, depreciation was 10% for 1996
and 1997. The increase cost of upgrading equipment, primarily in the collection
operations, was offset by the improved utilization of equipment in the landfill
operations. The Company disposed of increased volumes at the Company's landfills
without a corresponding increase in equipment and facilities.
General and administrative expenses were $3.2 million and $2.9 million
for 1996 and 1997, respectively, representing a decrease of 9%. As a percentage
of revenue, general and administrative expenses decreased from 20% in 1996 to 8%
in 1997. The decrease in general and administrative expenses is a result of
management's continued efforts to monitor costs and implement cost control
measures, as necessary, and management's ability to integrate recent business
acquisitions without a proportionate increase in general and administrative
expenses.
Interest expense increased from $2.2 million in 1996 to $4.3 in 1997.
The increased interest expense is due to the borrowing associated with the
acquisition of the Sanifill Assets, Solid Waste Revenue Bonds issued in June
1997 and November 1997, the $5.0 million Bank Loan obtained in August 1997 and
additional equipment financing. Interest expense was partially offset by
interest capitalization of $806,000 and $625,000 for 1996 and 1997,
respectively.
The Company did not incur losses from oil recovery and disposal
operations in 1997 as compared to a loss of $7.7 million in 1996. In September
1996, the Company transferred the stock of its oil recovery and disposal
operations and relinquished management control. In consideration for the
transfers, the Company will receive a percentage of cash flows, as defined, from
these operations. The 1996 loss includes the recognition of a $6.5 million
impairment loss. The Company recognized the impairment loss as market conditions
indicated that the Company would not recover its investment through the
undiscounted future cash flows of these operations. Cash flows from the oil
recovery and disposal operations were nominal in 1997. The Company has no future
obligation to fund the oil recovery and disposal operations.
<PAGE>
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.
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 expenses were $3.3 million and $3.2 million
for the years ended December 31, 1995 and 1996, respectively.
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, if any,
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. In 1996, the Company recognized an impairment
loss of approximately $6.5 million 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. 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.
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.
RECENT FINANCINGS
The following summarizes the Company's significant financing
transactions during the year ended December 31, 1997:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION TYPE AND NUMBER OF
DATE TRANSACTION RECEIVED SECURITIES ISSUED
- ---- ----------- -------- -----------------
<S> <C> <C> <C>
January
1997 Private Placement $6,750,000 11,250,000 shares of common stock
- ----------------------------------------------------------------------------------------------------------------------
January $1,000,000 short-term promissory
1997 Bank Facility $8,500,000 note (see discussion of June
1997 Term Loan below)
$7,500,000 long-term promissory
note (see discussion of June
1997 Term Loan below)
- ----------------------------------------------------------------------------------------------------------------------
January
1997 Stock Participation Plan $500,000 833,334 shares of common stock
- ----------------------------------------------------------------------------------------------------------------------
June $500,000 Term Loan. Refinanced the
1997 Long-Term Financing $500,000 $8,500,000 Bank Facility with the
Term Loan
- ----------------------------------------------------------------------------------------------------------------------
June $4,550,000 tax-exempt solid waste
1997 Long-Term Financing $5,075,000 revenue bonds
$525,000 taxable solid waste
revenue bonds
- ----------------------------------------------------------------------------------------------------------------------
August $5,000,000 long-term promissory
1997 Long-Term Financing $5,000,000 note
- ----------------------------------------------------------------------------------------------------------------------
November $3,500,000 solid waste revenue
1997 Long-Term Financing $3,500,000 bonds
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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 "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
$700,000 of short-term borrowings from an investment partnership (the
"Investment Partnership"). In connection with the transaction, the Company
exchanged a $1.5 million promissory note for a $1.5 million convertible
promissory note and adjusted the exercise price of 575,000 warrants, issued to
the Investment Partnership. 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 AND TERM LOAN. In January 1997, the Company issued
promissory notes to a financial institution totaling $8.5 million (the "Bank
Facility"). The proceeds from the Bank Facility, together with the proceeds of
the Private Placement were used to fund the purchase price of the Sanifill
Assets and repay $700,000 of short-term borrowings from the Investment
Partnership. The Bank Facility was secured by a security interest in certain
assets of the Company, including the Sanifill Assets and is guaranteed by the
Company, the Company's Chief Executive Officer (the "Chief Executive Officer"),
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.
Effective June 30, 1997, the $8.5 million of borrowings under the Bank
Facility were refinanced with a $8.5 million term loan and the Company issued an
additional $500,000 term loan (collectively, the "Term Loan") the proceeds of
which will be used primarily for the expansion of the North County Landfill. The
Term Loan bears interest at prime plus 1.5% and matures June 30, 1999. Interest
is payable monthly with monthly principal payments beginning January 1998, based
on a seven-year amortization schedule. The Term Loan is secured by the
assignment of the security interest and guarantees, as modified, of the Bank
Facility and are subject to certain financial and other covenants.
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.
SOLID WASTE REVENUE BONDS. In June 1997, the Company received bond
proceeds from the sale of Solid Waste Revenue Bonds issued by Pearl River
County, Mississippi consisting of $4,550,000 of 20-year, tax-exempt bonds
bearing interest at 7.75% and $525,000 of 5-year taxable bonds bearing interest
at 10.75%. Pursuant to the related Trust Indenture Agreement, the Company is the
indirect obligor of the bonds which will be repaid from the revenues of one of
the Company's landfill operations. The proceeds will be used for debt issuance
cost, the establishment of debt service and capitalized interest funds, permit
expansion expenses, purchase of adjacent properties, construction of new cells,
and purchases of equipment. The bonds are secured by the assets of one of the
Company's landfill operations.
BANK LOAN. In August 1997, the Company received a $5.0 million bank
loan (the "Bank Loan"). The proceeds of the Bank Loan were used to finance the
acquisition of the Waste Management Assets, the Omega One assets, the
acquisition of Boudin and for working capital. The Bank Loan requires monthly
interest payments at prime plus 1.0% and quarterly principal payments of
$250,000. The Bank Loan, which matures September 30, 2000, is secured by certain
assets of the Company, including the assets acquired, and guaranteed by the
Chief Executive Officer and the Board Member. As consideration for the Board
Member's guarantee, the Company issued the Board Member warrants, having a term
of seven years, to purchase 1.5 million shares of the Company's common stock at
an exercise price of $1.625, subject to certain anti-dilution provisions.
SOLID WASTE REVENUE BONDS. In November 1997 and January 1998, the
Company issued $3.3 million and $200,000, respectively, of Solid Waste Revenue
Bonds bearing interest at 10.75%. The bonds require semi-annual interest
payments and mature November 2000. The proceeds will be used for debt issuance
cost and the construction of new cells and purchase of equipment at one of the
Company's landfill operations (the "Project"). The bonds are secured by a first
lien on the revenues of the Project.
<PAGE>
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 strategy has required 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.
At December 31, 1997, the Company had current assets of $12.2 million
and current liabilities of $13.2 million, representing a working capital deficit
of $1.0 million as compared to current assets of $6.6 million and current
liabilities of $6.5 million, representing working capital of $100,000 at
December 31, 1996. The increase in current assets and liabilities is primarily
due to the acquisition of the Sanifill Assets and other acquisitions, and the
related increase in operating activities. The Company intends to fund its cash
requirements, including capital projects, for the foreseeable future through
cash on hand, cash generated from operations and the completion of additional
debt or equity financings. If additional debt or equity were not available in
the future, it could have an adverse effect on the Company's liquidity.
The Company is currently limiting volume into one of its landfills due
to a delay in obtaining an expansion permit. In January 1998, the Company
received a permit to dispose of C&D waste in the expansion area and, while there
can be no assurances, management anticipates that the permit to accept MSW in
the expansion area will be received in the first half of 1998. Upon receiving a
MSW permit for the expansion area, the Company would have an obligation to the
previous owner of the landfill consisting of $1.0 million in cash and
approximately $700,000 of the Company's common stock. Further delays in
obtaining the MSW permit would negatively impact the profitability of the
Company. Construction into the expansion area began in January 1998. Management
has arranged for the Company's customers to utilize alternative disposal sites
on an interim basis.
At certain of the Company's landfills, the Company has obtained from
state regulatory agencies vertical expansion permits, which have allowed the
Company to continue to dispose of additional volumes of waste in existing
landfill facilities. As these vertical expansion permits expire, the Company
must develop and maintain landfill facilities, which are fully compliant with
regulations under Subtitle D of RCRA. Due to contractual obligations, the
Company is limited in its ability to pass the burden of the additional cost
associated with Subtitle D to its customers.
The Company's significant cash requirements during the year ended
December 31, 1997 were $12.6 million for the acquisition of the Sanifill Assets,
$3.7 million for other acquisitions, $8.8 million for capital expenditures and
improvements and $3.8 million for debt repayments. These requirements were
primarily funded with cash generated from operations of $3.9 million, the
proceeds of the $8.5 million Bank Facility, the $6.8 million Private Placement
(approximately $6.1 net of placement agent's commission and offering expenses),
the $5.0 million Bank Loan and $4.5 million of equipment financing and
promissory notes. In June 1997 and November 1997, the Company received proceeds
of approximately $5.1 million and $3.5 million, respectively, from the issuance
of Solid Waste Revenue Bonds which will be primarily used to expand the
Company's landfill operations.
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 estimates that its facilities will require up to $12.5
million in capital expenditures through 1998, primarily for landfill expansion
and improvements and equipment purchases. The Company has approximately $5.5
million in restricted cash from previous financings that is designated for the
1998 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.
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 $8.0 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.
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.
<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, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year ended August 31,
1995, the four months ended December 31, 1995, and the years ended December 31,
1996 and 1997. 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, 1996 and 1997, and their
results of operations and their cash flows for the year ended August 31, 1995,
the four months ended December 31, 1995, and the years ended December 31, 1996
and 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 11, 1998
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
ASSETS 1996 1997
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................................ $ 1,334 $ 2,707
Cash restricted for developmental projects....................... 879 2,000
Accounts receivable, less allowance for doubtful accounts of
$316 and $383, respectively.................................... 3,381 6,338
Other current assets............................................. 1,019 1,176
---------------- ----------------
TOTAL CURRENT ASSETS......................................... 6,613 12,221
Cash restricted for developmental projects........................... 13,400 15,929
Property and equipment, net of accumulated depreciation.............. 27,052 43,075
Cost in excess of fair value of assets acquired, net of accumulated
amortization of $--- and $225, respectively........................ --- 17,086
Deferred financing costs, net of accumulated amortization of
$634 and $929, respectively........................................ 2,453 3,053
Other assets, net.................................................... 3,156 511
---------------- ----------------
TOTAL ASSETS................................................. $ 52,674 $ 91,875
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................... $ 1,447 $ 3,391
Accrued liabilities and other...................................... 1,746 5,788
Current portion of promissory notes to investment partnership...... 1,338 ---
Current portion of long-term debt.................................. 1,731 3,962
Reserve for closure and post-closure costs......................... 211 105
---------------- ----------------
TOTAL CURRENT LIABILITIES.................................... 6,473 13,246
Promissory notes to investment partnership, less current portion..... 693 ---
Long-term debt, less current portion................................. 37,414 58,659
Reserve for closure and post-closure costs, less current portion 4,114 4,287
Other liabilities.................................................... 2,344 3,965
---------------- ----------------
TOTAL LIABILITIES............................................ 51,038 80,157
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value; 100,000,000 shares authorized;
30,694,041 and 44,216,250 shares issued and outstanding,
respectively..................................................... 31 44
Additional paid-in capital......................................... 25,799 33,284
Deferred compensation.............................................. --- (336)
Warrants........................................................... 394 2,004
Retained earnings (deficit)........................................ (24,588) (23,278)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY................................... 1,636 11,718
================ ================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $ 52,674 $ 91,875
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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 DECEMBER 31,
AUGUST 31, DECEMBER 31, ---------------------------
1995 1995 1996 1997
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue................................................. $ 7,350 $ 4,493 $ 16,022 $ 35,039
Expenses:
Cost of services.................................... 4,553 2,485 8,699 22,814
Depreciation and amortization....................... 1,014 517 1,632 3,644
General and administrative.......................... 4,192 1,368 3,270 2,855
------------- ------------- ------------ ------------
Operating income (loss)........................... (2,409) 123 2,421 5,726
------------- ------------- ------------ ------------
Other income (expense):
Interest expense, net............................... (2,371) (691) (2,155) (4,340)
Gain on sale of assets.............................. --- 236 437 ---
Exchange offer charge............................... (1,644) --- --- ---
Loss on investment in affiliate..................... (563) --- --- ---
Other, net.......................................... 241 (38) 135 40
Loss from oil recovery and disposal operations...... (701) (112) (7,705) ---
------------- ------------- ------------ ------------
Income (loss) before income taxes................ (7,447) (482) (6,867) 1,426
Provision (benefit) for income taxes.................... (508) 46 50 116
------------- ------------- ------------ ------------
Net income (loss)................................. $ (6,939) $ (528) $ (6,917) $ 1,310
============= ============= ============ ============
Earnings (loss) per common share........................ $ (.34) $ (.02) $ (.23) $ .03
============= ============= ============ ============
Weighted average common shares outstanding.............. 20,507 29,580 30,281 42,615
============= ============= ============ ============
Diluted earnings (loss) per common and common equivalent
share............................................... $ (.34) $ (.02) $ (.23) $ .03
============= ============= ============ ============
Weighted average common and common equivalent shares
outstanding......................................... 20,507 29,580 30,281 44,129
============= ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
-------------------- PAID-IN DEFERRED EARNINGS
SHARES AMOUNT CAPITAL COMPENSATION WARRANTS (DEFICIT) TOTAL
---------- -------- ------------ ------------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 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
Issuance of common stock under
stock option plan................. 496 --- 233 --- --- --- 233
-------- -------- ------------ ---------- ---------- ------------- ------------
BALANCE-DECEMBER 31, 1996........... 30,694 31 25,799 --- 394 (24,588) 1,636
Net income.......................... --- --- --- --- --- 1,310 1,310
Issuance of common stock and
warrants in private placement..... 11,250 11 5,788 --- 250 --- 6,049
Warrants issued for consulting
services and debt guarantees...... --- --- --- --- 1,060 --- 1,060
Issuance of common stock and
warrants to former owners of
businesses acquired............... 1,070 1 826 --- 300 --- 1,127
Issuance of common stock for the
retirement of debt................ 200 --- 200 --- --- --- 200
Issuance of common stock under the
terms of employment agreements.... 115 --- 137 --- --- --- 137
Issuance of common stock under the
stock option plan................. 54 --- 35 --- --- --- 35
Issuance of common stock under the
1997 Stock Participation Plan..... 833 1 499 (500) --- --- ---
Compensation expense and adjustment
related to 1997 Stock
Participation Plan --- --- --- 164 --- --- 164
-------- -------- ------------ ------------- ---------- ------------- ------------
BALANCE-DECEMBER 31, 1997........... 44,216 $ 44 $ 33,284 $ (336) $ 2,004 $ (23,278) $ 11,718
======== ======== ============ ============= ========== ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
AUGUST 31, DECEMBER 31, ------------------------------
1995 1995 1996 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $ (6,939) $ (528) $ (6,917) $ 1,310
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization................ 1,014 517 1,632 3,644
Amortization of debt discount and deferred
financing costs............................ 329 137 590 840
Amortization of deferred compensation
expense..................................... --- --- --- 80
Provision for closure and post-closure costs. 359 45 114 67
Cost of completed acquisitions............... 450 --- --- ---
Cost of terminated acquisitions and contracts 233 265 50 ---
Exchange offer charge........................ 1,644 --- --- ---
Loss from oil recovery and disposal ......... 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............... (444) (72) (284) (2,971)
Other current assets......................... 183 130 (115) (155)
Accounts payable and accrued liabilities..... 1,107 (191) 79 4,788
Other, net................................... 254 186 (440) (3,694)
-------------- -------------- -------------- --------------
Net cash provided (used) by operating activities (514) 429 1,977 3,909
-------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of acquisitions and completed management
contracts...................................... (1,975) (19) (824) (16,293)
Purchases of property and equipment.............. (6,083) (2,619) (5,265) (8,786)
Costs incurred on possible acquisitions.......... (425) (61) (1,608) ---
Proceeds from sale of equipment and contracts.... 680 --- 959 ---
Payments to oil recovery and disposal............ (457) (118) --- ---
Other............................................ (50) (213) --- ---
-------------- -------------- -------------- --------------
Net cash used by investing activities.......... (8,310) (3,030) (6,738) (25,079)
-------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt and warrants.................. 4,285 5,621 11,579 24,853
Payments of debt................................. (1,107) (1,095) (2,101) (3,849)
Proceeds from issuances of common stock and
warrants....................................... 2,221 --- 233 6,084
Deferred financing costs......................... (472) (391) (583) (895)
Use (increase) of restricted cash................ 1,721 (2,272) (4,565) (3,650)
-------------- -------------- -------------- --------------
Net cash provided by financing activities...... 6,648 1,863 4,563 22,543
-------------- -------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (2,176) (738) (198) 1,373
CASH AND CASH EQUIVALENTS:
Beginning of period........................ 4,446 2,270 1,532 1,334
============== ============== ============== ==============
End of period.............................. $ 2,270 $ 1,532 $ 1,334 $ 2,707
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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.
On January 26, 1998 the Company entered into a definitive merger
agreement with USA Waste Services, Inc. ("USA Waste"). Upon closing of the
transaction, each share of the Company's outstanding common stock will be
exchanged for .045232 shares of USA Waste common stock (the "Exchange Ratio").
The Exchange Ratio is subject to adjustment based upon the extent to which the
net debt, as defined, of the Company exceeds $43.2 million. The closing of the
transaction is subject to approval by the Company's stockholders, antitrust
clearance, qualification of the merger as a tax-free pooling-of-interest
transaction and certain other customary closing conditions.
At December 31, 1997, the Company has a working capital deficit of
approximately $1.0 million. The Company historically has funded its cash
requirements, including capital projects, from cash on hand, cash generated from
operations and additional debt or equity financings. If additional debt or
equity were not available in the future, it could have an adverse effect on the
Company's liquidity.
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 year ended
August 31, 1995, the four month transition period ended December 31, 1995, and
the years ended December 31, 1996 and 1997. Unaudited income statement
information for the year ended December 31, 1995 is presented below for
comparative purposes only (in thousands):
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1995 1996 1997
----------------- ------------------ -----------------
(unaudited)
<S> <C> <C> <C>
Revenue.............................................. $ 9,676 $ 16,022 $ 35,039
Expenses:
Cost of services................................... 5,713 8,699 22,814
Depreciation and amortization...................... 1,198 1,632 3,644
General and administrative......................... 4,103 3,270 2,855
---------------- ----------------- -----------------
Operating income (loss)......................... (1,338) 2,421 5,726
---------------- ----------------- -----------------
Other income (expense):
Interest expense, net.............................. (2,156) (2,155) (4,340)
Gain on sale of assets............................. 236 437 ---
Exchange offer charge.............................. (1,644) --- ---
Loss on investment in affiliate.................... (563) --- ---
Other, net......................................... 123 135 40
Loss from oil recovery and disposal operations..... (509) (7,705) ---
---------------- ----------------- -----------------
Income (loss) before income taxes................ (5,851) (6,867) 1,426
Provision (benefit) for income taxes................. (462) 50 116
---------------- ----------------- -----------------
Net income (loss)................................ $ (5,389) $ (6,917) $ 1,310
================ ================= =================
Diluted earnings (loss) per common and common
equivalent share............................... $ (.21) $ (.23) $ .03
================ ================= =================
</TABLE>
REVENUE RECOGNITION. The Company recognizes revenue upon the receipt
and acceptance of non-hazardous industrial and municipal waste at its landfills.
Revenue for collection services are recognized as the services are performed.
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 the year ended August 31,
1995, the four months ended December 31, 1995, and the years ended December 31,
1996 and 1997 was $411,000, $167,000, $806,000, and $625,000, 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
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.
COST IN EXCESS OF FAIR VALUE OF ASSETS ACQUIRED. The cost in excess of
fair value of assets required is amortized on a straight-line basis over 40
years commencing on the date of acquisition.
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.
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 and non-refundable downpayments. 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, 1996 and 1997,
costs incurred on possible acquisitions included in other assets were $1,110,000
and $64,000 respectively.
COST OF COMPLETED ACQUISITIONS. During the year ended August 31, 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
$450,000 which was expensed during the period in which the transaction was
closed.
DEFERRED FINANCING COSTS. Deferred financing costs consist of third
party charges incurred in connection with various financings. 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 airspace.
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.
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
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
AUGUST 31, DECEMBER 31, -------------------------------
1995 1995 1996 1997
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Interest paid , net of amounts capitalized.......... $ 1,791 $ 540 $ 2,146 $ 3,632
Income taxes (paid) received, net................... 508 --- --- (141)
Property and equipment financed by direct debt...... 1,593 924 382 ---
Conversion of debt to equity........................ 9,163 --- 243 200
Common stock and warrants issued for acquisitions
and management contracts.......................... 1,064 --- 325 1,127
Acquisitions financed by seller debt................ 1,117 --- 1,467 325
Warrants issued for consulting services and debt
guarantees........................................ --- --- 55 1,060
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 1995, 1996 and
1997, 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.
<PAGE>
YEAR ENDED DECEMBER 31, 1997
SANIFILL TRANSACTION. On January 31, 1997, the Company acquired certain
solid waste collection and disposal assets and operations of 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. Consideration for the purchase of the Sanifill Assets
included $13.6 million in cash plus warrants to purchase 1.5 million 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 has registered 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,
(the "North County Landfill"), 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.
In connection with the acquisition of the Sanifill Assets, the Company
assumed certain contractual obligations to provide residential collection and
related services. Based upon management's analysis of these contractual
obligations, certain contracts assumed with commitment periods to April 2002,
will be unprofitable to the Company. The Company recorded a reserve of
approximately $7.6 million, which will be amortized over the life of the
respective contracts, and has included this reserve as part of the initial
purchase price allocation. At December 31, 1997, the balance of the reserve was
approximately $5.6 million and is included in other liabilities in the
accompanying consolidated balance sheet.
The Company financed the acquisition of the Sanifill Assets with a
combination of debt and equity funds consisting of an $8.5 million bank facility
(the "Bank Facility"; see discussion in Note 7) and $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").
Set forth below are unaudited pro forma combined revenues and income
data reflecting the pro forma effect of the acquisition of the Sanifill Assets
on the continuing operations of the Company as if the transaction was effective
on the first day of the period being reported (in thousands, except per share
data):
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997
------------- -------------
Revenue................................. $ 29,907 $ 36,244
============= =============
Net income (loss)....................... $ (9,081) $ 1,256
============= =============
Diluted earnings (loss) per common
and common equivalent share.......... $ (.22) $ .03
============= =============
Pro forma adjustments included in the amounts above primarily relate to
(a) adjustment to depreciation and amortization expense due to the purchase
price allocation, (b) adjustment to reflect interest expense on the Bank
Facility, and (c) adjustment for loss contracts assumed in the acquisition of
the Sanifill Assets. Net income per share assumes that all the shares of the
Company's common stock issued in the Private Placement were outstanding for the
period presented. The pro forma combined results presented above are not
necessarily indicative of actual results which might have occurred had the
operations and management of the Company and the Sanifill Assets been combined
at the beginning of the period presented.
The following acquisitions, all of which have been accounted for under
the purchase method of accounting, have been included in the consolidated
financial statements since the acquisition date. The pro forma effects of these
acquisitions, individually or in the aggregate, are not material to the
Company's financial condition or its results of operations.
TARGET WASTE INDUSTRIES, INC. In April 1997, the Company purchased
Target Waste Industries, Inc. ("Target"), a commercial solid waste collections
company operating in the greater Mobile, Alabama metropolitan area. Total
consideration consisted of $100,000 cash and 720,000 shares of restricted common
stock. In connection with the acquisition, the Company received a non-compete
agreement from Target's principal shareholder for a period of two years.
WASTE MANAGEMENT ASSETS. In August 1997, the Company completed its
acquisition of certain assets (the "Waste Management Assets") used in the solid
waste collection, hauling and recycling operations in the western Louisiana area
from Waste Management of Louisiana, L.L.C. Additionally, the Company received a
five-year contract to operate a transfer station. The total consideration
consisted of $2,060,000 in cash and the assumption of certain liabilities in
connection with these operations.
THE OMEGA ONE ASSETS. In August 1997, the Company acquired from The
Omega One Company certain assets used in the solid waste collection, hauling and
recycling operations in Sabine Parish, DeSoto Parish, and Natchitoches Parish,
Louisiana (the "Omega One Assets"). The total consideration consisted of
$1,200,000 in cash, the forgiveness of approximately $400,000 of indebtedness
and the assumption of certain liabilities in connection with the operations.
BOUDIN'S WASTE AND RECYCLING, INC. In August 1997, the Company
purchased all the issued and outstanding common stock of Boudin's Waste and
Recycling, Inc. ("Boudin"). The total consideration consisted of $125,000 cash,
350,000 shares of restricted common stock of the Company, a seller note in the
aggregate principal amount of $325,000 and the assumption of certain
liabilities.
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 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 completed 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 existing 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 1997, the Company received a one-year extension on the
management contract for the District's construction and demolition landfill and
a five-year management contract to manage a new construction and demolition
landfill which is scheduled to open February 1998. At December 31, 1997, the
District is 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.
The incremental cost of businesses and management contracts acquired
during the year ended August 31, 1995 and the years ended December 31, 1996 and
1997 (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 DECEMBER 31,
AUGUST 31, -----------------------------------
1995 1996 1997
---------------- ---------------- ---------------
<S> <C> <C> <C>
Common stock and warrants issued.................. $ 1,064 $ 325 $ 1,477
Cash paid......................................... 1,975 50 17,293
Debt issued....................................... 1,117 1,467 325
Debt forgiveness.................................. --- --- 478
Liabilities assumed............................... 1,161 522 8,713
================ ================ ===============
Incremental cost of businesses acquired........... $ 5,317 $ 2,364 $ 28,286
================ ================ ===============
</TABLE>
The cash paid in 1997 includes $1.0 million of non-refundable down
payments made for the acquisition of the Sanifill Assets which were paid in
December 1996. Revenue attributable to the facilities and management contracts
acquired during each year was approximately $1.7 million, $2.2 million and $16.6
million for the years ended August 31, 1995, December 31, 1996 and 1997,
respectively.
<PAGE>
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 bore interest at 8% per annum. The Company
recognized a gain of $437,000 during the year ended December 31, 1996 for this
sale.
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.
4. PROPERTY AND EQUIPMENT
The major categories of property and equipment are as follows (in
thousands):
DECEMBER 31,
----------------------------------------
1996 1997
------------------ -------------------
Landfill and transfer facilities.... $ 20,485 $ 26,812
Vehicles and equipment.............. 8,091 19,087
Land and buildings.................. 1,551 2,681
Furniture and fixtures.............. 484 819
------------------ -------------------
30,611 49,399
Less: accumulated depreciation...... (3,559) (6,324)
================== ===================
$ 27,052 $ 43,075
================== ===================
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, 1997, the Company is the guarantor of Inland
term debt (estimated to be approximately $310,000).
In connection with these transactions, the Company relinquished its
management and legal control over the oil recovery and disposal operations. The
consolidated financial statements, therefore present, 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. Market
conditions and projections of the future relationship between the revenues and
costs of the operations indicated that the Company would not recover the
carrying value of its investment in CRI and Inland through undiscounted future
cash flows of the businesses. Accordingly, the Company 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.
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 August Note was exchanged, in January 1997, for a 12%
convertible promissory note which was repaid during 1997. 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 borrowings and the August Warrants were recorded based on their
relative fair values at date of issuance.
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.
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. 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. Upon the closing of the Private
Placement of the Company's common stock in January 1997, the August Warrants and
the December Warrants were repriced to $.60 per share of common stock. The
December Warrants expire in December 2001.
<PAGE>
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 31,
-------------------
1996 1997
-------- --------
Term loan, net of unamortized discount of $190 .......... $ -- $ 8,810
Bank loan, net of unamortized discount of $306 .......... -- 4,694
Solid Waste Revenue Bonds, net of unamortized
discount of $728 and $971, respectively,
principal payable in varying annual installments,
maturing in 2001-2017, interest ranging from
7.75% to 12.00% ........................................ 15,653 23,549
Nonrecourse Certificates of Participation net of
unamortized discount of $457 and $425, respectively,
bearing interest at 7.6% payable semi-annually, with
annual principal payments through 2013 ................. 14,783 14,375
10% Convertible Subordinated Debentures, net of
unamortized discount of $1,087 and $978, respectively,
interest payable semi-annually through July 2003 ....... 4,921 5,030
Notes payable to previous owners of businesses acquired,
interest at 8% payable in various monthly installments
through September 2017 ................................. 1,001 1,046
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 ...................................... 2,787 5,117
-------- --------
39,145 62,621
Less: current portion .................................... (1,731) (3,962)
-------- --------
$ 37,414 $ 58,659
======== ========
BANK FACILITY AND TERM LOAN. In January 1997, the Company borrowed $8.5
million under the terms of a bank facility (the "Bank Facility"). The proceeds
were used to fund the initial purchase price of the Sanifill Assets and
refinance certain related indebtedness. The Bank Facility was composed of a $7.5
million promissory note and a $1 million revolving line of credit. The Bank
Facility was secured by a security interest in certain assets of the Company,
including the Sanifill Assets and guaranteed by the Company, the Company's chief
executive officer (the "Chief Executive Officer") and an individual member of
the board of directors (the "Board Member"). As consideration for the Board
Member's guarantee and services provided in connection with the acquisition of
the Sanifill Assets, 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 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 respective fair
market values.
Effective June 30, 1997, the $8.5 million of borrowings under the Bank
Facility were refinanced with a $8.5 million term loan. Additionally, the
Company issued a $500,000 term loan, (collectively, the "Term Loan") the
proceeds of which will be used primarily for the expansion of the North County
Landfill. The Term Loan bears interest at prime plus 1.5% (10.0% at December
31, 1997) and matures June 30, 1999. Interest is payable monthly with monthly
principal payments beginning January 1998, based on a seven year amortization
schedule. The Term Loan is secured by the assignment of the security interest
and guarantees, as modified, of the Bank Facility and are subject to certain
financial and other covenants.
BANK LOAN. In August 1997, the Company borrowed $5.0 million under the
terms of a bank loan (the "Bank Loan"). The proceeds were used to fund the
purchase of the Waste Management Assets, the Omega One Assets, the acquisition
of Boudin and working capital. The Bank Loan requires monthly interest payments
at prime plus 1.0% (9.5% at December 31, 1997) and quarterly principal payments
of $250,000. The Bank Loan, which matures September 30, 2000, is subject to
certain customary financial and other covenants. The Bank Loan is secured by a
security interest in certain assets of the Company, including the assets
acquired, and guaranteed by the Chief Executive Officer and the Board Member. As
consideration for the Board Member's guarantee, the Company issued the Board
Member warrants, having a term of seven years, to purchase 1.5 million shares of
the Company's common stock at an exercise price of $1.625, subject to certain
anti-dilution provisions. The warrants are recorded at their respective fair
market values.
SOLID WASTE RECOVERY BONDS. The Company has completed several issues of
tax-exempt and taxable solid waste revenue bonds (the "Bonds") with maturities
ranging up to 20 years. The Bonds are subject to monthly sinking fund
requirements and the proceeds of the Bonds are restricted to fund certain
developmental projects. The Bonds are secured by the revenues from the
developmental projects and certain assets of the Company related to the
projects. At December 31, 1996 and 1997 the balance of the Bonds were $16.4
million and $24.5 million before unamortized discounts of $728,000 and $971,000.
NONRECOURSE CERTIFICATES OF PARTICIPATION. During March 1994, a newly
created subsidiary of the Company 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 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 and December 1996, in separate privately negotiated
transactions, the Company exchanged 564,729 and 202,500 shares of common stock
for $1,199,000 and $450,000 principal face amount of its issued and outstanding
Debentures and 5,667 and 13,500 shares of common stock respectively, were issued
in payment of the accrued interest thereon.
Accrued interest for the Company's total indebtedness was $899,000 and
$1,047,309 at December 31, 1996, and December 31, 1997, respectively.
Future maturities of long-term debt as of December 31, 1997, were as
follows (in thousands):
YEARS ENDING
DECEMBER 31,
------------
1998 $ 3,962
1999 14,144
2000 4,856
2001 1,640
2002 1,770
Thereafter 36,249
----------
$ 62,621
==========
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
YEAR ENDED ENDED
AUGUST 31, DECEMBER 31, YEAR ENDED DECEMBER 31,
------------ ------------- ------------------------------
1995 1995 1996 1997
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
Current................................ $ (508) $ 46 $ 50 $ 100
Deferred............................... --- --- --- 16
------------ ------------- ------------- --------------
Income tax provision (benefit)......... $ (508) $ 46 $ 50 $ 116
============ ============= ============= ==============
</TABLE>
At December 31, 1996 and 1997, the individually significant components
which comprise the Company's deferred tax assets and liabilities are as follows
(in thousands):
DECEMBER 31,
-------------------
1996 1997
------- -------
Deferred tax assets
Net operating loss carryforward ........................ $ 4,896 $ 7,575
Other .................................................. 2,348 1,199
Valuation allowance .................................... (5,302) (6,459)
------- -------
1,942 2,315
------- -------
Deferred tax liabilities
Excess of book basis over tax basis of property ........ 985 1,262
Other .................................................. 957 1,053
------- -------
1,942 2,315
------- -------
Net deferred tax liability ............................. $ -- $ --
======= =======
At December 31, 1997, the Company had a net operating loss carryforward
(NOL) of approximately $19.4 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 provision
(benefit) to its effective income tax provision (in thousands):
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED ENDED
AUGUST 31, DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------- ------------ -------------------------------
1995 1995 1996 1997
-------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Statutory federal tax provision (benefit)........ $ (2,532) $ (164) $ (2,335) $ 485
State income taxes............................... (146) 23 53 128
Adjustment of valuation allowance................ 674 137 470 (684)
Non-deductible expenses.......................... 862 14 38 27
Non-deductible loss on disposition of subsidiary. --- --- 1,700 ---
Amortization of costs in excess of fair value
of assets acquired........................... 42 16 36 38
Other............................................ 592 20 88 122
-------------- ------------ ------------- --------------
Effective tax provision (benefit)................ $ (508) $ 46 $ 50 $ 116
============== ============ ============= ==============
</TABLE>
9. STOCKHOLDERS' EQUITY
COMMON STOCK. The number of authorized shares of the Company's Common
Stock is 100,000,000.
PRIVATE PLACEMENT. In the Private Placement on January 31, 1998, 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-allotment
for total proceeds to the Company, net of placement agent's commission and
related expenses, of $6.1 million. As required by the terms of the Private
Placement, the Company filed a registration statement covering the resale of the
Shares under the Securities Act of 1933 with the Securities and Exchange
Commission, which became effective June 20, 1997. The Company is obligated to
register the Shares in such states as the holders may select. 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.
STOCK OPTION PLAN. 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 to officers, directors and key employees. The plan
provides for the issuance of stock-based incentive awards, including deferred
stock, restricted stock, and stock appreciation rights. 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.
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. On June 25, 1997, the
Company's stockholders approved the 1997 Non-Employee Director Stock Option Plan
(the "1997 Directors' Plan"), which was made effective as of February 25, 1997.
The 1997 Directors' Plan is expressly and exclusively for the benefit of
non-employee directors in order to (i) provide additional incentive for securing
and retaining qualified non-employee persons to serve on the Board of Directors
of the Company and (ii) enhance the future growth of the Company by furthering
the non-employee directors' identification with the interests of the Company and
its stockholders. The 1997 Directors' Plan authorized the grant of options to
purchase up to 900,000 shares of common stock. The options are subject to a four
year vesting schedule and expire 10 years from the date of grant. All 900,000 of
the authorized options were granted, effective February 25, 1997, to the
non-employee directors at an exercise price of $1.22 (fair market value on grant
date), subject to certain anti-dilution provisions.
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 years ended December 31, 1996 and 1997,
net income (loss) and earnings (loss) per common share would have been adjusted
to the pro forma amounts indicated below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------------------
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
Net income (loss)
As reported.......................... $ (528) $ (6,917) $ 1,310
Pro forma............................ (541) (7,210) 821
Diluted earnings (loss) per common and
common equivalent share
As reported.......................... $ (.02) $ (.23) $ .03
Pro forma............................ (.02) (.24) .02
</TABLE>
The fair value of grants made during the four months ended December 31,
1995 and the years ended December 31, 1996 and 1997 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:
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------
1995 1996 1997
-------------- ------------ --------------
<S> <C> <C> <C>
Risk-free interest rate 5.73% 5.80% 6.13%
Volatility 124.03% 99.54% 90.71%
Expected lives 6 years 6 years 6 years
Dividend yield None None None
</TABLE>
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.
A summary of the status of the Stock Option Plan and the 1997
Directors' Plan for the year ended August 31, 1995, the four months ended
December 31, 1995, and the years ended December 31, 1996 and 1997 is as follows:
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED FOUR MONTHS ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1995 DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
-------------------- -------------------- -------------------- -------------------
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........................ 1,413 $ 2.87 2,212 $ 1.48 2,563 $ 1.48 2,168 $ 1.72
Granted..................... 1,320 .62 752 1.31 905 1.60 1,886 1.28
Exercised................... 26 .71 2 .56 496 .63 54 .56
Forfeited................... 495 2.68 399 1.15 804 1.52 395 2.08
--------- --------- --------- --------
Outstanding at end of period 2,212 1.48 2,563 1.48 2,168 1.72 3,605 1.47
========= ========= ========= ========
Exercisable at end of period.. 1,156 2.07 1,330 1.73 1,090 2.06 1,402 1.73
Available for grant............. 1,055 702 1,601 1,010
Weighted-average fair value of
options granted............... $ 1.29 $ 1.29 $ 1.00
</TABLE>
The stock options outstanding at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ------------------------------
Wtd. Avg.
Remaining No. of
Contract Wtd. Avg. Shares Under Wtd. Avg.
life in Exercise Exercisable Exercise
RANGE OF EXERCISE PRICES Shares Years Price Options Price
-------------- ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
$ .56...................... 307,500 7.15 $ .56 239,750 $ .56
$1.19 - $1.25.............. 1,267,000 9.20 1.22 --- ---
$1.28 - $1.56.............. 1,525,000 8.74 1.43 687,375 1.43
$2.06 - $2.50.............. 336,250 6.36 2.14 306,250 2.11
$3.60 - $4.38.............. 150,583 4.28 3.69 150,583 3.69
$5.00 - $6.25.............. 18,333 4.91 5.68 18,333 5.68
============== ==============
3,604,666 1,402,291
============== ==============
</TABLE>
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 (the "Participation Plan"), pursuant to which the
Company issued restricted shares of common stock to the executive officers and
certain key employees of the Company who were selected in the discretion of the
Compensation Committee of the Board of Directors ("Committee"). Pursuant to the
Participation Plan, the Company 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
of the Board of Directors of the Company 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.
The Company received a bank loan in the amount of $500,000 (the
"Participation Plan Bank Loan") to acquire 833,334 shares of common stock from
the Company at $.60 per share pursuant to the Participation Plan. The
Participation Plan Bank Loan bears interest at 9% per annum to be repaid based
upon a five-year amortization schedule. The Participation Plan Bank Loan is
secured by the shares of the Company's common stock granted pursuant to the
Participation Plan and is guaranteed personally by the Chairman of the Board of
the Company.
The Company's chief financial officer resigned effective May 1, 1997.
The Committee gave the former chief financial officer the option to purchase his
156,250 unvested restricted shares of common stock issued under the
Participation Plan for $.60 per share. The former chief financial officer
exercised his option in August 1997 and the proceeds were used to retire a
portion of the Participation Plan Bank Loan.
WARRANTS. In connection with various transactions and agreements
entered into by the Company, the Company has issued warrants to purchase
10,035,000 shares of common stock to non-employees. Warrants have expiration
dates through December 2004. The warrants were recorded based on the more
determinable of the fair value of the consideration received or the fair value
of the warrant at the date of issuance. The following table summarizes
transactions involving common stock warrants issued to non-employees for 1996
and 1997 (in thousands, except per share data):
WEIGHTED AVERAGE
WARRANTS EXERCISE PRICE
-------- --------------
Outstanding at January 1, 1996 6,101 $ 4.43
Granted 2,714 1.31
Forfeited 844 4.41
---------
Outstanding at December 31, 1996 7,971 3.37
Granted 7,176 1.22
Forfeited 5,112 4.04
---------
Outstanding at December 31, 1997 10,035 1.49
==========
SHARES RESERVED FOR ISSUANCE. Shares reserved for issuance at December
31, 1997 are summarized as follows (in thousands):
Shares
-------
Warrants.......................................................... 10,035
Conversion of Debentures, including purchase option............... 1,403
Stock options..................................................... 4,615
=======
16,053
=======
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
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 requires dual presentation of basic and diluted earnings per
share. Basic earnings per share is computed by dividing earnings by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share, which utilizes average market price per share when applying
the treasury stock method in determining common stock equivalents, adjust the
basic earnings per share for all dilutive potential common shares outstanding
during the period.
The following table reconciles the number of common shares outstanding
to the weighted average common shares outstanding and the weighted averages
common and common equivalent shares outstanding for purposes of calculating
basic and diluted earnings per share, respectively (in thousands):
<TABLE>
<CAPTION>
YEAR FOUR MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, AUGUST 31, --------------------------------
1995 1995 1996 1997
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Common shares outstanding, end of year ............ 29,337 29,649 30,694 44,216
Effect of shares issued during year using weighted
average common shares.......................... (8,830) (69) (413) (1,601)
------------- -------------- -------------- --------------
Weighted average common shares
outstanding................................... 20,507 29,580 30,281 42,615
Effect of dilutive securities...................... --- --- --- 1,514
------------- -------------- -------------- --------------
Weighted average common and common equivalent shares 20,507 29,580 30,281 44,129
============= ============== ============== ==============
</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.
LIMITED ENVIRONMENTAL IMPAIRMENT LIABILITY INSURANCE. The Company is
subject to potential liability for any environmental damage its facilities may
cause, particularly as a result of the contamination of water or the soil. The
Company maintains $5 million of environmental impairment liability insurance,
limited to $1 million per occurrence, covering both the sudden and the gradual
onset of environmental damage (subject to a $100,000 deductible). There can be
no assurance that liabilities that may be incurred by the Company will be
covered by the insurance or that the dollar amount of such liabilities which are
covered by its insurance will not exceed the Company's policy limit. As a
result, if the Company were to incur liability for environmental damage, its
financial condition 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 $8.0 million. At December 31, 1997, the Company
had accrued approximately $4.4 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, 1997, the Company has provided performance bonds totaling $10.4 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 has one customer which accounted for 13%
of consolidated revenue for the year ended December 31, 1997. The Company had
two customers which accounted for 23% and 14% of consolidated revenue for the
year ended December 31, 1996. These revenues represent an accumulation of
revenues generated from geographically disperse affiliates and subsidiaries of
the customer at various Company facilities.
LITIGATION. McGinnes Industrial Maintenance Corporation ("MIMC") a
wholly owned subsidiary of the Company was named as one of seventeen
co-defendants in a lawsuit styled TAMMY FISHER WHALEN, ET AL. V. AES, INC., ET
AL., Cause No. 93-CV-0211, filed in the 10th Judicial District Court of
Galveston County, Texas. The suit alleged personal injuries and property damages
resulting from alleged releases of toxic substances from the Company's
wastewater/sludge treatment facility located in Galveston County, Texas. On May
15, 1995, the Company, as well as the other defendants agreed on an out-of-court
settlement with thirty plaintiffs. The Company's contribution towards settlement
of the consolidated lawsuit was approximately $30,000. In August 1997, the
Company concluded an out-of-court settlement with all of the remaining
plaintiffs/intervenors in this lawsuit with the payment of $37,500.
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 plaintiff's 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.
EMPLOYMENT AGREEMENTS. As of December 31, 1997, the Company's
commitments under employment agreements are $300,000 and $140,000 for the years
ended December 31, 1998 and 1999, 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, are parties to a consulting
agreement (as amended), which commenced on April 2, 1992. The consulting
agreement may be 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,
$300,000, $100,000, $240,000 and $300,000 were earned pursuant to this agreement
during the year ended August 31, 1995, the four months ended December 31, 1995,
and the years ended December 31, 1996 and 1997, 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.
DEVELOPMENT SERVICES AGREEMENT. In March 1996, the Company entered into
a Development Services Agreement, with E.C. Development, L.P. ("ECD"), a company
controlled by a director of the Company, whereby ECD would provide the Company
with certain development services related to locating landfill facilities. 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. ECD was also
entitled to additional compensation upon the closing of each transaction related
to landfill facilities identified for the Company by ECD. The Company and ECD,
in a letter dated January 24, 1997, mutually agreed to the termination of the
Development Services Agreement. In consideration for services rendered pursuant
to this agreement, ECD received warrants to purchase approximately 417,000
shares of common stock at $1.50 per share.
INVESTMENT BANKING AGREEMENT. In July 1994, the Company entered into a
five-year agreement with an investment banking firm, in which a director of the
Company is 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 and the
investment banking firm mutually agreed to the termination of this agreement.
CONSULTING 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 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. 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 substantial owner. The terms of the lease agreement provided 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.
The Company incurred $1,156,000 in construction services provided by
McGinnes Brothers, Inc., an affiliated company, during the year ended August 31,
1995.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information with respect to each of the Company's
directors:
PART III
DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE
- ------------------------------- ------- ------------------------------------------------- ------------------
<S> <C> <C> <C>
Chairman of the Board of Directors and
Tom J. Fatjo, Jr. 57 Chief Executive Officer 1991
Jerome M. Kruszka 49 President, Chief Operating Officer and Director 1997
Ed L. Romero 64 Director 1991
Preston Moore, Jr. 66 Director 1993
Ben F. Barnes 59 Director 1994
William B. Blount 44 Director 1994
John B. Singleton, Jr. 79 Director 1995
Robert K. Moses, Jr. 57 Director 1997
George Ball 59 Director 1997
Philip J. Burguieres 55 Director 1997
Richard E. Bean 54 Director 1997
</TABLE>
TOM J. FATJO, JR. has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since April 1992 and served as President
from April 1994 to January 1996. He was the founder and served as Chairman of
the Board and Chief Executive Officer of Republic Waste Industries, Inc., a
publicly-held company in the waste management business, from January 1990 to
August 1991. Mr. Fatjo has over 20 years experience in the solid waste industry.
He founded Browning-Ferris Industries, Inc. ("BFI"), one of the nation's largest
solid waste companies, in 1966, and served as the Co-Chief Executive Officer
responsible for BFI's mergers and acquisitions and corporate development
activities. He left BFI in 1976 and thereafter founded, or was a member of the
organizing group of investors for a number of businesses, including Fannin Bank,
Mortgage Banque, Criterion Group, The Houstonian, Houston Partners, LivingWell,
Inc. and First Financial Alliance ("FFA"). Mr. Fatjo currently serves as Vice
Chairman of the Board of Directors of Commodore Applied Technologies, Inc.
("Commodore"). Mr. Fatjo received a Bachelor of Science degree from Rice
University. Mr. Fatjo is the father of Tom J. Fatjo, III, Vice
President-Treasurer of the Company.
JEROME M. KRUSZKA was elected Chief Operating Officer on November 1,
1996 and President on December 26, 1996 and has served as a director since June
1997. Mr. Kruszka began his career with Waste Management, Inc. in 1971. Between
1971 and 1996, Mr. Kruszka held several positions at Waste Management, Inc. and
its affiliates, including District Landfill Manager and Mid-West Region District
Manager. In 1994, Mr. Kruszka was named Division President and General Manager
for Waste Management of Alameda County after which thirteen divisions involved
in solid waste collection and transfer, recycling and landfill operations
reported to him.
ED L. ROMERO served as a director of the Company from November 1991 to
April 1992 and was reappointed as a director in December 1992. From 1977 to
1996, Mr. Romero was the owner and Chief Executive Officer of Advanced Sciences,
Inc., a technical services firm that provides various services, including waste
management and environmental engineering services, to national and international
clients. In 1996, ASI was acquired by Commodore. Mr. Romero currently serves on
the Board of Directors of Commodore. From 1974 to 1977, Mr. Romero served as
President of a consulting firm specializing in marketing, public relations and
organizational development. He is the owner of the Professional Developers, a
New Mexico-based real estate and development company.
PRESTON MOORE, JR. has served as director of the Company since
September 1993. He has worked as an independent consultant since January 1993,
providing business advisory services to a wide range of businesses. Mr. Moore
served as Chief Financial Officer and Assistant Secretary for Administration,
U.S. Department of Commerce, from June 1991 through January 1993 during the Bush
Administration. He served as President of Wilson Industries, Inc. from February
1984 through May 1991. Mr. Moore also currently serves on the Board of Directors
of Wilson Industries, Inc., Tanglewood Bank and McCoy, Inc. He is a member of
the College of Business Administration Foundation Advisory Council at the
University of Texas at Austin and the Jones Graduate School of Administration
Council of Overseers at Rice University. Mr. Moore received a Bachelor of Arts
degree in Economics and Business from the University of Texas and completed the
Owners, Presidents, Managers Program at the Harvard Business School.
BEN F. BARNES has served as a director of the Company since April 1994.
For the last eight years, he has been an independent consultant providing
business advisory and lobbying services to a wide range of businesses and
governmental units. Mr. Barnes served as Chairman of the People's Community
Clinic Capital Campaign. He is a member of the Governor's Leadership Council,
Friends of the Governor's Central Texas Citizens Education Project, Laguna
Gloria Museum Foundation, Producers Circle for KLRU Public Radio Station and the
Chancellor's Council and the Longhorn Foundation at the University of Texas. Mr.
Barnes received a Bachelor of Arts degree from the University of Texas at
Austin. Mr. Barnes served as Lieutenant Governor of the State of Texas and
Speaker of the House of Representatives of the State of Texas. Mr. Barnes was
recognized as distinguished alumni of the University of Texas in 1995.
WILLIAM B. BLOUNT has served as a director of the Company since April
1994. For the last thirteen years, Mr. Blount has been the Chairman of the Board
of Blount Parish & Company, Incorporated ("BP&Co"), an investment banking firm
principally involved in underwriting municipal and corporate debt issues. Mr.
Blount was Chairman of the Alabama Democratic Party from 1991 through 1995. Mr.
Blount received a Bachelor of Arts degree in History from the University of
Alabama and a Juris Doctor from the University of Alabama School of Law. Mr.
Blount is a member of both the Alabama Bar Association and the American Bar
Association.
JOHN V. SINGLETON, JR., Senior United States District Judge, retired,
has served as a director of the Company since June 1995. Prior to his retirement
in 1992, Judge Singleton served as a U.S. District Judge for the Southern
District of Texas after being appointed to the federal bench by President Lyndon
B. Johnson in 1966. In 1978, Judge Singleton became Chief Judge of the Court and
served as such until 1988, when he was required by law to relinquish that role.
Prior to his appointment to the bench, Judge Singleton worked in the private
sector as a partner in several law firms. He has served actively in many areas
of both the state and federal bar associations. He was elected by all the judges
of the Fifth Judicial Circuit as District Judge Representative to the Judicial
Conference of the United States. He has served in many civic positions at the
city, state and federal levels. Judge Singleton graduated with a Bachelor of
Arts degree and a L.L.B. from the University of Texas in 1952 and is a member of
the Texas and Federal Bar Associations, as well as the bar of the United States
Supreme Court.
ROBERT K. MOSES, JR. has served as a director since January 1997. Mr.
Moses is a private investor, principally in the oil and gas exploration and
oilfield services business in Houston, Texas. He served as Chairman of the Board
of Weatherford Enterra, Inc. from May 1989 to December 1992 and since 1992 has
served as Chairman of the Executive Committee.
GEORGE L. BALL has served as a director since January 1997. Mr. Ball
currently serves as Chairman of Sander Morris Mundy ("SMM"), an investment
banking firm. From September 1992 to January 1994, Mr. Ball was a Senior
Executive Vice President of Smith Barney Shearson, Inc. From September 1991 to
September 1992, Mr. Ball was a consultant to J. & W. Seligman & Co.
Incorporated. In 1982, Mr. Ball was elected President and Chief Executive
Officer of Prudential-Bache Securities, Inc. and in 1986 was elected Chairman of
the Board serving in such position until his resignation in 1991. He also served
as a member of the Executive Office of Prudential Insurance Company of America.
Prior to joining Prudential, Mr. Ball served as President of E.F. Hutton Group,
Inc. Mr. Ball is also a director of SpectraCell Laboratories, Inc., Investors
Financial Group and Leviathan Gas Pipeline Company, L.P. Mr. Ball is a trustee
emeritus of Brown University, a director of the National Symphony Orchestra, a
trustee of the Joint Council on Economic Education and a director of the
Jefferson Awards. Mr. Ball has also served as a Governor of the American Stock
Exchange, the Chicago Board Options Exchange and served on The Executive
Committee of the Securities Industries Association.
PHILIP J. BURGUIERES has served as a director since February 1997. Mr.
Burguieres has served as a director of Weatherford Enterra since April 1991 and
has served as Chairman of the Board since December of 1992. Mr. Burguieres was
Weatherford Enterra's President and Chief Executive Officer from April 1991
until October 1996. From January 1990 to November 1990, he was Chairman of the
Board, President and Chief Executive Officer of Panhandle Eastern Corporation.
Mr. Burguieres held various positions with Cameron Iron Works, a company engaged
in the manufacture of oil field equipment from 1971 through November 1989
including Chairman of the Board, Chief Executive Officer and President and Chief
Operating Officer. Mr. Burguieres also serves as a director of McDermott
International, Inc., Chase Bank of Texas, N.A., and Denali Incorporated.
RICHARD E. BEAN has served as a director since February 1997. Since
1976, Mr. Bean has been Executive Vice President and Chief Financial Officer of
Pearce Industries, Inc. Mr. Bean is currently on the Board of Directors of First
City Financial Corporation and First City Liquidating Trust.
All directors hold office until the next annual meeting of the
Stockholders of the Company or until their successors have been duly elected and
qualified.
The Company's Bylaws provide that the number of directors on the Board
shall be fixed from time-to-time by the Board of Directors. The Board at its
discretion and in accordance with such authority has currently fixed its size at
eleven members.
BOARD COMMITTEES
The Company's Board of Directors has established an Executive
Committee, Audit Committee, a Nominating Committee, and a Compensation
Committee.
The Executive Committee is authorized and empowered to take such
actions and exercise such powers in the business and affairs of the Company as
the Board of Directors may take or exercise except as limited by law or the
Certificate of Incorporation of the Company. The current members of the
Executive Committee are Messrs. Moses, Ball, Burguieres, Fatjo, and Moore.
The Audit Committee meet with the Company's auditors and principal
financial personnel to review the results of the annual audit. The Audit
Committee may also review the scope of the annual audit and other services
before such services are undertaken by the Company's auditors, and reviews the
adequacy and effectiveness of the Company's internal accounting controls. The
current members of the Audit Committee are Messrs. Bean, Blount, Barnes and
Romero.
The Nominating Committee evaluates candidates for the Board of
Directors and is responsible for recommending nominees for election to the
Board. Tom J. Fatjo, Jr. is currently the sole member of the Nominating
Committee. The Nominating Committee considers recommendations for nominees for
directorships submitted by stockholders. Recommendations of a person for
consideration as nominees for election to the Company's Board of Directors must
be made by timely written notice to the Secretary of the Company at 10554 Tanner
Road, Houston, Texas 77041, giving each nominee's name, appropriate biographical
information and any other information that would be required in a proxy
statement. Any such recommendation must be accompanied by a written statement
from the person recommended, giving his or her consent to be named as a nominee
and, if nominated and elected, to serve as a director. A notice must be
delivered to the Secretary not later than the close of business on the 60th day
nor earlier than the close of business on the 90th day prior to the first
anniversary of the preceding year's annual meeting; provided however, that in
the event the date of the annual meeting is more than thirty days before or more
than sixty days after such anniversary date, notice by the stockholder must be
so delivered not earlier than the close of business on the 90th day prior to
such annual meeting and not later than the close of business on the later of the
60th day prior to such annual meeting or the close of business on the 10th day
following the day on which public announcement of the date of such meeting is
first made by the Company. Such notice to the Secretary must set forth the
number of shares that are owned beneficially by the stockholder that is giving
the notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made.
The Compensation Committee administers the Company's 1997 Stock
Participation Plan and the 1990 Stock Incentive Plan, as amended, and makes
recommendations concerning compensation, including incentive arrangements, for
the Company's officers. The current members of the Compensation Committee are
Messrs. Moore, Ball, Moses and Singleton. Mr. Fatjo is an advisory member of
this committee.
During the year ended December 31, 1997, the Board of Directors held
six meetings, the Executive Committee which was established in February 1997
held eight meetings, the Audit Committee held two meeting, the sole member of
the Nominating Committee took action on two occasions and the Compensation
Committee held three meetings. Each member of the Board of Directors attended
three or more of the meetings of the Board of Directors and committees on which
such director served during such fiscal year.
<PAGE>
EXECUTIVE OFFICERS AND KEY EMPLOYEES
Set forth below is certain information concerning the executive
officers of the Company, including the business experience of each during the
past five years:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AGE POSITION WITH THE COMPANY
- ------------------ --- -------------------------
<S> <C> <C>
Tom J. Fatjo 57 Chairman of the Board of Directors and Chief Executive Officer
J. David Green 38 Senior Vice President, General Counsel and Secretary
Jerome M. Kruszka 49 President, Chief Operating Officer and Director
Tom J. Fatjo, III 32 Vice President-Treasurer
Michael L. Paxton 33 Vice President and Corporate Controller
</TABLE>
Certain biographical information concerning Tom J. Fatjo, Jr. and Jerome M.
Kruszka is set forth above under "Directors".
J. DAVID GREEN was elected Vice President and General Counsel in
February 1996. Mr. Green was elected Secretary in June 1996. From 1991 to 1996,
Mr. Green was employed by Waste Management, Inc., most recently as a group
counsel for the Southwest Group. From 1984 to 1991, Mr. Green was in private
practice in Florida, specializing in real estate, corporate transactions,
environmental and administrative law. Mr. Green received a Bachelor of Science
in Government and Social Studies from Florida State University and a Juris
Doctor from the Florida State University College of Law.
TOM J. FATJO, III was elected Vice President-Treasurer in April 1992.
From March 1990 to December 1991, Mr. Fatjo was employed by Republic Waste
Industries, Inc. From 1988 to 1990, Mr. Fatjo served as Vice President of First
Financial Alliance, Inc. Mr. Fatjo received a Bachelor of Business
Administration degree in Finance from the University of Texas in Austin.
MICHAEL L. PAXTON joined the Company in May 1993 as Assistant Corporate
Controller and was promoted to Corporate Controller in August 1995. Mr. Paxton
was elected Vice President in February 1997. From October 1989 until May 1993,
Mr. Paxton was employed by NL Industries, Inc. From January 1987 until October
1989, Mr. Paxton was employed by Ernst & Young, L.L.P. Mr. Paxton is a Certified
Public Accountant and received a Bachelor of Business Administration degree in
Accounting from the University of Houston.
The Company's officers are elected annually by and serve at the
pleasure of, the Board of Directors, subject to the terms of any employment
agreements. See "Employment and Consulting Arrangements" below.
COMPLIANCE WITH SECTION 16 (A)
Section 16 (a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers, and persons who
own more than ten percent of the Company's common stock, par value $.001 per
share (the "Common Stock"), to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the Nasdaq Stock
Market. Based on the Company's review of the copies of such reports received by
the Company, the Company believes that no director, officer or holder of more
than ten percent of the Common Stock failed to file on a timely basis the
reports required by Section 16 (a) of the Exchange Act during fiscal 1997,
except that George L. Ball, a director, failed to file a Form 3 report and Ben
F. Barnes, a director, and William B. Blount, a director, each failed to file a
Form 4 report.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to the
Chief Executive Officer and the other most highly compensated executive officers
of the Company as to whom the total annual salary and bonus for the year ended
December 31, 1997 exceeded $100,000:
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
------------------------------------------------- ------------------
Other Restricted
Name and Annual Stock Options/ All Other
Principle Position Year Salary Bonus Compensation Awards Warrants Compensation
------------------ ---- ------ ----- ------------ ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tom F. Fatjo, Jr. 1997 $ --- $ --- $ --- 349,271 --- $ 300,000 (1)
(Chairman of the
Board 1996 --- --- --- --- --- 270,000 (1)
and Chief Executive
Officer) 1995 --- --- --- --- --- 300,000 (1)
J. David Green 1997 $ 120,000 $ 40,000 $ --- 75,000 125,000 $ ---
(Senior Vice
President, 1996 106,846 40,000 --- --- 100,000 ---
Secretary and
General Counsel)
Jerome M. Kruszka 1997 $ 140,000 $ --- $ --- 87,500 150,000 $ 95,000 (2)
(President and
Chief 1996 23,333 --- --- --- 150,000 ---
Operating Officer)
</TABLE>
(1) Represents consulting payments to FFA, of which Mr. Fatjo is a
principal. See "Employment and Consulting Arrangements."
(2) Represents a stock grant pursuant to a letter agreement dated September
26, 1996. See "Employment and Consulting Arrangements."
OPTION/WARRANT GRANTS IN LAST FISCAL YEAR TABLE
The following table sets forth certain information regarding options and
warrants granted to the Named Executive Officers during the year ended December
31, 1997:
<TABLE>
<CAPTION>
% of Total Potential Realizable Value
Options at Assumed Annual Rates of
Granted to Stock Price Appreciation
Employees Exercise for Option Term (1)
Options In Fiscal Price Per Expiration ---------------------------
Name Granted 1997 Share Date 5% 10%
---- ------- ---- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
J. David Green 125,000 (2) 15.5% $ 1.44 11/13/2007 $ 113,000 $ 287,000
Jerome M. Kruszka 150,000 (2) 18.6% $ 1.44 11/13/2007 $ 136,000 $ 344,000
Tom J. Fatjo, III 70,000 (2) 8.7% $ 1.44 11/13/2007 $ 63,000 $ 161,000
Michael L. Paxton 70,000 (2) 8.7% $ 1.44 11/13/2007 $ 63,000 $ 161,000
10,000 (3) 1.2% $ 1.22 2/25/2007 $ 8,000 $ 19,000
</TABLE>
(1) The potential realizable value is based on assumed stock price
increases from the date of option grant. The actual value realized will
depend on the excess of the stock price on the date the option is
exercised over the exercise price, and there is no assurance that the
actual value realized, if any, will be at or near the value estimated.
(2) The options are subject to vesting requirements upon the earlier of
seven years or the Company obtaining certain performance criteria.
(3) The options are subject to vesting requirements over four years.
<PAGE>
AGGREGATE OPTION/WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/WARRANT VALUES
The following table sets forth certain information regarding the number of
unexercised options and warrants and value of unexercised options and warrants
outstanding at December 31, 1997 (no options or warrants were exercised by the
Named Executive Officers during 1997):
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options/ Warrants as of Options/Warrants at
December 31, 1997 December 31, 1997(1)
---------------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------- ---------------------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Tom J. Fatjo, Jr. 112,250 --- $ --- $ ---
J. David Green 25,000 200,000 $ 750 $ 13,813
Jerome M. Kruszka 37,500 262,500 $ 1,125 $ 17,250
Tom J. Fatjo, III 90,000 105,000 $ 34,525 $ 21,650
Michael L. Paxton 53,125 111,875 $ 21,236 $ 20,332
</TABLE>
(1) Value determined by subtracting the exercise price from the market
value of the common stock on December 31, 1997, which was $1.53 per
share based on the closing price on December 31, 1997, multiplied by
the options/warrants.
DIRECTOR COMPENSATION
During 1997, the Company paid an aggregate of $41,050 to the directors
as fees. During 1997, Directors who are not employees of or consultants to the
Company or any subsidiary received $1,000 for each meeting of the Board of
Directors that they attend in person, $500 for each such meeting in which they
participate by telephone and $250 for each meeting of any committee of the Board
of Directors that they attended in person or by telephone plus reimbursement of
out-of-pocket expenses.
As approved by the stockholders, the Company's 1997 Non-Employee
Director Stock Option Plan provides that the Board of Directors is authorized,
in its discretion, to grant options to purchase up to 900,000 shares of common
stock to any director who is not an officer or employee of the Company or any of
its subsidiaries. On February 25, 1997, the Board of Directors granted options
with respect to all 900,000 shares to the current members of the Board of
Directors who were not then officers or employees of the Company. The options
have an exercise price of $1.22 which was equal to the fair market value of the
common stock on the date the options were granted. The options vest in equal
amounts over four years (25% each year beginning February 25, 1998) and have a
term of ten years. All such options vest upon a change of control (as defined
therein) and upon certain other events.
The Company's Amended and Restated 1990 Stock Incentive Plan provides
that a director who is not in the regular employment of, or a consultant to, the
Company or any of its subsidiaries will automatically be granted a non-qualified
stock option to purchase 20,000 shares of common stock as of the date of any
annual meeting of stockholders after which such director will continue to serve
on the Board of Directors. Such options shall have an exercise price equal to
the fair market value of the common stock at the time the option is granted,
vest pro rata over four years and have a ten-year term.
EMPLOYMENT AND CONSULTING ARRANGEMENTS
FIRST FINANCIAL ALLIANCE AND TOM J. FATJO, JR. The Company and FFA, of
which Tom J. Fatjo, Jr., Chairman of the Board and Chief Executive Officer of
the Company, is a principal, are parties to a consulting agreement, effective as
of April 2, 1992, until terminated by either party upon sixty days written
notice. Pursuant to such consulting agreement, FFA will seek out, analyze and
attempt to negotiate strategic acquisitions for and by the Company. Pursuant to
such agreement, FFA has employed the services of Mr. Fatjo. For its services
pursuant to this agreement, as amended, the Company pays to FFA a fee equal to
$25,000 per month, plus expenses. The compensation arrangement under the
consulting agreement is reviewable once per year.
J. DAVID GREEN. The Company and J. David Green entered into an
Employment Agreement effective February 26, 1996 which provides that Mr. Green
shall be employed by the Company to serve as legal counsel and in certain other
management positions for a three-year term. During the initial three-year term,
the agreement may be terminated by the Company (i) upon the executive's death,
(ii) if the executive remains incapacitated for six months or more or (iii) for
cause. If the agreement is terminated as a result of an illegal act, the failure
of the executive to devote his full time to the Company, the failure of the
executive to use his best efforts to advance the welfare of the Company or an
intentional act by the executive against the best interest of the Company, the
executive's salary ceases as of the date of termination. If the Company
terminates Mr. Green's employment for any other reason, the Company will be
obligated to continue to pay the salary then being paid to Mr. Green for the
full three-year period. This agreement also contains certain noncompete
provisions.
JEROME M. KRUSZKA. The Company and Jerome M. Kruszka entered into a
letter agreement dated September 26, 1996 which provides that Mr. Kruszka shall
be employed by the Company to serve as Vice President of Operations for a term
of three years. He became Chief Operating Officer in November 1996 and was
elected President of the Company in December 1996. The letter agreement sets
forth the base salary, stock options and bonuses to be received by Mr. Kruszka.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Moore, Ball, Moses and Singleton served on the Compensation
Committee of the Company's Board of Directors during the fiscal year ended
December 31, 1997.
The Company is a party to a Placement Agent Agreement dated January 23,
1997 with Sanders Morris Mundy ("SMM"), a company of which Mr. Ball is Chairman,
whereby SMM acted as a placement agent for the private placement of 11,250,000
shares of the Company's common stock. SMM received a fee of $472,500 and
warrants to purchase 1,125,000 shares of the Company's common stock at $.66 per
share. Pursuant to the Placement Agent Agreement, SMM had the right to designate
one representative to serve on the Board of Directors of the Company and on all
committees of the Board of Directors to which the Management Committee (a
committee of officers, consisting of Mr. Fatjo, Mr. Green and Mr. Kruszka, which
is responsible for the oversight of the day-to-day management of the Company)
reports until 85% or more of the common shares of common stock sold pursuant to
the private placement have been sold by the initial holders thereof or their
permitted assignees. Currently, Mr. Ball is serving on the Board of Directors by
designation of SMM.
The Company is a party to an Agreement with Mr. Fatjo and Mr. Moses
pursuant to which Mr. Fatjo and Mr. Moses agreed to jointly and severally
guarantee the indebtedness evidenced by an $8.5 million Loan Agreement between
the Company and Southwest Bank of Texas, N.A. Pursuant to such Agreement., Mr.
Moses received warrants to purchase 1,000,000 shares of the Company's common
stock at the exercise price of $1.25 per share and warrants to purchase
2,000,000 shares of the Company's common stock at the exercise price of $1.00.
Effective June 30, 1997, this loan was refinanced by BankTEXAS, N.A. with Mr.
Fatjo and Mr. Moses continuing to guarantee the indebtedness. In addition, Mr.
Moses has the right to designate three directors to serve on the Company's Board
of Directors until the indebtedness is repaid or Mr. Moses ceases to be a
guarantor of such indebtedness, and two directors until Mr. Moses is no longer
the beneficial owner of common stock, warrants or other securities of the
Company that constitute on a fully diluted basis 5% or more of the outstanding
securities of the Company. Mr. Moses, Mr. Burguieres and Mr. Bean currently
serve on the Board of Directors pursuant to this Agreement.
In August 1997, the Company received a $5.0 million bank loan to
finance the acquisition of certain assets and for working capital. The loan is
guaranteed by Mr. Fatjo and Mr. Moses. As consideration for the guarantee, Mr.
Moses received warrants to purchase 1,500,000 shares of the Company's common
stock. The warrants have a term of seven years and an exercise price of $1.625.
Through April 30, 1997, the Company leased its corporate office space
from an entity in which Mr. Fatjo and Mr. Moore, control the beneficial
ownership interests. The terms of the lease agreement provided for monthly lease
payments of approximately $8,000. The lease was not renewed as the Company moved
its corporate office to a facility acquired in the purchase of certain Sanifill,
Inc. assets in January 1997.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the
following report with respect to executive compensation:
The Compensation Committee takes into account all factors which it
considers relevant in determining the compensation of the Company's executive
officers, including business conditions in the Company's industry during the
year, the Company's performance during the year in light of such conditions, the
market compensation for executives of similar background and experience, the
performance of the specific executive officer under consideration and the
business area of the Company for which such executive officer is responsible.
The structure of the executive's compensation package generally includes both a
base salary and incentive forms of compensation, including participation in the
Company's cash bonus, stock option and stock participation plans. Under the
stock option and stock participation programs, the executive may benefit, along
with other stockholders of the Company, from an increase in the market value of
the company's common stock. The Compensation Committee believes that stock
options provide an additional incentive to executive officers to continue in the
service of the Company and gives them a greater interest, as stockholders, in
the success of the Company. The compensation program for executive officers for
fiscal 1997 consisted of base salary or consulting fees, and in certain cases,
the award of stock options and cash bonuses. Effective January 2, 1997, certain
executive officers received restricted shares rewarded pursuant to the 1997
Stock Participation Plan (the "Participation Plan"). Under the Participation
Plan the Company, in the discretion of the Compensation Committee, issued
833,334 restricted shares of common stock to executive officers and certain key
employees of the Company. The restricted shares are subject to certain vesting
requirements over a five-year period.
The Chief Executive Officer does not receive any direct compensation
from the Company. The Company and FFA, a company controlled by the Chief
Executive Officer, are parties to a consulting agreement pursuant to which the
Company pays to FFA monthly cash payments. The Chief Executive Officer has a
substantial beneficial stock ownership interest in the Company and benefits
realized by the Chief Executive Officer, other than through the consulting
agreements, will be principally derived from increases in the value of the
Company's common stock. This agreement is primarily described in more detail in
"Employment and Consulting Arrangements".
COMPENSATION COMMITTEE
Preston Moore, Jr.
George L. Ball
Robert K. Moses, Jr.
John V. Singleton, Jr.
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change
in the cumulative total stockholder return (change in year-end stock price plus
reinvested dividends) on the Company's common stock against the cumulative total
return of the Nasdaq Market Index and the Media General Financial Services Waste
Management Group Index for the period commencing August 31, 1992 and ending
December 31, 1997:
[LINE GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
FISCAL YEAR ENDING
<TABLE>
<CAPTION>
8/31/92 8/31/93 8/31/94 8/31/95 12/31/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C> <C>
TransAmerican Waste Industries, Inc. 100.00 100.00 35.00 32.50 30.00 21.88 30.63
Industry Index 100.00 93.08 91.48 79.47 83.30 103.32 150.60
Broad Market 100.00 130.18 142.24 169.25 169.28 210.35 257.31
</TABLE>
The Stock Price Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or under
the Exchange Act except to the extent that the Company specifically incorporates
this graph by reference, and shall not otherwise be deemed filed under such
Acts.
There can be no assurance that the Company's stock performance will
continue into the future with the same or similar trends depicted in the graph
above. The Company will not make or endorse any predictions as to future stock
performance.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At the close of business on January 31, 1998, 44,216,250 shares of
common stock were outstanding. The following table sets forth as of January 31,
1998 certain information with respect to the shares of common stock beneficially
owned by (i) each person known by the Company to beneficially own more then five
percent of the outstanding common stock, (ii) each director of the common stock,
(iii) each named executive officer and (iv) all directors and current executive
officers of the common stock as a group. Except as described below, each of
these persons listed in the table has sole voting and investment power with
respect to the shares listed:
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESSES OF BENEFICIAL OWNER NATURE OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- -------------------------------------- ------------------------------ ----------------
<S> <C> <C>
Tom J. Fatjo,Jr. 3,856,001(1) 8.7%
10554 Tanner Road
Houston, TX 77041
The Estate of Lawrence P. McGinnes 2,781,002 6.3%
5837 Northdale
Houston, Texas 77087
Tom J. Fatjo, III 2,753,518(2)(3) 6.2%
10554 Tanner Road
Houston, TX 77041
Ben F. Barnes 2,936,645(2)(4) 6.6%
98 San Jacinto, Suite 200
Austin, Texas 78701
Robert K. Moses, Jr. 6,525,000(5) 13.4%
P.O. Box 27888
Houston, Texas 77227
Richard E. Bean 225,000(15) *
5643 Lynbrook
Houston, Texas 77056
William B. Blount 963,700(6) 2.1%
10 Court Square
Montgomery, Alabama 36104
Ed L. Romero 91,666(7) *
2340 Menaul Boulevard, N.E. #400
Albuquerque, New Mexico 87107
Preston Moore, Jr. 452,500(8) 1.0%
10554 Tanner Road
Houston, TX 77041
John V. Singleton, Jr. 46,250(9) *
10554 Tanner Road
Houston, TX 77041
George L. Ball 241,667(10) *
3100 Texas Commerce Tower
Houston, Texas 77002
J. Philip Burguieres 108,333(11) *
711 Louisiana, Suite 3300
Houston, Texas 77002
Jerome M. Kruszka 337,000(12) *
10554 Tanner Road
Houston, TX 77041
J. David Green 125,000(13) *
10554 Tanner Road
Houston, TX 77041
Michael L. Paxton 114,850(14) *
10554 Tanner Road
Houston, TX 77041
Directors and current executive officers 14,484,170 28.6%
as a group (14) persons
</TABLE>
* means less then 1% of the total number of shares of common stock outstanding.
(1) Tom J. Fatjo Jr. is a director and executive officer of First Financial
Alliance, Inc. ("FFA") and owns approximately 60% of Fatjo & Co. ("Fatjo &
Co."), the company that owns all of the shares of FFA. Also, Mr. Fatjo is
the sole director and executive officer of First Financial Alliance
Partners, Inc. (FFAP); and the sole trustee and beneficiary of the Tom J.
Fatjo, Jr. Trusts, which trust owns 20% of the outstanding stock of FFAP.
Includes 848,000 shares owned of record by FFA, 2,146,480 shares owned of
record by FFAP and 112,250 shares purchasable upon the exercise of
outstanding stock options that are exercisable within 60 days after
February 11, 1998. The shares owned by FFAP are also included in the shares
indicated as owned by Tom J. Fatjo, III and Ben Barnes. Also includes
349,271 shares of restricted stock received pursuant to the Participation
Plan and therefore subject to forfeiture and 400,000 shares held by 314
Building Partnership, a partnership owned by Mr. Fatjo and Mr. Moore. Does
not include any other shares issued pursuant to the Participation Plan. Mr.
Fatjo disclaims beneficial ownership of the shares included in the
Participation Plan and held by him except for the 349,271 shares included
herein as set forth above.
(2) Tom J. Fatjo, III and Ben Barnes are the co-trustees of the trusts created
pursuant to Fatjo Family Trust agreements, which trusts owns 80% of the
outstanding common stock of FFAP. In their capacity as co-trustees, Tom J.
Fatjo, III and Ben Barnes share voting and investment power over the assets
of such trusts; both such persons disclaim beneficial ownership of the
shares subject to the trusts, except Tom J. Fatjo, III to the extent of his
actual beneficial interest in the trusts.
(3) Includes 2,146,480 shares owned of record of FFAP and 100,000 shares
purchasable upon the exercise of outstanding options that are exercisable
within 60 days after February 11, 1998. The shares owned by FFAP are also
included in the shares indicated as owned by Ben Barnes and Tom J. Fatjo
Jr. Also includes 95,000 shares of restricted stock received pursuant to
the Participation Plan and therefore subject to forfeiture. Does not
include additional options that are not exercisable within 60 days after
February 11, 1998. Tom J. Fatjo, III also owns approximately 8% of shares
of Fatjo & Co. that owns all of the outstanding stock of FFA.
(4) Includes 2,146,480 shares owned of record of FFAP and 45,000 shares
purchasable upon the exercise of outstanding options that are exercisable
within 60 days after February 11, 1998. The shares owned by FFAP are also
included in the shares indicated as owned by Tom J. Fatjo Jr. and Tom J.
Fatjo III. Includes 138,500 shares held in the name Entrecorp, a
corporation wholly-owned by Mr. Barnes. Includes 417,000 warrants to
purchase shares of common stock that were received pursuant to the contract
between the Company and ECD. Does not include additional options that are
not exercisable within 60 days after February 11, 1998.
(5) Includes 4,500,000 shares purchasable upon the exercise of outstanding
warrants granted to Mr. Moses that are currently exercisable and 25,000
shares purchasable upon the exercise of outstanding options that are
exercisable within 60 days after February 11, 1998. Does not include
additional options that are not exercisable within 60 days after February
11, 1998.
(6) Includes 795,200 shares exercisable upon the exercise of outstanding
options and warrants granted to Mr. Blount or a firm affiliated with Mr.
Blount that are exercisable within 60 days after February 11, 1998. Does
not include additional options that are not exercisable within 60 days
after February 11, 1998.
(7) Includes 91,666 shares purchasable upon the exercise of outstanding options
that are exercisable within 60 days after February 11, 1998. Does not
include additional options that are not exercisable within 60 days after
February 11, 1998.
(8) Includes 65,000 shares purchasable upon the exercise of outstanding options
that are exercisable within 60 days after February 11, 1998 and 200,000
held by 314 Building Partnership, a partnership owned by Mr. Moore and Mr.
Fatjo (314 Building Partnership owns an aggregate of 400,000 shares of the
Company's common stock). Does not include additional options that are not
exercisable within 60 days after February 11, 1998.
(9) Includes 46,250 shares purchasable upon the exercise of outstanding options
granted to Mr. Singleton and exercisable within 60 days after February 11,
1998. Does not include additional options that are not exercisable within
60 days after February 11, 1998.
(10) Includes 25,000 shares of purchasable upon the exercise of outstanding
options that are exercisable 60 days after February 11, 1998. In addition,
Sanders Morris Mundy Inc. received warrants to purchase 1,125,000 shares of
common stock pursuant to its Placement Agent Agreement. Mr. Ball is the
Chairman of Sanders Morris Mundy Inc. Mr. Ball disclaims beneficial
ownership of such shares.
(11) Includes 25,000 shares purchasable upon the exercise of outstanding options
that are exercisable 60 days after February 11, 1998. Does not include
additional options that are not exercisable within 60 days after February
11, 1998.
(12) Includes 37,500 shares purchasable upon the exercise of outstanding options
that are exercisable within 60 days after February 11, 1998. and 87,500
shares of restricted stock received pursuant to the Participation Plan and
therefore subject to forfeiture. Does not include additional options that
are not exercisable within 60 days after February 11, 1998.
(13) Includes 50,000 shares purchasable upon the exercise of outstanding options
that are exercisable within 60 days after February 11, 1998 and 75,000
shares of restricted stock pursuant to the Participation Plan and therefore
subject to forfeiture. Does not include additional options that are not
exercisable within 60 days after February 11, 1998.
(14) Includes 61,000 shares purchasable upon the exercise of outstanding options
that are exercisable within 60 days of February 11, 1998 and 41,250 shares
of restricted stock received pursuant to the Participation Plan and
therefore subject to forfeiture. Does not include additional options that
are not exercisable within 60 days after February 11, 1998.
(15) Includes 25,000 shares purchasable upon the exercise of outstanding options
that are exercisable 60 days after February 11, 1998. Does not include
options that are not exercisable 60 days after February 11, 1998.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1996, Commodore acquired ASI, a company for which Mr. Romero was
Chairman of the Board and Chief Executive Officer and Mr. Fatjo served on the
Board of Directors. As a result of this transaction, Mr. Fatjo, serves as Vice
Chairman of the Board of Directors of Commodore and Mr. Romero serves on the
Board of Directors of Commodore.
In July 1994, the Company entered into a Professional Services
Agreement with BP&Co, a company of which Mr. Blount is Chairman of the Board and
principal stockholder, whereby BP&Co acted as the Company's exclusive agent to
secure and place tax-exempt debt financing required by the Company to finance
landfill acquisitions, management contracts and expansion projects. The
agreement was terminated in January 1997. Pursuant to this Agreement, in April
1996, BP&Co acted as underwriter of the public offering of solid waste revenue
bonds totaling $8,945,000 for which it received underwriting commissions of
$447,250 and warrants to purchase 89,450 shares of the Company's common stock at
$1.44 per share. The aggregate number of warrants earned by BP&Co during the
term of this Agreement was 664,450 warrants to purchase shares of common stock
of the Company at various prices ranging from $1.34 to $2.88 per share. During
1997, BP&Co earned an additional 85,750 warrants at prices ranging from $1.31 to
$1.50 per share.
The Company was also a party to a Development Services Agreement, dated
march 1, 1996, with E.C. Development, L.P. ("ECD"), a company controlled by Mr.
Barnes, whereby ECD provided the Company with certain development services
related to locating and analyzing existing solid waste landfill facilities. The
agreement was terminated on January 31, 1997. In consideration for services
rendered pursuant to this agreement, ECD received warrants to purchase 417,000
shares of common stock at $1.50 per share.
Certain information regarding similar transactions involving Mr. Ball,
Mr. Moses and Mr. Moore is set forth in "Compensation Committee Interlocks and
Insider Participation".
<PAGE>
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.
Financial Statements.
1. Report of Independent Public Accountants............................ 19
Consolidated Balance Sheets as of December 31, 1996 and 1997........ 20
Consolidated Statements of Operations for the year ended August 31,
1995 and for the four months ended December 31, 1995 and the
years ended
December 31, 1996 and 1997.................................... 21
Consolidated Statements of Stockholders' Equity for the year
ended August 31, 1995, for the four months ended
December 31, 1995 and the years ended
December 31, 1996 and 1997.................................... 22
Consolidated Statements of Cash Flows for the year ended
August 31, 1995 and for the four months
ended December 31, 1995 and the years ended
December 31, 1996 and 1997.................................... 23
Notes to Consolidated Financial Statements.......................... 24
2. Financial Statement Schedules....................................... None
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 of the
Registrant's Annual Report on Form 10-K for the year ended August 31,
1993).
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)).
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 stockholders 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)).
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).
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 Registrant'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
Registrant's 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 Registrant's 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).
10.31** Consulting Contact, 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 10K 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
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended May 31, 1995).
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 Registrant's
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 Registrant's 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).
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, 1996b (filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K filed on January 31, 1997).
10.53** 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).
10.54** 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).
10.55** 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).
10.56** 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).
10.57** Loan Agreement dated January 27, 1997, between TransAmerican Waste
Industries of Houston, Inc. and Southwest Bank of Texas, N.A. (filed as
Exhibit 10.56 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996).
10.58** Guaranty Agreement guaranteeing the Loan Agreement, dated as of January
27, 1997, between TransAmerican Waste Industries, Inc. and Southwest
Bank of Texas, N.A. (filed as Exhibit 10.57 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.59** Agreement and Plan of Merger dated January 26, 1998 by and among
Registrant, USA Waste Services, Inc. and TransAmerican Acquisition
Corp. (filed as Exhibit 99.1 to the Registrant's Current Report on Form
8-K dated January 26, 1998).
21.1* List of Subsidiaries.
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;
Form 8-K filed January 28, 1998 relating to the execution of a
definitive merger agreement with USA Waste Services, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities 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 February
17, 1998.
TRANSAMERICAN WASTE INDUSTRIES, INC.
By: /s/ TOM J. FATJO, JR.
Tom J. Fatjo, Jr., Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this
registration Statement has been signed by the following persons on behalf of the
registrant and in their capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ TOM J. FATJO, JR. Chairman of the Board of Directors February 17, 1998
Tom J. Fatjo, Jr. and Chief Executive Officer
(Principal Executive Officer
and Principal Financial Officer)
/S/ JEROME M. KRUSZKA President, February 17, 1998
Jerome M. Kruszka Chief Operating Officer
and Director
/S/ MICHAEL L. PAXTON Vice President and February 17, 1998
Michael L. Paxton Corporate Controller
(Principal Accounting Officer)
/S/ GEORGE BALL Director February 17, 1998
George Ball
/S/ BEN F. BARNES Director February 17, 1998
Ben F. Barnes
/S/ RICHARD E. BEAN Director February 17, 1998
Richard E. Bean
/S/ WILLIAM B. BLOUNT Director February 17, 1998
William B. Blount
/S/ PHILIP BURGUIERES Director February 17, 1998
Philip Burguieres
/S/ PRESTON MOORE, JR. Director February 17, 1998
Preston Moore, Jr.
/S/ ROBERT K. MOSES, JR. Director February 17, 1998
Robert K. Moses, Jr.
/S/ ED L. ROBERO Director February 17, 1998
Ed L. Romero
/S/ JUDGE JOHN V. SINGLETON, JR. Director February 17, 1998
Judge John V. Singleton, Jr.
</TABLE>
EXHIBIT 21.1
TransAmerican Waste Industries TransAmerican Waste of Alabama, Inc.
Alabama, Inc. TransAmerican of Mobile
Chastang Landfill 3305 Dauphin Island Parkway
17045 Highway 43 Mobile, Alabama 36605
Mount Vernon, AL 36560
TransAmerican Waste Central Landfill, Inc. TransWaste, Inc.
8680 Highway 11 North 8285 Highway 165 South
McNeil, MS 39457 Alexandria, LA 71301
TransAmerican Waste of Houston, Inc. Boudin's Waste & Recycling
10554 Tanner Road 9294 Harbor Drive
Houston, Texas 77041 Bay St. Louis, MS 39520
McGinnes Industrial Maintenance Corp. G.C. Environmental, Inc.
10554 Tanner Road 10554 Tanner Road
Houston, Texas 77041 Houston, Texas 77041
TransAmerican Environmental, Inc. B.C. Environmental
10554 Tanner Road 10554 Tanner Road
Houston, Texas 77041 Houston, Texas 77041
TransAmerican Waste of Ohio, Inc. TransAmerican American
10554 Tanner Road Waste Southeast, Inc.
Houston, Texas 77041 10554 Tanner Road
Houston, Texas 77041
Peerless Landfill Co. Target Waste Systems, Inc.
10554 Tanner Road 10554 Tanner Road
Houston, Texas 77041 Houston, Texas 77041
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated February 11, 1998 included in
this Form 10-K, into the Company's previously filed Registration Statements on
Form S-8 File No.33-57326, on Form S-3 File No.33-97268 and on Form S-3 File
No.333-28211.
ARTHUR ANDERSEN LLP
Houston, Texas
February 18, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FOM THE FINANCIAL
STATEMENTS OF TRANSAMERICAN WASTE INDUSTRIES, INC. FOR THE YEAR ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,707
<SECURITIES> 0
<RECEIVABLES> 6,338
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,221
<PP&E> 49,399
<DEPRECIATION> 6,324
<TOTAL-ASSETS> 91,875
<CURRENT-LIABILITIES> 13,246
<BONDS> 58,659
0
0
<COMMON> 33,328
<OTHER-SE> 1,668
<TOTAL-LIABILITY-AND-EQUITY> 91,875
<SALES> 35,039
<TOTAL-REVENUES> 35,039
<CGS> 22,814
<TOTAL-COSTS> 29,313
<OTHER-EXPENSES> 40
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,430
<INCOME-PRETAX> 1,426
<INCOME-TAX> 116
<INCOME-CONTINUING> 1,310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,310
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
